John Steal at Alex Born & Co

7/28/2019 John Steal at Alex Born & Co

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Master in Management Program (2011-2012)

EXAM / 103 HRM M1 (Freddy Hochu) Duration: 3 hours

This is an open books exam but electronic devices are not allowed

1 Vendredi 10 fvrier 2012

When dealing with a case study, remember that there are often more than one

answer. Your answer will depend on the assumptions you make and the way you

define the problem. There are often too much or too little information. Take

educated guess, make assumptions. Always explain your analyses and logic and

separate "facts" from opinion:

Please answer the 5 following questions:

1. Provide a general overview of Alex Born & Co from an economic and a HRpoint of view (2 points)

2. Define the central issues, the main problems that John is facing (3 points)3. Define goals that John would need to achieve in order to improve the

situation. (2 points)

4. Evaluate the options of possible solutions and recommend solutions (5points)

5. Prioritize your recommended solutions and set up an action plan for John toimplement (short-term mid-term and long term) (8 points)

Case Study : John Steal at Alex Born & Co.

As the 747 circled and climbed eastward out of Los Angeles International Airport,

John Steal began to unwind from the grueling 48 hours in Los Angeles. As managing

partner of the Healthcare Group of Alex Born & Co, he had spent two long days

defining IPO* possibilities for a rapidly growing pharmaceutical company. Now,

while some of the junior professionals of his team were doing some additional data

gathering and analysis, he was flying back to New York to meet with another client.

Since the other seat of his row was thankfully empty, he was left to his own thoughts

as he sipped a glass of white wine. Not surprisingly they turned to Alex Born & Co

and the Healthcare Group. What did surprise him was that in the relative quiet of

the first class cabin, with no immediate pressures, his thoughts drifted to how he was

doing at the end of his second year as group head, something he never had

enough time to reflect on. The reflections which filled his head were mildly

disturbing, because he began to wonder if, in spite of the great year his group had

posted, whether he was really doing such a great job of leading the group. Was he

creating an organization that could handle the rapidly growing number of clients?

Was his group solidifying existing client relationships and rapidly penetrating new

ones? Was he positioning the group well for the longer term with clients, vis--vis the

intensifying competition, and was he developing younger staff?

The Firm

Alex Born & Co, with revenues this quarter of $180 million, had been highly successful

during the past decade. The firm maintained leadership positions in equity and fixed

income sales, trading and research, and investment banking. The firm had 65

partners and operated offices in New York, San Francisco, Los Angeles and

Chicago, as well as in London, Shanghai and Hong Kong. The firm tried to maintain

compensation and benefit expenses under 42% as a percentage of net revenues,

and sought to keep operating margins above 25%, and net income over 10% in

order to keep investors and analysts who focused on these metrics satisfied. Profits

were generated by a particularly strong showing in bringing rapidly growing firms to

the capital markets as well as a booming strategic advisory business, particularly

mergers and acquisitions.

Much of the firms success was attributed, both by management and by industry

observers, to the firms rich traditions and strong reputation among its clients. Alex

Born managing directors believed that the trust and confidence of its clients were a

key to the firms part and future success. The best way to meet these clients needs

was to tackle any client problems or opportunities with team effort and provide

long-term service. In fact, Alex Born partners prided themselves on being able to put


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together a team of outstanding talents drawn from anywhere in the firm to meet a

clients needs.

With the firms rapid growth and a desire to hold the number of partners relative to

the professional staff constant, each recent year saw an increasing number of the

firms activities being conducted by vice presidents, and associates. To fill the need

for its growing cadre of vice presidents and associates, the firm actively recruited at

major graduate business schools in the United States, especially Columbia, Harvard,

Stanford, and Wharton. In fact, over 70% of its professional hires in the past five years

had MBA degrees from such schools. There had been some lateral hires but the firm

preferred organic growth and development. Professionals trained at the firm from

day one had excellent technical skills and had the necessary relationships within the

firm to help originate and execute business effectively. Thus, the attraction and

retention talent is a key factor in the companys continuing success. In this business,

characterized by high turnover, Alex Born is certainly the lowest in that industry, less

than 4% annually.

