자료: Google books
제목 Information markets: what businesses can learn from financial innovation
저자 William J. Wilhelm, Joseph D. Downing
발행인 Harvard Business Press, 2001
ISBN 1578512786, 9781578512782
길이 219페이지
도서 개요:
In the midst of the so-called new economy, the evolution of financial markets provides a time-tested guide to how and why intermediaries and the information they work with are evolving along with technology. It also convincingly proves that these information intermediaries - or infomediaries - will not soon be replaced. In Information Markets, finance industry experts William J. Wilhelm, Jr. and Joseph D. Downing systematically explore the interplay between human capital and information technology in financial markets, and distill critical lessons for strategists in other information-rich businesses, including health care, law, entertainment, and publishing.
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(중략) ..... [I]t is worth examining the timing of Goldman Sachs's IPO. A common explanation for the IPO is that the partners simply wanted to cash out as the market went through a period of iirrational exuberance. If so, what held the partnership together in 1986, when many of its peers went public shortly before the 1987 crash? More important, can the fraying of the firm's culture during the late 1980s and early 1990s teach us anything about the profound reorganization occurring within the financial markets at large?
In this chapter, we offer an explanation for the long-standing dominance of the investment banking partnership and its recent demise as the organizational form of choice. Partnership carries both costs and benefits. On the one hand, they are constrained by the wealth and risk-bearing capacity of their partners. On the other hand, they appear to foster the development and preservation of human capital. We argue that the demise of the partnership, in large part reflects technological advances that diplaced and reshaped traditional human-capital-intensive intermediary functions. As these functions became more competitive and dependent on scale economies for profitability, the premium on access to financial capital rose and the ^relative^ importance of human capital declined. This perspective sheds lights on the industry's ongoing reorganization as well as helps us to understand why the Goldman Sachs partnership lasted so much longer than others did.
A Brief Organizational History: 1869-1986
Partenrships have a long and storied history in banking. Early banking partnerships typically formed around one or more family members who were previously engaged in some other form of commercial activity that provided the partnership's initial capital base. These early "merchant banks" expanded their information networks by scattering partners in key commercial and financial centers. With primitive communication and reporting technology making remote monitoring of one's parters virtually impossible, the trust engendered by family ties provided for a scale of operation that would otherwise have been inconceivable.
The House of Rothchild provides a striking example of this type of organizational structure. By 1815, the Rothchilds had offices in Frankfurt, London, Paris, Vienna, and Naples, each manned by one of Mayer Rothchild's sons.[1] Although each maintained separate accounts, the partnership agreement regulated activity and reporting and defined each brother's share of capital and profits.[2] The partnership agreement also had a limited life that permitted periodic renegotiation of terms as economic circumstances and the relative performance of the offices changed.
Like the House of Rothchild, family ties provided the foundation for Goldman Sachs. The firm was founded in 1869 when Marcus Goldman moved to New York and began dealing commercial paper. Like his many predecessors, Mr. Goldman accumulated his initial capital stake elsewhere (in this case, from a highly successful men's clothing store in Philadelphia). Mr. Goldman's first partner, Samuel Sachs, joined the firm in 1882 with a loan from Mr. Goldman after marrying Mr. Goldman's daughter, Louisa. The firm continued to expand strictly through interfamily relationships, marriages, and their offspring until 1915, when the first nonfamily member joined the partnership. The first partner form outside the family's German-Hewish social group, Waddill Catchings, joined the firm in 1917.[3]
(중략) As the scale of transactions increased, underwriting syndicates became the norm. These virtual firms that formed around indiviaual transactions brought together the capital necessary to underwrite large offerings. But as we suggested in chapter 6, they also mitigated conflicts of interest created when banks organized information and distribution networks beyond the scope of those bound by family ties. Bans were included in syndicates only if their reputation warranted the expectation that they could(and would) return the favor in the future. The short-term syndicate contract provided for lower-cost exclusion of those who rested on the laurels of past success.
