How various professionals see the world

Recently I was having a conversion with a buddy who just started a grad job at a large insurance underwriter here in Zurich. He was saying how his perception of the world is changing now that the underlying structure of the global economy is gradually revealing itself to him through his work. He has started making connections between ideas/functions/companies he never would have noticed in everyday life. For example, one of the first things you realise when you start your career is how many gigantic corporations there are in the world which you have never even heard of.

So it got me thinking, because his world view was being shaped very differently to the way mine was in corporate finance, how do different professions shape the lenses through which we perceive life? Here are a few examples off the top of my head..

-Investment bankers see companies as cash generating vehicle that can be bought, sold, levered, delevered, split up, etc. This is why investment banking is so sexy, because an i-banker can actively view economic structures and change them to realise synergy or value that no-one else sees.

-Corporate bankers view everything as a venture that has a measurable probability of failing keeping in mind what will be the payout/loss if that happens. They look at the value of assets against the value of liabilities and their position in the cash waterfall relative to other creditors. The focus is on not losing out to other players, which makes capital markets somewhat pareto efficient.

-Lawyers see the world in terms of rights and obligations between counterparties, compliance within legislative bounds, the ambiguity in the interpretation of written language, and the ways in which these can all be used to the advantage of the client. The best lawyers are able to combine elements of other professions to design optimal structures or mechanisms within the constraints of jurisdictions.

-Accountants see things in terms of assets and liabilities and the measurement thereof. The materialisation of an asset is revenue and the payment of a liability is an expense, the difference between the two is either equity or profit, depending on whether you are thinking in present or future terms. Economic ownership, being the right to reap the benefits of an asset, is of key interest, while the concept of legal ownership is of little importance.

-Insurers see things in terms of risk or liability which can be shifted, shared and sliced among parties via written contract. The big difference between insurance and corporate finance, is that while both view the world in terms of discrete risk, the former is unfunded. Hence compensation (return) for the assumption of risk in insurance is in the form of premium that comes before the payment liability rather than yield which comes after.

-Professional investors see things in terms of risk vs reward and are constantly battling the divide between market value and intrinsic value. The fluctuation of market value above and below intrinsic value is risk, but is also the source of great fortune. The investors are always looking out for a diamond in the rough.

-Traders are always thinking in terms of the rest of the flock - where is the momentum in the market, what is the perception of sentiment, always on the lookout for an arbitrage opportunity or a chance to earn easy money with minimal risk. Value is of little to no interest, the only two numbers that matter are the bid and the ask. Information is digested instantaneously and connections are drawn to predict what is impact on market sentiment. The speed of this process is called an edge.

-Consultants view the world as problems that need to be defined, measured and solved. Decisions are made based on costs/benefits with a constant emphasis on change and optimisation.

-Private equity is a mixture of the consulting, investing and investment banking mindsets.

Do you guys have any other "lenses"? Interested to hear of other perspectives..

 

Engineering would be pretty similar to consulting. Engineers see the world as problems the can be solved as well as solutions that are imperfect. They are forever striving to make your car faster and your iPhone thinner.

 

Sales people view the world in terms of ends (money) and means (people).

[quote=Matrick][in reply to Tony Snark"]Why aren't you blogging for WSO and become the date doctor for WSO? There seems to be demand. [/quote] [quote=BatMasterson][in reply to Tony Snark's dating tip] Sensible advice.[/quote]
 

Among other things Economists view as: 1. Consultants: when they are speaking to the public, which is done in normative terms. 2. Lawyers: When they are pitching to think tank or political big wigs which is done in positive terms.

[quote=Matrick][in reply to Tony Snark"]Why aren't you blogging for WSO and become the date doctor for WSO? There seems to be demand. [/quote] [quote=BatMasterson][in reply to Tony Snark's dating tip] Sensible advice.[/quote]
 

Pink money professionals view the the world in terms of finding a need and filling it.

[quote=Matrick][in reply to Tony Snark"]Why aren't you blogging for WSO and become the date doctor for WSO? There seems to be demand. [/quote] [quote=BatMasterson][in reply to Tony Snark's dating tip] Sensible advice.[/quote]
 

Politicians also view the world in terms of means and ends, but their not usually chasing the same ends as sales people.

[quote=Matrick][in reply to Tony Snark"]Why aren't you blogging for WSO and become the date doctor for WSO? There seems to be demand. [/quote] [quote=BatMasterson][in reply to Tony Snark's dating tip] Sensible advice.[/quote]
 

Great list. I think corporate bankers are most concerned with cash flow from the viewpoint of being available for debt service. Reflecting, if I give you this money, do you have the means of paying it back. Not that you have to (hell I don't want you to) but I need you to be ABLE to. Now from there, they measure what could impede repayment (probability of default). Corporate bankers do not want to be in the business of liquidating assets.

 

True to a degree, but a corporate/commercial banker often has to quantify what sort of residual claim will be available in a worst case scenario. You sensitize cash flows to see what sort of margin of safety is available for a proposed loan program, and then think about what you'll get when the Borrower completely shits the bed.