The Healthcare Group

At 45, John Steal headed a group that included one other managing director,

seven vice presidents, and 20 associates. John had graduated from Williams

College with a major in economics, and received a PhD in statistics from North

Caroline State University and had subsequently worked for a large consumer

products firm. After three years with the company, he went on to the Harvard

Business School from which he graduated with high distinction. He joined Alex Born

immediately after business school and was made a managing director ten years

later at age 40 and after two years was tapped to be the head of the Healthcare

Group, reporting directly to the head of investment banking. Jim Goodnight,

previous head of the Healthcare Group, claims that he has no philosophy or grand

plan that guides the group operations. Rather, there are some simple premises or

principles guide day to day discussions and behavior. The first principles of treating

everyone fairly and equally, is based on the companys history. Goodnight has also

commented that he enjoys being around happy people, who wouldnt, and that if

you take care of your people, they will take care of the company.

This group was one of four within the firm which focused on a particular type of

industry. The other industry groups were telecommunications, energy, and financial

services. Some clients outside these industries were serviced by a pool of bankers,

who usually maintained relationships with companies in specific geographic areas

such as the Midwest, Southeast, or West Coast.

The focus of the Healthcare Group was on pharmaceuticals, HMOs*, hospitals, and

biotechnology. While the group had been successful before John assumed its

leadership, its performance in the past three years had been nothing short of

spectacular. Gross fees had grown at a compounded annual rate of over 30% and

its success rate at bake-offs of being awarded business by new clients had grown

from 20% to 50% in the last three years.

As John ruminated about the group, he recognized all of these as signs of his

successful tenure as head of the group. And he added to them the strong

relationships he and the other bankers in the group had developed with their

clients. They understood these companies well and had earned the respect and

trust of their top executivesa key to any successful investment banking franchise.

Steals Concerns

In spite of all these positive signs, John was uneasy as he sipped on a second glass

of wine. One source of concern was the other managing director in his group. Jim

Hodges was in his mid-forties and had been involved with their healthcare clients for

almost a decade. Jim knew the financing issues and needs related to these

companies and did an outstanding job in serving them. While he was prolific with

new ideas for existing clients, he was not really productive in developing new client

relationships, a crucial part of future growth. Nor did he go out of his way to provide

guidance to the vice presidents or associates, except when they were working

directly with him on a project.

John had always suspected that Jim was surprised and resentful when John was

asked to take the leadership of the group instead of him. John had always been

respectful of Jims opinions, but realized that he had not asked for his help in leading

the group. What had evolved was a polite but distant relationship between them.


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As the group had gown and the pressures on him had built up, he had occasionally

wished Jim would come forward and offer to share the burden, but he didnt. He

now realized he resented this. In fact, he found himself feeling quite angry. He felt

that Jim was profiting handsomely as a result of his efforts, while only doing what

was needed to handle their established clients.

Having sunk into this reverie, he hardly noticed what he was selecting from the tray

of appetizers the flight attendant held in front of him. In fact his thoughts leapt on to

his seven vice presidents. All had excellent B-school* credentials, were in their early

thirties, and all had been very effective associates. He had inherited five of them

from his predecessor and had pushed for the promotion of the other two, including

Jane Reynolds, one of a small number of female vice presidents in the firm. The five

of them were the workhorses of the group. They worked long hours and got the job

done. He wasnt so far away from being a vice president himself that he couldnt

remember the frustrations they must have and the stress of the long hours and the

constant travel. The hoped-for reward in addition to money: becoming a managing

director! Thats what made it all worthwhile. But given the ceiling on new managing

directors and the growth in the firm, there was no way they were all going to make

it, may be one or two of the seven, but no more.

