Fewer and fewer MBA graduates are going into investment banking. The Economist recently commented on the droves that now head into consulting and technology instead, lured by the likes of McKinsey and the new playground of Silicon Valley.
This change is driven both by demand and supply. While business schools across the world are seeing less of their MBA students target jobs in investment banking, the investment banks have cut their associate programs more than they have their analyst programs. These recruitment schemes once hired swaths of associates from business schools. The cuts are above and beyond the sole impact of the economic crisis of recent years.
When asked why this is, our contacts in investment banks often tell us that MBAs are too expensive for their level of technical ability, especially when compared with people freshly hired from undergraduate finance programs and trained in-house for a few years. These profilesare viewed as better value than those with an MBA to their name.
Why don’t MBAs receive a more advanced technical education in finance then? The answer lies in a fundamental difference between MBA and Masters in Finance teaching. MBA teaching is very much inspired by fields like strategy, human resources andorganisational behaviourwhere experience sharing among participants coming from very different horizons is key –so students would not learn as much if everyone else in the class had the same experience. But if the class is composed of someone who worked in marketing for a multinational corporation, someone working in an investment banking division for a bulge bracket and another person having worked for a non-governmental organisation, then the experience in the classroom improves exponentially.
On a Masters in Finance programme,on the other hand, the more homogeneous the crowd, both in terms of technical capability and career aspirations, the faster and the more effectively the class will learn. This is because finance is a much more technical field than other disciplines in management. And banking recruiters often choose these graduates over MBAs.
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But there are ways to tackle this. At HEC Paris business school, we’ve just launched a combined MBA and Master in Finance program. This dual degree has been especially designed to address concerns by combining traditional MBA education with the technical training of a Master in Finance.
Starting next year, the idea is to provide both managerial expertise and advanced technical skills to answer the needs of the financial industry today. The key innovation is that dual degree students attend MBA classes alongside other HEC MBA students, benefitting from the same sharing environment, but their finance classes are taken with other HEC Masters in Finance students, so they can benefit from classmates who are at the top in terms of technical knowledge and want to get into finance.
We even start the program with a full semester of finance classes to put students at a competitive advantage compared to standard MBA students when interviewing for summer associate schemes. While the MBA applicants will have little financial teaching at this point, those on the dual program will already have had an entire semester of learning. It’s important because these summer schemes remain the main way to get into investment banking for post-experience students.
Another major shift in the financial industry concerns ethics and regulation. Given the collapse of Lehman Brothers in 2008 and the subsequent crisis, the banking industry has since seen tighter regulation and unprecedented scrutiny. This has filtered down to the hiring of new recruits into the sector. Regulation and ethics are taking a more important part in the selection process than ever before. It is now rare to go through an assessment center, for whatever financial position, without being asked about one or the other.
This new focus on ethics and regulation is an additional and different hurdle that MBA candidates who want to go to finance have to go through.The dual degree therefore comprises an entire core course on ethics, as well as a seminar and an elective devoted to ethics in finance and an entire core course on regulation. This is in response to what the industry is asking for.
The design of the programme demonstrates what business schools need to provide for young professionals entering the banking sector today. Quite simply, we need to give employers the graduates that they’d hire.
The European financial industry is calling for a leadership reboot. We can answer that.
Jacques Olivier is Professor of Finance at HEC Paris business school