Also, interesting counterpoint to the traditional view of risk vs. return: http://www.ifre.com/never-confuse-risk-and-volatility/21163883.article

"The power of accurate observation is commonly called cynicism by those who have not got it." - George Bernard Shaw
 

I don't disagree. My point is that the question of asset value vs the liability is viewed more as a secondary source of repayment. First and foremost, the primary source of repayment must be considered. The cash flows must be able to cover debt service and should not exceed debt capacity based on a reasonable repayment period. Corporate bankers don't TYPICALLY make credit decisions based largely on assets or alternative sources of repayment, unless you're a focused ABL shop. If a deal is done based largely on the company's balance sheet and/or strong collateral and favorable LTV, there better pledged cash or a rich uncle to ensure debt service until a future conversion of assets to cash or takeout financing is obtained. Does this happen sometimes? Sure. But anything short of this starts to look more like an investment in the company, which commercial banks don't typically make.

With that said, I don't think we're on opposite sides of the fence....

 

As a one time auditor (if you count an internship), former M&A lawyer now banker, I'd add that M&A lawyers tend to be a little more aware of downside risk - if not pessimistic - compared to i-bankers. This is a largely result of training in contract drafting, which is mainly about charting out what happens if various things go wrong.

A legal contract is a lot like computer coding, in that it's full of "if X then Y else Z" functions.

Another thing to bear in mind is that how different professions approach the world depends a lot on how they are paid/incentivised and who their clients are. In an investment banking deal context:

Investment bankers in an advisory capacity - only get paid if the deal gets done, so are very much a push-push-push-to-close force, focus on the upside, hide or downplay downside risks, questionable integrity in their views unless they are playing the longer reputation/relationship game. Fee is the same whether the deal is fast or slow, so they want to get the deal done fast and move on to the next deal. Fee is also the same whether the deal is good for the buyer/seller or not. Exuberant optimists.

Investment bankers in an underwriting capacity - only get paid if the deal gets done, but they do have balance sheet risk if the deal gets hung. Also, they have two clients - (i) the company issuing the product and (ii) the buy-side accounts taking the product. Client (i) may be a one-off client or, at best, they'll see fees from that client a few times a year (eg PE clients where you're underwriting debt issues by their portfolio companies). Clients in the (ii) camp are every day repeat clients who likely bring in much more broking fee revenue, although often in smaller individual amounts. This mix of risks creates a healthy tension between the ECM/DCM desk and the sales/trading desk at the investment bank, which retards excessive exuberance a little. However, this is ultimately a flow business where bankers get paid for putting maximum volume of product out the door as fast as possible, so exuberance still tends to dominate and generally results in optimists in this line of business.

Lawyers - bill by the hour, usually have a cap on their fees, get paid whether or not the deal gets done (although sometimes with a dead deal discount). This increases the independence of their advice, makes them more likely to identify deal-killer issues. While there is ambiguity in many areas of law, deal structuring tends to run on pretty black and white rules - although the number and complexity of those rules means it's not easy to do. Pessimists as they are keenly aware of the rights/obligations (as OP points out) that come into play should things f*ck up.

Accountants - same billing system as lawyers, with much the same impact on how they advise their clients. However, things are a little less black and white when preparing QoE analysis as compared to legal analysis of contracts or a deal structure, so their is more fudge room in their views. The accountants I've worked with seem to have more of a focus on repeat business from clients than lawyers, so that does seem to impact the independence of their advice and how willing they are to fudge in favour of making the client happy.

Both accountants and lawyers are also aware of the importance of their relationship with the investment bankers. Investment bankers bring them business as clients (mainly lawyers eg underwriter's counsel) and as advisers who refer clients (ie the companies doing a deal). To ensure repeat business, lawyers and accountants want to have a good relationship with the bankers. This increases their alignment with the bankers' incentives ie quick fast deal = happy bankers = more client referrals from the bankers, which can have a negative impact on the independence of the lawyers/accountants advice. On the other hand, it does incentivise pessimistic lawyers to help come up with creative solutions to problems rather than just identifying problems.

Those who can, do. Those who can't, post threads about how to do it on WSO.
 
Best Response

Lawyers IN GENERAL: Attack Dogs. Lawyers don't have operational business sense (can't run own business, can't manage people), and can win battles but lose wars. You give a lawyer a task - paper this deal, litigate this matter, get this approved by city council, etc. - and they attack until you tell them to stop. Advice is strategic in sense of it being an experienced opinion on how best to achieve the task. Risks are in terms of options/paths and likelihood of success, no idea of monetary risk/profit. "Incentives" is singular, getting paid. Some view that as meaning force hours and a bill down someone's throat and damn the long-term, others are client-accommodating with a view to maintaining a client relationship but ONLY for the prospect of future projects or word-of-mouth reputation. The balance is the demand for one's services - which dictates billing rate. Value addition? Lawyers will see themselves as a key piece to a deal, a patent, a successful litigation outcome, and some would like to be paid like that. Lawyers see IB get a % of a deal, clients and IB see lawyers as somewhat fungible. Underlying a good recipe are quality ingredients, but you need a good chef/cook - underlying a patent is an invention, underlying successful lawsuit are good facts - quietly many lawyers consider how they, as an individual, can get compensated for getting a "better" patent or winning a lawsuit that others would lose (or, winning it faster, which perverses incentives by reducing the amount billed by the attorney).

