What the Marines Can Teach The World of Finance

Before I worked on Wall Street, I served in the Marine Corps as an Infantry Officer in the 1st Gulf War. The Marine Corps trained me in ways of thinking that I still use today and I am forever grateful for what I learned. However, the thing that impressed me most was the integrity of the organization and the unity among its members. The motto “Semper Fidelis” (always faithful) means something real and tangible. They are not merely words.
marinesWhen I left the Marine Corps and entered the world of finance, especially the world of sales and trading,  Semper Fidelis meant nothing. The motto that best describes finance is, sadly, every man for himself. To be fair, I worked with some great people on Wall Street. The critique is aimed at the culture of finance than rather any individuals. Having worked in both worlds, its important to draw out the differences between the two.

The top banks believe the smartest people only go to the best ranked schools, while the Marine Corps believes highly intelligent people come from every walk of life and are educated at diverse institutions. Since the banks have an excess of  applicants, they decided to focus their attention only on those who are “the best” students from “the top schools.” When I worked on the Merrill Lynch sales and trading desk, over 80% of my co-workers had gone to an Ivy League school. The rest of us had worked in finance somewhere else before getting hired. By only selecting students from an approved set of recognized schools, it is easy for  collective group think to set in.

When the banking crisis of 2008 happened, it is no coincidence to me that all the major banks had the same set of problems: over- leveraged positions related to housing.  The main culprit was the AAA ratings that were given to the mortgage pools. My conclusion was and is that had more people within banking had different assumptions about mortgage debt, they would have debated the validity of assigning AAA ratings to pools of mortgage debt and the outcome would have been different.

In contrast the way the marines select their applicants is quite different. The Marine Corps Officer program has a specific way of finding their future leaders. They gather 25% from the enlisted ranks, 25% from the Naval academy, 25% from the ROTC program and the last 25% or so from the Officer Candidate School. Their reasoning is that they look for officers from a variety of background because they know that collective thought is dangerous. The main criteria for being a Marine Officer is intelligence, toughness and integrity. The Marine Corps culture is so strong that given those three ingredients they can mold these men into excellent officers. Given that war is brutal, hectic and confusing it is best to have a variety of backgrounds and viewpoints to solve problems. It is best to have a team with a wide range of backgrounds to come up with the best solutions.

The best banks cull the bottom 10% every year. Banks do this because they feel it gives people the incentive to always work hard and never slack off.  By constantly striving to improve yourself  the top employees never have to worry about being in the bottom 10%.  In practical terms, these policies make everyone incredibly stressed and fearful for their jobs. Having worked in finance, I have seen all types of people fired from the very best to the very worst. Because no one market goes straight up or down, sometimes the best employees get fired when their sector gets creamed. In 2002, thousands of people were fired from the technology sectors because that was the area that had seen the most drop in the market. I know of many great people that were fired during this time and the reality is that it was not because of their being in the bottom 10%.

The Marine Corps strives to create an environment where every one can do well and create a culture that promotes and supports that goal. If the Marine Corps gets saturated with too many Marines in a specific area they will look to transfer and retrain those Marines in a new job function. I have seen Marines transfer from infantry to aviation without any hesitation in order to keep the Marines high functioning and on mission. Because the culture is good at attracting the right people in the first place there is no need to weed them out later on.

In banking every one is a specialist. For example, I use to work on a trading desk and there would be people who would sit 10 seats away from me and I had no idea what they did. On the bond desk, you will have one trader that will only trade a handful of issues and you might find traders that only trade a specific set of derivatives and nothing else. Part of the reasoning is that it is very hard to make money in the financial markets. The only way to do so is to master  a certain niche. It is not unusual to see a trader sit in a certain seat for over 10 years trading the same product every day. If that trader were to make a ton of money for the firm he would then get promoted to run a group. So the qualification for running a group is dependent on your ability to make money in your specialty and not in your ability to manage a group. The fact is you might not have the ability to manage another traders position because you never had any  exposure to do so.

In the Marine Corps every one is a generalist, your job will change every 3 years. You will be moved from job to job to get you as much experience as possible. So by the time you get to a senior leadership position in the Marine Corps you have been exposed to a variety of jobs and settings from which to draw on.

In finance, if you disagree with your boss and the positions he takes you can get fired. In 2006, the head of mortgages for Merrill was fired because he wanted to reduce the firms exposure. His boss, Stanley O’Neal, wanted to increase the exposure as he felt it would make the firm more money. In the end the decision was to fire the head of mortgages which ultimately caused Merrill Lynch to go under. Had the firms leadership not been threatened by his opinion the results would have been different.

In the Marines a lowly Private can change a Generals battle plan.In the Marine Corps if a Private during the battle sees an attack on his unit, that observation will alter the General’s plan. The General will listen and act on the Private’s warnings because he knows if he doesn’t do so, people can die.

When Merrill Lynch fired Stanley O’Neal for the bets he took, he walked away from the firm with over 170 million dollars in the bank. He took all his money while the employees who stayed saw all of their life’s earnings wiped out.

In the Marines, leaders eat last. The subordinates come first and as the famous Marine James Webb stated, “There is no privilege without great responsibility.” Marines lead from the front…not the rear. The Marine Corps General steps on the battlefield with his Marines.

How different Merrill Lynch would have ended up had Stanley O’Neal lived and worked with the people that he had employed.

Steve Clark