when Catchings's infatuation with trading nearly brought Goldman Sachs down during the 1929 market crash, Sidney Weinberg took over and began to steer the firm from its capital-intensive trading origins to the agency function of advising major corporations. During his thirty-nine-year reign as senior partner, Weinberg oversaw the development of a culture that served its own interests by placing the client's interest first. Weinberg's emphasis on building client relationships by serving in an agency capacity received support from the 1933 Glass-Steagall Act that separate deposit taking and commercial lending from securities market transactions and thereby created te uniquely American distinction between commercial banking This distinction had the effect of separating relatively capital-intensive principal activities such as commercial lending from agency functions such as corporate advisory services and securities underwriting.[6] Because the primary weakness of the partnership is that its capital base is limited to the wealth of the partners, the exclusion of investment banks from deposit taking and commercial lending probably contributed to the viability of investment banking partnerships through the mid-twentieth century..
Investment banking partnerships evolved on a large scale in the 1950s as a number of firms reorganized as private corporations. In 1950, 28 percent of all broker-dealers registered with the SEC (most quite small) were incorporated; by 1960, the proportion had increased to almost 42 percent.[7] Merill Lynch was an early mover among large banks with its 1959 incorporation, followed by E.F. Hutton in 1962 and Dean Witter in 1968. However, the 95 percent holding of the Bear Sterns Companies Inc. common stock by the Bear, Sterns & Co. limited partnership suggests that incorporation was more a response to liability concerns than to capital or organizational considerations.
Prior to 1970, the NYSE required member firms to be organized as partnerships. In fact, Morgan-Stanley, incorporated in 1935 at its founding, liquidated and reorganized as a partnership in 1941 to gain membership in the exchange.[8] In 1970, the NYSE, with the SEC's approval, opened the door to the public ownership of member firms. Donaldson, Lufkin & Jenrette was the first bank to go public, on April 9, 1970, followed by First Boston and Merril Lynch in 1971 and Dean Witter and E.F. Hutton in 1972. A second wave of public offerings occurred in the mid-1980s with the 1985 Bear Sterns IPO, followed by Morgan-Stanley's 1986 offerings.
Goldman Sachs's capital base in 1986 was about twice that of Morgan-Stanley's(pre-IPO) capital of $500 million. The firm's general (active) partners controlled over 80 percent of this capital, with the remainder contributed by the firm's limited (retired) partners.[9] Although the firm's management committee gave serious consideration to a public offering at the time, the partners agreed instead to supplement their capital by accepting an offer from Sumitomo Bank of $500 million in private equity. This investment increased Goldman Sachs's capital by about 50 percent in exchange for only 12.5 percent of the firm's annual profits and any appreciation in equity value. The Bank Holding Company Act of 1956 further precluded Sumitomo from having voting rights or any influence over day-to-day operations.
So by 1986 we see an advisor to Fortune 500 firms that evolved from origins in the financial-capital-intensive world of trading facing increasing demands for financial capital commitments in conjunction with its advisory services. The partnership strained under these capital demands, but it helped to curb incentives for excessive risk taking by ensuring that those taking the risks were playing with their own money. During the period when Goldman Sachs shifted its energy to agency functions that depended more heavily on the organization's human capital, the partnership began to play an additional role.
(중략...) In this spirit, we argue that the Goldman Sachs partnership structure was a reflection of the intrinsic inalienability of human capital.
