BY UNA GALANI

Remote working has become a happy norm for many information industry workers. Companies from New York to San Francisco to London to Paris are struggling to coax employees back into the office, resorting to handing out ever-more generous incentives from free meals to free transportation.

Employers are on the back foot because the pandemic has led to a huge expansion in demand for tech services as companies accelerate their digital strategies. Revenue growth at industry stalwart Infosys more than doubled to 21% in the September quarter year-on-year from pre- pandemic levels, for example. 

One likely solution to the workforce problem will be to shift more jobs offshore, reversing a recent trend where many companies in the United States and Europe focused on on- shoring or near-shoring their techies to please politicians or simply to be closer to the rich-world clients they serve.

Yet offshoring 2.0 will be a fraught affair as service providers are grappling with unprecedented levels of attrition in India, the original low-cost hub. Cognizant Technology Solutions lost a stunning 37% of its 300,000- plus India-dominated workforce on an annualised basis in the quarter ending in September. Others like Wipro are reporting 20% attrition.

As in the West, Indian workers are struggling to juggle their jobs as prolonged school closures take a toll. Junior staff who’ve worked from their towns and villages during the pandemic are quitting simply to avoid moving back into cramped, shared apartments in polluted cities. The talent squeeze is likely to persist even as the pandemic subsides because India’s own domestic tech industry is booming, and its 100-plus unicorns are competing for manpower, leaving techies spoiled for choice in jobs.

Some global IT services firms are already doubling down outside of India: Blackstone-controlled Mphasis is opening offices from Mexico to Costa Rica. Expect others to ramp up their overseas plans too. But an equal number of companies accustomed to WFH will bet that hiring in India will be less financially painful than keeping jobs elsewhere.

First published December 2021

BY LAUREN SILVA LAUGHLIN

Chief executives are over it. C-suite turnover spiked in the first half of 2021, according to data from recruiter Heidrick & Struggles. With average corporate leaders far older than they were 15 years ago and the job of managing during a pandemic a lot less fun the trend will continue in 2022. The Great CEO Resignation will become an invitation for corporate cage rattlers.

U.S. bosses like American Airlines’ Doug Parker and Janus Henderson’s Dick Weil are throwing in the towel. Half of Europe’s largest banks have replaced CEOs in the past two years. Leaders at some of Asia’s biggest firms, including Mizuho Financial’s Tatsufumi Sakai and Simon Hu at Ant have recently quit. Some were helped to the door, like the bosses at Barclays and Apollo Global Management. Not even the Las Vegas strip seems to be as much fun: Wynn Resorts’ Matt Maddox is cashing in his chips.

Among just over 1,000 large, listed companies, some 76 CEOs in the first half of 2021 left their posts globally, Heidrick tallies, a 23% jump from the previous high of 2018 and almost as many as departed in all of 2020.

The trend will continue. Rank and file are restless. From Wall Street to Silicon Valley, workers are demanding higher pay and better benefits. Leaders are not only consumed with staff retention and the difficulty of managing during a pandemic via Zoom or Teams but struggling with supply- chain headaches and other disruptions related to Covid-19. Zero-Covid policies in Hong Kong and elsewhere make the fun part of the job – flying the company jet to see the troops or customers – nearly impossible.

The average CEO is also eight years older at hire now than in 2005, according to data from Crist Kolder Associates, a headhunter. That leaves an opening for activist investors like Dan Loeb and Bill Ackman. As Morgan Stanley’s head of mergers Rob Kindler told Breakingviews at the Reuters Next conference, activists like to muscle into companies when leadership is strained, and boards are distracted.

Uppity investors are ready to roll, too. Firms like Paul Singer’s Elliott Management deployed just $28.5 billion in the first three quarters of 2021, about half the amount they put to work in the same period in 2018 and less than the two subsequent years, research from Lazard’s Capital Markets Advisory Group shows. CEOs may be hitting the beach, but that will make remaining executives’ jobs far harder.

