Why investment banks need to fear former employees

Investment bankers are not associated with loyalty towards their employers. In an industry where lay-offs are a fact of life, most tend to look out for themselves. But the reality is that humans are hardwired to identify with their current employer and, when they depart for another investment bank, a psychological response spurs them to compete even harder against their former company.

This is all down to ‘collective’ identity, according to new research by Thorsten Grohsjean, an academic at Ludwig-Maximilians-University of Munich. Grohsjean says this identity means you feel loyalty towards a former employer even when you don’t work there any more.

When you move to a new employer, you encounter a conflict in your ‘collective’ identity. You still feel a strong connection to your former employer, but you’re no longer in a position to help them. The result, the research suggests, is that you look to ‘deidentify’ with your previous company – and you work even harder against them.

The example Grohsjean gives is John Thain’s move from Goldman Sachs, where he was co-president, to Merrill Lynch: “I love Goldman Sachs and I love the people, but I think Merrill will be a great competitor,” Thain said at the time.

There are numerous more recent examples of long-serving investment bankers jumping from to a competitor. Alasdair Warren worked at Goldman Sachs for 10 years before moving to Deutsche Bank to head its EMEA investment bank. Matthew Westerman also ended his 16-year tenure at Goldman in May to head up HSBC’s global markets business. – He’s since been talking bullishly about stealing market share from competitors ever since. Then there’s Jes Staley, the 30-year J.P. Morgan veteran who took over as CEO of Barclays in October last year, who has since been poaching senior staff from his previous employer.

“Hiring from a competitor not only increases the hiring firm’s human and social capital, but also reduces those assets in the competing firm,” said the research.

Grohsjean’s research focused primarily on the actions of ice hockey players in the U.S., but the conclusions are relevant to employers and employees across various industries, he says.

Tenure also matters, he says, simply because those who have spent longer at a particular company tend to compete even harder against their former employer. Look around some of the senior bankers moves recently, and you’ll see some long-serving employees departing for new roles.

Sal Vitale, a senior natural resources banker who joined Deutsche Bank last month, was previously at Bank of America Merrill Lynch for 15 years. Subhathra Pavan, who left his MD role at Deutsche Bank for a fixed income sales job at Mizuho in October, was at the German bank for a similar period of time.

However, your former colleagues tend to divide loyalties. If you join a new employer you will compete harder against your previous company, but you probably won’t want to compete in the same way against your former colleagues. This is the conflict between the ‘collective’ identity of your employer and the ‘relational’ identity you have with the people you actually worked with. The way around this, the research suggests, is simply to hire across entire teams.

“When hiring from competitors, organizations might therefore find it attractive to hire entire teams instead of individuals. In such cases, the newly hired team is likely to behave more competitively toward the former organization as their closest colleagues from the former organization have moved with them,” it said.

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Contact: pclarke@efinancialcareers.com