That reminded him of a conversation he had with Jane on another transcontinental

flight last summer. It started innocently enough. Hed thought hed show some

interest and ask her how things were going. That was something that Jerry Davis, the

managing director with responsibilities as general counsel, head of Human

Resources and Internal Communication, had suggested might be useful to help

understand his staffs attitudes. Anyway, it had sure backfired. Initially Jane

expressed concern about business problems did they understand the long-term

competitive situation? What could he do to help with the chronic understaffing, she

and other vice presidents faced? How could they teach the associates, when theywere so busy? When were vice presidents going to get a chance to call on their

own clients and start to develop their own relationships in order to develop as senior

bankers? All of this, he had heard from the other vice presidents so it seemed like

normal griping. But then she got more personal. She was not getting any feedback

from him about how she was doing, or about her chances to make managing

director. All she heard were rumors. She worked like the devil to the detriment of

her marriage. She seemed to think a divorce was a distinct possibility. It had been a

disturbing conversation. After all his efforts on her behalf, her complaints had left

him feeling angry. Now, six months later, he was wondering was she saying things

that his other vice presidents felt but were too afraid to say? If so, he had more

problems than he thought.

He remembered other event that made him conclude he might also have serious

problems with his vice presidents. Nine months earlier, Bill Prince, another vice

president, had come to him with the news that he had just been offered a key job in

London with a newly formed investment division of a large commercial bank.

Because his wife wanted to stay in New York, Bill said he wasnt inclined to consider

it seriously. Besides, the immediate compensation was much lower than he was

receiving at Alex Born. Yet the offer and the opportunity to make managing director

there led to several conversations about his future at Alex Born. In one of them, Bill

made a comment which now seemed more ominous than it did originally. John

could remember his verbatim:

You know December was a really strange time of the year for me. I got a

huge bonus. I was one of the highest paid guys at my fifth HBS* reunion. But w hats

sad is I dont feel good about it. When I got the bonus news in December, I didnt

get any other feedback How am I doing, when am I likely to be a managing

director? What do I need to prove to make it?

John now wondered whether that offer had really been unsolicited or whether it

was Bills way of getting attention.

As the support tray was cleared away, John reached into his attach case to do

some reading and analysis in preparation for tomorrows meeting. But he found it

difficult to concentrate. Not only was he wondering about his vice presidents, he

also began to recall several recent encounters with his associates.

The Associates

The 20 associates were all under 30. They all had MBAs from prestigious business

schools and had ranked high in their classes. Having been with the firm for three

years at the most, they were still learning about banking in general and Alex Born in

particular.


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What immediately came to mind was Jerry Daviss comments at the Managing

Directors meeting last year. Davis had said that the associates felt disconnected

from the firm and needed more direct contact with the Managing Directors. John

had been among the majority who greeted this news with a hoot and a moan. He

remembered one of the other managing directors saying, Its a tough world out

there; these associates need to learn to swing on their own. We cant coddle

them. And John had silently agreed. Even when the chairman had jumped in to

support Davis, John remembered thinking, My associates are turned on. They work

hard; they love their jobs just as I did! He still believed this was fundamentally true,

but now he realized he didnt have any hard evidence one way or the other. In

fact, he rarely had time to speak to associates unless they were working on matters

of immediate concern to him.

John tried to square Daviss information with his own impressions of his hard -working

associates. Were his associates that dissatisfied? After all, they were the cream of

the crop from their business schools, and they were getting paid very well and were

doing challenging work. And nobody was quitting! Yet, on the other hand, he knew

he spent virtually no time with them, and Jim Hodges and the vice presidents in the

group probably didnt either. They were no rewards passed out for developing

associates. Rewards came for developing business. He had to admit it was very

different now from his own early experience after joining the firm. Ten years ago,

when the firm was much smaller, there were fewer associates and they could find a

managing director to whom they could attach themselves and learn.

He tried to turn his attention back to preparations for tomorrows client meeting.

After all, even if there were real problems with both the vice presidents and the

associates, he couldnt deal with them at 39 000 feet. Tomorrow afternoon hed

think about all of this some more.