First published January 2022

BY LIAM PROUD

Dealmakers are the Luddites of the banking world. Algorithms have conquered trading floors, but departments that underwrite securities and advise on deals are still stuffed with twentysomethings formatting pitchbooks and copying data from annual reports. A pay surge offers new incentives to automate. Prepare for the rise of the robot investment banker.

Bank bosses like JPMorgan’s Jamie Dimon and David Solomon of Goldman Sachs get it. Both banks have set up teams dedicated to modernising their M&A advisory and capital markets businesses. The problem is that old-school rainmakers often mistrust valuation multiples pulled from live databases. Some also prize the process of making analysts spend hours sweating over seemingly trivial details, as it helps to weed out the less committed. An aversion to technology partly explains why the number of mergers, debt and equity bankers has risen by 2% since 2016 to 19,500, according to Coalition Greenwich, even as the number of humans trading shares and bonds has declined.

That will change. Record deal volumes and a tight labour market pushed up pay in 2021. First-year analysts at Morgan Stanley will now earn a $100,000 base salary, Reuters reported, a $15,000 rise. Rivals worldwide have followed suit. A poll by London-based recruiter Dartmouth Partners found that second-year analysts on average earned a total of almost 120,000 pounds ($160,000), a roughly 20% rise.

That changes the calculus for tech-averse senior bankers: higher pay for juniors eats into their bonus pot. It’s also harder to justify paying analysts six-figure salaries to perform menial tasks, such as fiddling around with font sizes on PowerPoint presentations.

The logical alternative is to use software that gathers data automatically and pulls it into live

pitchbook templates. It could be a stop on the way to a slicker business model. Imagine if companies could issue bonds with the click of a button, or if chief executives could pull up a list of merger targets on a smartphone app.

Senior bankers will defend the status quo, but the sudden ubiquity of video calls shows entrenched habits can change. The bigger question is whether analysts should welcome their robot counterparts. In theory, automation should mean fewer all-nighters and more time for interesting tasks. However, it may knock some of them out of a job.

First published December 2021

BY JOHN FOLEY

When’s the right time for a Wall Street titan to leave? Probably when the company’s fortunes are on a high, and with an oven-ready successor teed up. By that logic, Morgan Stanley’s James Gorman will be the first of the long-standing bank chiefs to go.

The Australian who has run the New York bank since 2010 has turned in a better performance than most rivals. Every $1 invested in Morgan Stanley back then is worth over $4 now, including dividends. That’s less than JPMorgan, but beats Goldman Sachs, Citigroup, Wells Fargo or Bank of America. Gorman’s peers are all either newish to the job, like Citi’s Jane Fraser, or plan to stay on, like BofA’s Brian Moynihan or Jamie Dimon at JPMorgan.

Gorman also bet on wealth management while peers focused elsewhere, acquiring brokerage E*Trade Financial and asset manager Eaton Vance for $20 billion during the pandemic. Unlike banks with big lending businesses, Morgan Stanley wasn’t worried about consumer loan defaults.

Quitting while he’s ahead would be another way for the former McKinsey consultant to peel away from the pack – except it’s not obvious who’ll replace him. Gorman doled out new roles to four potential successors in May, all long- serving senior lieutenants. Only wealth management boss Andy Saperstein and institutional securities head Ted Pick have run Morgan Stanley’s major profit engines, though, suggesting a two-horse race.

Since wealth is where Morgan Stanley’s future lies – Gorman has said he wants to grow client assets to $10 trillion, from just over $6 trillion – Saperstein might seem a shoo-in. Wealth could account for two-thirds of revenue if Gorman hits his target.

Pick has an edge in other ways. He fixed up stock trading after the crisis. The markets arm he oversees has seen its share of the big five trading houses’ revenue grow from 13% to 18% over the past decade. While that hasn’t been without hiccups – like the $1 billion in trading losses from hedge fund Archegos in 2021 – Pick was also the highest- paid executive after Gorman according to an April filing, reflecting the fact his division carries more risk than others.

One catch: Pick hasn’t previously run brokerage. Then again, Gorman will probably copy his predecessor, John Mack, and stick around as chairman for a spell. There’s probably time for another reshuffle before then to fill in some gaps in his successor’s résumé.

