Sandra Navidi - SuperHubs - How the Financial Elite and Their Networks Rule our World

Robin Hood’s board members, a who’s who of Wall Street, have a combined net worth of $25 billion. They bear all the costs of the event, ranging in the millions, so that all donations can flow directly to funding projects. So far, Robin Hood has donated to 200 charities. Paul Tudor Jones has redefined the standard of fund-raising and is considered one of the pioneers of “venture philanthropy,” a performance-based and results-oriented form of giving. His “anchor guests,” or superhubs, have been an incredible draw for Wall Streeters; the charity provides an inroad to access for top executives, and if you want to “belong,” you must pay up. It is peer pressure at its best for a good cause. In this parallel social universe, power players revolve around each other like binary stars, and the law of homophily—of similarity breeding connection—creates a gravitational field of attraction.

The ties that people possess say a lot about them; as Goethe stated, “Tell me with whom thou art found, and I will tell thee who thou art.” Human networks continuously evolve in line with the laws of homophily—which translates to “love of being alike”—meaning that people tend to associate with those who resemble them.1 While others who are different from us may seem more interesting, we generally find it easier to relate to, connect with, and be comfortable around people when we have something in common.2

A LAW OF NATURE: WHY THE RICH GET RICHER

All networks have a tendency to grow, and new nodes prefer to attach to nodes that are already well connected. This “rich-get-richer” phenomenon disproportionally benefits the senior nodes, which over time become monopolistic.3 The same dynamic applies to human networks, and it is particularly pronounced in the financial world. Those executives who are the best connected attract the most new contacts of the highest quality, and they all stick together. Their financial expertise optimally positions them to maximize preexisting wealth, which then makes them even more desirable links. Wealth in turn creates a vacuum of exclusivity and privilege that homogenizes the world’s richest and most powerful financiers even more.

GLOBAL CONQUEST: THE TRANSNATIONAL FINANCIAL ELITE

Major technical progress in combination with financialization have been the key drivers of rapidly increasing globalization and have created an exclusive microcommunity of financial top executives. Nearly all of them are male, and most are self-made. Though they may not share a native tongue, they speak the same language and use the same financial lingo, which sets them apart and leaves outsiders mystified. They attend the same schools, have similar careers, and think alike. Common experiences create common reference points, which facilitate relating to one another. They move in globally overlapping social circles and bump into the same people at conferences, clubs, and charity events in New York as they do in London or Singapore. Whereas early farmers spent their entire lives within a day’s walk of their village, today’s movers and shakers live across time zones. For them, the dimensions of time and space have shrunk as they continuously circle the globe on planes, zigzagging between cities and continents within the space of a few days. Often they spend more time in the air than on the ground, with jet lag as a constant companion. Being able to swiftly travel anywhere in the world allows them to take advantage of more opportunities than the average person, in business and otherwise.

These executives intermingle with top policy makers of central banks, the Bank for International Settlements, and the International Monetary Fund, along with corporate CEOs, as everyone is a potential client. They have similar lifestyles, living in the same neighborhoods and sending their children to the same private schools. Inevitably, they advance their mutual interests through their collaboration, even if they compete. The old adage that “the higher you climb, the lonelier it gets” rings true in that points of relation with regular people are few and far between: All menial work is outsourced, and chauffeured cars, private jets, and private elevators physically separate them from the rest of the world. Their personal and professional lives are closely intertwined, and friendships evolve over the course of time. Typically, financial executives do not work to live, but they live their work. Through their social interactions, they strongly influence one another, thereby homogenizing their sphere even more.

MEETING OF THE MINDS: CIRCLE OF TRUST

Superhubs conduct business with people they know and trust. To reduce uncertainty and ease the governance of large, unwieldy institutions in a complex financial system, executives generally prefer to work with people who are like them. Homogeneity facilitates communication, understanding, and comfort. It also plays an important role with regard to social capital. Individuals who “share a common employment history and educational backgrounds, gender, and social status” relay privileged information directly, which can provide an important advantage in identifying and exploiting business opportunities.4 By the same token, a high number of contacts ensures quick dissemination of information. The financial elite tick the same way, and emit the same social signals. Knowing each other’s history and reputation enables them to make better judgment calls. In contrast, out-of-network acquaintances do not provide any context and the parameters needed to calibrate one’s decision-making process.

Moreover, working with a known entity reduces costs and hiring risk. Familiarity with leadership styles and cultural environments shortens the learning curve and increases effectiveness by saving time and money. In fact, a study revealed that by leveraging their own networks, chief investment officers saved money by hiring key decision makers who shared similar beliefs, work ethics, and philosophies.5

Also, when making decisions of great consequence in risky and time-sensitive situations, executives tend to sidestep formal protocol and connect directly with people they trust.

THE HEGEMONY OF HOMOGENEITY

Do you know the feeling when you join a group of people and feel immediately at ease? When you can talk in shorthand and express your thoughts with just a glance? When you are on the same wavelength and effortlessly relate to one another? Well, that’s because of homophily.

One criterion that produces homophily is a shared background—be it social, educational, professional, or economic. Philosophers like Aristotle and Plato already studied the “force field” of similarity.6 In the 1300s, financial firms were formed in Italy on the basis of family, guilds, and social class. By the same token, the French financial establishment was based on ties of friendship, neighborhoods, and political affiliations.7 The Rothschilds had their own exclusive banking network, with different family members dispersed throughout Europe, which afforded them prime access to information, opportunities, and clients.8 Personal bonds are an important factor in how financial decisions are made, which transactions are entered into, and what deals are abstained from so as not to damage an ally. Steve Schwarzman and Pete Peterson of Blackstone decided early on not to pursue hostile deals but to instead use their connections to partner with companies in their buyouts.9 Today’s leaders in finance do not have to be born into privilege to make it, although executives from connected families, such as Jamie Dimon, certainly get a head start. Homophily also extends to the choice of spouses with a comparable socioeconomic background in what is called “assortative mating,” the pairing of like with like. Power couples lead prosperous lives, and they further perpetuate income inequality by facilitating their offspring’s advantaged start in life.10