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..
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.
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.