First published December 2021

BY LAUREN SILVA LAUGHLIN

Houlihan Lokey isn’t typically the envy of Wall Street. But in 2022, the mergers shop worth $7 billion that doles out advice to midstream energy companies and middling dental groups will be. That’s thanks to a consolidation crackdown from global antitrust watchdogs that will crimp the ability of companies to do hairy, strategic deals.

Rainmakers are going to have to work harder for less – partly a consequence of a record-breaking year. The value of corporate marriages announced during the first 11 months of 2021, $5.2 trillion, was already 45% higher than the value recorded during all of 2020 and more than any annual total since tallying started in 1980, according to Refinitiv.   

But competition authorities are making life tough for merger-inclined executives. Recently the UK’s Competition and Markets Authority told Facebook owner Meta Platforms to sell popular animated-images group Giphy. Days later the U.S. Federal Trade Commission said it would sue to block graphics chipmaker Nvidia from buying UK-based semiconductor designer Arm. Large-scale corporate concentration is becoming harder to achieve and will be replaced by smaller deals and buyouts.

Mega-deal consiglieri like Paul Taubman and Aryeh Bourkoff – founders of PJT Partners and LionTree, for Comcast and AT&T, respectively – will need to dig deeper for clients. Firms like Houlihan are well-positioned. In the year through Dec. 6, its average deal size was about $200 million, 8% the size of a Goldman Sachs transaction and about 12% the size at PJT. And it ranks top of the list – even ahead of Goldman – on advising private equity, by number of deals rather than volume.

Houlihan required 85% more employees than $2.6 billion PJT to execute its deals, but they also carried their weight. A Houlihan worker brought in $1.3 million on average, versus $1.1 million at PJT, based on Refinitiv estimates for 2021. On that metric, Moelis, worth $4 billion, is squeezing out the max among boutiques. The firm, with an average deal size of nearly $650 million, raked in $1.8 million per head.

The stock market has already rewarded Moelis and Houlihan, with shares up significantly in the past year versus a slight decline at PJT. Plugging away on dental practice deals may be more arduous and less glamorous. In a period when M&A advisers will be duking it out for fees, that only means they’ll be prepared.

First published December 2021

BY GINA CHON

Jerome Powell’s humane economic instincts are in conflict with cold reality. With inflation at a 31-year high, the Federal Reserve boss won’t be able to afford to wait for a labor market recovery to filter through to women and minorities before he starts raising interest rates in the coming year.

There’s tension between the U.S. central bank’s dual mandate of price stability and maximum employment as Powell defines the latter. For him, the second goal means boosting the employment rates for disadvantaged groups. That’s an admirable aim, not least because these were groups that were hardest hit during the pandemic. The unemployment rate for white men aged 20 and above was 3.6% in October but 8.3% for their Black counterparts.

Powell’s dilemma is twofold. First, the overall labor market has recovered quickly. It took eight years after the 2008 financial crisis for the unemployment rate to fall to 4.6% from its peak. This time it took less than two years. Moreover, there were 0.7 unemployed persons for every job opening in September, according to the Labor Department.

Second, inflation has had more staying power than the central bank expected. Powell, who was nominated to a second term in late November, has repeatedly said big price increases are transitory because they were largely linked to Covid-19. But since May, the year-over-year growth in the consumer price index has been at least 5% each month and hit 6.2% in October.

This combination puts pressure on the Fed to raise interest rates to contain inflation. It’s the central bank’s most effective tool, as shown by former Fed Chair Paul Volcker during the 1980s. True, supply-chain bottlenecks related to the pandemic have contributed to the price spikes that Powell faces. Raising policy rates is not the ideal response to these disruptions. But such hikes would tamp down inflation by putting the brakes on demand. There are trade-offs, including a possible slowdown in hiring. That would make Powell’s inclusive employment goal more elusive.

Putting this ambition on the back burner would mean going back on past pledges. But maintaining it in the face of mounting inflation would be more damaging to the Fed’s credibility. Powell may have to choose his head over his heart.

First published Nov. 23, 2021