Lessons from an Old Wall Street Ace
A couple of weeks ago, I wrote about former Bear Stearns CEO Alan (Ace) Greenberg and how his management policy of hiring people during recessionary times was a smart one because it meant he was able to get talent at lower salaries and would then be ready to take advantage when the economy recovers.
I was reminded of this little factoid in light of the growing Occupy Wall Street Movement, which has seen New York’s financial hub become a symbol of the economic and political problems that are plaguing America. Growing income inequality, the increasing corporate influence on politics, and stagnating real wages for Middle America – these problems, among many others, run deep and cannot be easily solved of course. But, there are certainly plenty of things Wall Street could do to repair its “fat cat” image.
That brings me back to Greenberg. The 84 year-old harkens from an older era – when corporations enjoyed positive public opinion and when investment banks were still privately held partnerships. Even after Bear Sterns went public, he retained the corporate culture of thrift he installed previously in the firm.
As the #Occupy Wall Street movement continues to grow nationwide and even globally, I was inspired to read through Greenberg’s bestselling book, Memos from the Chairman, this week, and immediately thought to myself: If all of Wall Street had read it (and followed it), then perhaps the hubristic, ostentatious, greed-is-good post-80s culture might never have emerged.
Here are some choice quotes from the book that are definitely worth consideration:
On arrogance: “Conceit and complacency are dangerous, particularly in our line of work. If I ever feel that the people at Bear Stearns start thinking their body odor is perfume and I cannot convince them otherwise–I will sell my stock.”
On the importance of frugality: “This may come as a surprise to some of you, but Federal Express is not a wholly owned subsidiary of Bear Stearns & Co. Inc. I mention this because we have been spending $50,000 a month with them and there is no explanation to justify this expenditure unless it was an intercompany transfer.”
On keeping a level head at all times: “”Humans tend to get sloppy when making money is easy… Bear Stearns will NOT get caught up in the hysterical optimism, and the people at Bear Stearns will NOT get careless or conceited.”
Greenberg was also a noted scrooge in terms of expenses. He required executives to pay for their own office supplies like paperclips, and also mandated the use of envelopes with clear windows that allowed multiple re-usage. Both practices perhaps sound a bit extreme, but they go a long way to help inculcate a culture of responsibility in a field where hazardous risk-taking is often celebrated. He also required employees to donate 4 percent of their salaries to charity.
When the firm was criticized for its very generous compensation packages for top executives in 1992, Greenberg, together with the board, made the decision to cut down the bonus pool as a percentage of pretax income. You certainly didn’t see investment banks do anything like that after the 2008 financial crisis. Granted, bonus pools were reduced, but many senior bankers had guarantees built into their contracts, and these were the ones who were still handsomely compensated, while junior executives with the least responsibility for the crisis either had their bonuses reduced, or worse, got canned.
You can bet that Alan Greenberg would never have approved of such built-in guarantees in employee contracts (His habit of hiring talent when others are laying people off would mean he’d never need to offer such guarantees.)
Of course, after Greenberg vacated the CEO position, the Bear Stearns story concluded on a sad note as the bank collapsed during the financial crisis. The new management did not heed his wisdom.
But, his fundamentals have emerged as even more important than ever today, especially with the context of the burgeoning Occupy Wall Street movement. There is absolutely nothing wrong with wanting to earn lots of money – that’s the beauty of capitalism and the way America has prospered. Greenberg certainly did enjoy his profits. But the quest for profits is not mutually exclusive with virtues like humility and moral conviction. And that’s the lesson #Occupy Wall Street hopes to impart to those in the top 1 percent.
About Sterling Wong
Sterling is a New York City transplant from Singapore who studied economics and politics at Sarah Lawrence and Oxford. Having been exposed to both heterodox, liberal economics and orthodox classical economics, he is most fascinated by the differing perspectives each school of thought offers. At Good-b, he aims to explore these two contrasting outlooks on business issues, in particular the Chinese relationship with the U.S.
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