The Changing Marketplace

Putting these concerns aside was no solution, he realized. Hed been

procrastinating in the same way about doing any long-range thinking about his

business. David Lipscomb, head of investment banking, had been pressing him for

ideas about the longer-term issues in the healthcare industry, but John never had

time to think about them. He rummaged through his attach case for the sheet of

paper on which he had jotted down several strategic questions he wanted to

answer for himself and David:

How do we protect our niche against excellent specialists like Chase

Hambrecht & Quist and behemoth generalists like Morgan Stanley*? What do the

megamergers in pharmaceuticals and related industries like technology mean to

our clients and to us?

What bothered him most was that he remembered making those notes on a prior

transcontinental trip last springover six months ago.

The Time Bind

Time that was really the heart of the matter. Whatever else he should be doing

sorting out the vice presidents and associates concerns, thinking about the

groups strategy there werent enough hours on the day to do it. He was already

working too many 12 to 14 hours days, to say nothing of weekends. He was driving

the business development effort through his personal contacts with present andfutures clients. He also had to get into the details of his projects because the clients

were paying for his talent and advice. Besides, he enjoyed it and was good at it. In

fact, he recalled how much he resented having to take time out to interview new

candidates at Wharton and Stanford last fall even though he knew it was important.

And he really disliked being placed on firm committees. It was a nice honor, and

indicated that the Management Committee recognized his abilities and

contribution, but he needed more work like a hole in the head.

As the seat belt sign went on indicating the beginning of their descent into JFK

Airport, he reached one conclusion. Jane Reynolds wasnt the only one who had

problems at home. If he spent any more time on Alex Born business, he might have

to kiss his own marriage goodbye. Barb had said over dinner the other night thatshed gladly trade some of his income for more of his time for herself and the two

kids. Her repetition of this theme was becoming increasingly vehement. He knew

what she was saying because the kids were already 12 and 14 and sometimes he

felt like he hardly knew them.

He found himself in an increasingly discouraged mood as the plane landed. Maybe

there was nothing to be done but to keep plugging along. Maybe he should try to


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sell Lipscomb on the idea of assigning him a vice president as an operations officer.

One of the other managing directors had done this. Oh, hell, he thoughtIve spent

six hours fretting over all this nonsense, and I still have to get ready for tomorrows

meeting

EXHIBIT 1

Sales revenue for Alex Born & Co

Year Revenue

1986 98

1987 130

1988 170

1989 206

1990 240

1991 295

1992 366

1993 432

1994 502

1995 582

1996 683

1997 803 (estimated)

EXHIBIT 2

SOURCE of applicants for positions filled in 1996

SOURCE of applicants for positions filled in 1996

Advertisements in non-local newspapers 25,0%

Posting on the Web 20,0%

Employee referral 15,0%

College recruiting 12,0%

External Job line telephone listing 9,0%

Internal promotions 7,0%Advertisements in local newspapers 4,0%

Internal job book 2,5%

Other 5,5%


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Definitions

IPO: An initial public offering (IPO), referred to simply as an "offering" or "flotation", is whena company (called the issuer) issues common stock or shares to the public for the first

time. They are often issued by smaller, younger companies seeking capital to expand, butcan also be done by large privately-owned companies looking to become publicly

traded.

HMO:A health maintenance organization (HMO) is a type of managed care organization(MCO) that provides a form of health care coverage in the United States that is fulfilled

through hospitals, doctors, and other providers with which the HMO has a contract.

B-school: Business schools.

HBS: Harvard Business School.

Chase Hambrecht & Quist: (H&Q) was an investment bank based in San Francisco,California noted for its focus on the technology and internet sectors.

Morgan Stanley: is a global financial services firm headquartered in New York City servinga diversified group of corporations, governments, financial institutions, and individuals. It

operates in 36 countries around the world, with over 600 offices and a workforce of over

60,000.

Documents

John Steal at Alex Born & Co