The Goldman Sachs Partnership
Culture
The Goldman Sachs(from now on GS--by this reader) partership had a number of features that supported the development and preservation of human capital. Like most top investment banks, the firm maintained an exceptionally aggressive screening process for new hires.... Unlike less human-capital-intensive organizations, where recruiting rarely involves senior management, even senior partners at GS participated in the screening of new associates. (중략)
Compensation
New MBAs have always found investment banking opportunities quite lucrative. But bonuses tied to profitability generally account for the bulk of total compensation. Until the early 1990s, GS based bonuses on the overall performance of the firm rather than on profits generated by individuals or small teams. But as it became commonplace for competitors to reward individuals with astronomical year-end bonuses, the firm began to lose top performers and surely failed to attract some in the first place. The firm responded to the threat in two ways. First, although star performer earned less at GS in the short run, the lure of partnership provided a substantial conterbalance. Particularly after the bulge-bracket banks dissolved their partnerships in favor of public incorporation, the offer to join the GS partnership represented a unique and highly visible honor within the Wall Streeet community. The financial rewards [for partners] were also generous. In 1993 first-year partners had 0.25 percent of the firm's more than $2.6 billion in pretax profits, or about $6.5 million, contributed to their capital accounts.[18] (중략)
But by the mid-1990s, with foreign banks aggressively bidding for banking talent, even the lure of the partnership did not stem defections by many top junior performers. Prior to creating the rank of managing director in 1996, GS lost about fifty mid-level vice-presidents and analysts to Deutsche Morgan Grenfell alone. In 1997, as the partnership stood at about 200 members, the firm named 126 new managing directors. Aimed at likely partners, the managing director rank essentially narrowed the large gap in earnings between partners and the highest-ranking nonpartners. Although the designation was nota guarantee of joining the partnership in the future, it did offer greater opportunity to share in the firm's profits and thereby brought total compensation more nearly in line with the competition. If opacity was a key element of the partnership's capacity for developing and preserving human capital, then the pre-IPO designation of managing directors probably underminded incentives by revealing information about the individual's perceived contributions. With the publlic offering visible on the horizon,, however, introduction of the managing director rank protected the firm's human capital during the transitions.
Ownership Structure
A final noteworthy feature of the partnership had to do with its ownership structure and the transition from general partnership to limited partnership. Prior to Sumitomo Bank's 1986 private equity investment, general partners owned about 80 percent of the firm's equity, with the remainder held by limited partners. (중략) But by 1994 the general partners owned less than one-third of the partnership's equity(although the agreements with private equity investors still entitled them to the majority of profits).[20] By the time the firm went public, only about 200 general partners and 160 nonpartner managing directors of the firm's 13,000 employees shared in the dwindling equity stake. (중략)
CF. Principal Investments as a Substitute for Client Relatinships
Principal investments in support of traditional advisory functions enabled banks to recapture benefits associated with human capital that diminished with the weakening of bank/client relationships. Recall that exclusive relationships supported R&D in spite of the ease of reverse engineering financial innovations by assuring banks of handsome rewards for their efforts. The decline of exclusive relatinships in the 1980s put pressure on fees, meaning that dealmakers faced a greater threat of having the value of their ideas expropriated by competitors. Taking an equity stake in a deal enables the bank to compete more aggressively on fees while maintaining a strong claim on any human capital contributed to the deal. Although principal investments also expose the bank to risks not previously borne, the enormous returns expected from these investments (typicallly in excess of 30 percent annually) almost certainly reflect a return on the bank's investment in human capital.
Why GS Went Public
Agaisnt this background, our central thesis is that the three motivations for going public outlined earlier reflected a declining relative importance of human capital as the investment banking industry became more dependent on physical and financial capital. We now consider each motivation in greater detail
Broadening Employee Equity Ownership
As the firm grew rapidly in the 1980s and 1990s it depended more heavily on leadership from employees who had little hope of joining the partnership, and the breath of equity ownership was not keeping pace with the firm's growth rate. Or so it seemded
In fact, nonpartners captured an increasing share of the firm's equity in the form of bonuses. There was nowhere more striking than in the proprietary trading business. Lisa Endlich,a former GS vice president and foreign exchange trader, offered the following insider perspective of the business 's state in the early 1990s:
Compensation for a successful proprietary trader [could] be as high as or higher than that of the newer partners--without the personal risk of unlimited liability or the requirement that earnings be reinvested in the firm until resignation or retirement. Traders were paid out everything in the year in which they earned it. If a proprietary trader earned $60 million for the firm one year and lost $50 million the next, he would still be well compensated for the two years, with a bonus of perhaps $2 to $3 million the first yeat and maybe $100,000 in salary the next-26] (중략)
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