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

A perfectly just system should be meritocratic, but true meritocracy has proven elusive. In 1995, Newsweek featured a cover story titled “The Rise of the Overclass,” which included numerous Wall Street stars—women and various ethnic groups among them. This was seen as evidence of a diverse meritocracy. But diversity has proven to be illusory in the world of high finance. At the entry level, human capital has indeed become more diverse, but the most senior positions are still primarily occupied by white males. In a 2014 Princeton graduation speech, Ben Bernanke suggested that no system is entirely meritocratic and that such factors as family and health skew the equality of opportunity.11 In order to have a chance to climb the ranks, the safest bet is to adapt and try to pursue as many commonalities as possible. However, there is one commonality that is difficult to achieve without an advantaged socioeconomic background: sophistication. The vast majority of firms require a “cultural fit,” which usually means having the right accent, being well-traveled, having similar experiences, and employing the same social etiquette—in short, characteristics that require an upbringing in a reasonably wealthy household and an investment of time and money. Interviewers are likely often not even aware of this subtle form of discrimination, which results in further similarity at the expense of diversity. Chemistry and the “airport test,” the question of with whom you’d prefer to be stuck at an airport, prioritizes rapport over merit, excluding potentially more qualified and—since the class bias is overwhelmingly male—stereotypically feminine candidates.12

The personal backgrounds of top executives are also similar. They are expected to be married and have a stable home life.13 Single or openly gay CEOs are a rarity. Thus, almost all leaders are married, and since most executives are male, most spouses are wives. Some have careers themselves, but the majority are homemakers. The more money available, the more complex life becomes, and since there is only so much one can outsource, managing social engagements becomes a job in and of itself. Spouses are an essential component in the executives’ success, as they coordinate private and public activities such as entertaining and volunteering in charitable activities. They ensure that their children are accepted into highly competitive private schools, supervise various households on various continents, and keep the staff in check.

The IQ Elite: A Master’s Degree in Networking

IQ and academic accomplishments are indispensable to climbing the financial Olympus. Studies have shown that leaders in finance are academically gifted and range among the top of IQ distribution. This correlation is especially distinct with regard to billionaires, whose higher cognitive ability and education is directly tied to higher compensation and net worth.14 It seems obvious, but now we have scientific proof: Greater smarts help amass greater wealth.

Almost all leaders in finance have a college degree, and most have graduate degrees. So no matter how smart you are, you need formal qualification to prove that you have developed those smarts and put them to the test. Harvard, Stanford, and the Massachusetts Institute of Technology (MIT) are consistently ranked among the top business schools.15 From the moment applicants are associated with these exclusive brands, their professional lives move on a steep upward trajectory. A prosperous career is virtually guaranteed; they can choose from a wealth of unrivaled opportunities, and almost every door will be open to them. The awareness of being accepted into an exclusive circle of current and future leaders provides students with self-confidence, a sense of identity, and purpose.

Top schools are not only “intellectual boot camps”; they also help develop interpersonal skills by engaging their extensive alumni networks. Beyond the education, students are eager to attend Harvard first and foremost for the invaluable relationships they can form there, which would otherwise likely be inaccessible. Chances are that in the future the resulting connections will prove much more valuable than anything taught in class. Students buying into that network learn how to interact with high-level professionals and how to maintain and grow those relationships. They form deep bonds for life by spending intense time with peers in classrooms, in libraries, and working together on projects, thereby learning to think along similar lines and developing similar world views. It is an exclusive club, with the default assumption that anyone who has not attended a top school is not quite on par, or—even if of comparable qualifications—at the least, very different. In 2015, hedge fund billionaire John Paulson donated $400 million to his alma mater, Harvard, the largest donation it had received up to that point. For him it wasn’t just a charitable act, but an investment in his network. By elevating his status and reputation and increasing his social capital, he officially moved into the center of one of the world’s most coveted networks, becoming a bona fide superhub.

Wall Street still heavily recruits from elite schools, although classic financial firms and banks have lost some of their appeal in the aftermath of the crisis. In 2007, almost half of Harvard graduates ventured into finance; although that number has since declined, in 2011 the financial industry was still the top employer of Ivy League graduates.16 The prestige and high pay of these jobs are particularly attractive to graduates in view of high student debt and an uncertain economic outlook. Firms also link themselves to universities by financing research and engaging well-known academics for consultancy work and marketing events. Elite academic affiliations lend credibility and cachet to financial firms, serving as an implied endorsement. Critics view these financial ties as a major conflict of interest, corrupting the unbiased research process.

Network Plutocracy: “The Old Boys’ Club”

Elite schools directly tie in with another aspect of career advancement: the old boys’ network. The term originates from the connections formed at all-male private schools; indeed, to this day alumni associations of prestigious schools are a crucial component of the superhub network. Ivy League universities have seen record donations in recent years. In 2014, hedge fund executive Kenneth Griffin made a donation of $150 million to his alma mater, Harvard, and private equity guru Steve Schwarzman gifted Yale with $150 million in 2015. Over time, an informal system developed in which affiliations ensure that “members of the club” help one another in advancing their interests. They interact at work, golf clubs, think tanks, and any other platforms with high barriers to entry, be they financial, status-wise, or both.

The old boys’ network is less conservative and stereotypical than it used to be, but it is still alive and well. Its members have similar social backgrounds and usually live in an exclusive bubble of privilege. Because of their influence, they determine the culture, define norms, and set the tone. The more-senior members recognize themselves in the younger ones and relate to their personal and professional struggles. Based on loyalty, they provide mentoring, introductions, and favors. Since both old and young club members share similar views, they reinforce one another, thereby becoming even more conformist. Although the financial system has gradually become more meritocratic, increasing focus on grades and performance, it still skews in favor of those with connections. In the insider-outsider dynamic, members of the old boys’ network—without premeditation and perhaps subconsciously—exclude others merely by sticking together. They give special consideration to those of their ilk while passing over others who do not fit the mold. This results in the distinct lack of women and other minorities in leadership positions. (We will take a closer look at this in Chapter 9.) Without any checks and balances, the system continues to self-perpetuate these biases. Decision makers often shape the organization in their likeness and tilt it in their favor, if only to subconsciously preserve their status. Through their crisscross connections, the fabric of their relationships remains tightly interwoven and robust. Developed over centuries, such patterns of power preservation will only evolve slowly.