Consultants: Client has to improve, either through something new of improving something old. Client is blind to solutions, I have a toolkit that allows me to work through a methodology for innovation or process improvement, etc. I consider myself to have genius moments, despite the fact that such do not come from working through a methodology. The profession does not really like to acknowledge that the toolkit is largely (and for some, entirely) filled with known solutions for known problems. I don't actually know how to build an assembly line, my life is PowerPoint and InDesign presentations.

Engineers: There is always a solution, always an answer, always a different and better way to do it. My education taught me brute force for finding those solutions, and my experience has been more or less that incremental improvements are consistently achievable. True invention is "out of the box" and serendipitous. Nevertheless, I am the engine for this company's success. If you don't have your degree, don't question me and don't press me on how long something is taking. I may require you to have your PE to question me, no EITs allowed.

IT: I know all that is going on, yet I am a black box to you. If I say I need 10 people for 2 weeks for a DB migration, you are not even equipped to understand the conversation that demonstrates that need. Nothing that goes wrong is ever my fault, it is because of equipment or software decisions that are either defective (because of someone else) or legacy decisions for which I am not responsible.

HR: I build the team and I find talent. I am the general manager and president of a professional sports franchise, and I find the superstars and the supporting cast and I say how much every one should get paid. My blind spot is that I have no idea what other people do, nor their jargon, so I am utterly hamstrung when I am told to find someone with particular skills unless their CV parrots the job description back. You want SQL, I find SQL. You want someone who has set up biologic JVs, an M&A background doesn't qualify because I don't know how the 2 relate. Nobody every questions me, and I am capable of social engineering. We need more women in this organization, and I am the first filter.

 

Yes, a great well thought out post.

To the point of entrepreneurs, I think the personalities and desires vary way too much. It's not so much as a career with guidelines but an act, the act of taking that risk. And, since most entrepreneurs fail, and many should have never tried, they really do run the gamut. Even isolating for success, there is a lot of luck involved while it seems to me that a great insurer/lawyer/trader/consultant can't fail at their chosen career but they can all fail at entrepreneurial ventures. And the right-place-right-time guy just got lucky.

Global buyer of highly distressed industrial companies. Pays Finder Fees Criteria = $50 - $500M revenues. Highly distressed industrial. Limited Reps and Warranties. Can close in 1-2 weeks.
 

Entrepreneurs:

First-timers: I have a brilliant idea that will revolutionize the world and make oodles! I have very little else, but the brilliance should demonstrate why the world should beat a path to my door. I want full control over everything, this is my baby and nobody is as invested as I am, and I am loathe to give up any piece of this business particularly equity.

Serialists: I now realize technology/innovation doesn't sell itself. I need people that are good at operational aspects like sales, marketing strategy, and distribution in order to build an actual business. I understand bringing in outside capital and expertise, and countenance the possibility that I will give up control. I recognize that my own long term success in any single entity depends on my absorbing as much about other roles in a company, such as accounting and cost-accounting - or I can simply move on when my profit is sufficiently maximized.

 

Lawyers I would say can be split into solicitors (Australian term for transactional/drafting lawyer) who see the world as coders do, whereby the 'rules' learnt are simply 'if x, then y, except if Z, then A', and advocates (barristers - i.e. they're the only ones allowed in court in Aus), who see it far more in terms of a small-business owner who must close sales (probability of winning multiplied by payout).

For finance I'd split it as;

Private side guys (Bankers + Capital Market guys) who see the world in terms of a process informed by deferrence to 'higher order' abstract concepts such as the DCF/Purchasing Power Parity rule etc.

Public side guys (S&T/Buyside investors) who see the world in terms of 'results' informed by deferrence to empiricism (if it worked before, it'll work again), only incorporating higher order concepts if it feeds into the empiricism.

I'd argue an overarching statement of one's perception of life is primarily regulated by how one views 'the rules' of what one can and cannot do. A sales guy isn't a slave to process, he simply wants to close, whilst the banker MUST follow process or else he cannot close or will attract liability in some form. The investor may have a process, but his payoff is not binary like the Banker's (close vs no close), so he is less likely to be a slave to it. The lawyer is defined by his enslavement to process, else he fails in application of the relevant precedents/statutes.

This at its core is slightly ironic however, those industries driven by process have not been automated via technology, and yet those that are driven by results are increasingly automated.

 

Supply Chain/Operations views the world that is in a constant state of conflict between cost and quality. There is an equilibrium that must be achieved so that one is not tipped in favor of the other. We also firmly believe that no process is 100% efficient and that continuous improvement is necessary to ensure the world continues to grow and maximize efficiency of finite resources.

 

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