Wall Street Is Turning To Machines To (Try To) Find Better Behaved Bankers

An interesting question is whether algorithmically-driven hiring will really deliver a different sort of banker, whose numbers, eventually, may change the industry's culture.

Or whether the culture remains more powerful than the computer model and applicants simply learn to game it. JL

Laura Noonan reports in the Financial Times:

Using behavioral profiling to widen the candidate pool appeals to banks because academic research consistently finds that more diverse team members improve decision-making. They not only bring new ideas to the table, but also force those from traditional backgrounds to become more open to new ideas. That diversity of thought is particularly sought after in banking where a “herd mentality” was blamed for disastrous decisions in the run-up to the financial crisis.
Noel Volpe owes his marriage to the behavioural profiling used by dating website Eharmony. Now, the affable New York investment banker is using the same technology for a different type of matchmaking: introducing his employer, Deutsche Bank, to perfectly suited graduates.
This month, Deutsche’s US corporate finance division has begun screening students for the behaviours identified in its best junior staff, so it can hire high performers from more diverse backgrounds who stay at the bank for longer.
With competition always fierce for the best and the brightest, investment banks have been assessing applicants on their educational attainment, extra curricular activities and personality traits for more than a decade. But the beauty of Deutsche’s behavioural profiling approach, according to Mr Volpe, is the way it levels the playing field for a new pool of talent from colleges that banks previously ignored.
“You can’t trick the machine,” he says of the 20-minute behavioural test that is carried out online. “We’ve asked juniors to try to trick it and it still catches you”.
What the machine aims to tease out is a candidate’s innate behavioural make-up. Fight or flight? Lead or follow? Create or conform? Koru, the company that carries out the profiling, says there are no right or wrong answers, and no politically-correct judgments — only comparisons of candidate responses with those of top performers at the organisation doing the hiring. If those people happen to be difficult loners who never back down, so be it.
Kristen Hamilton, chief executive of Koru, says: “We have never had an organisation say I don’t believe it, I don’t buy it.” She describes behavioural profiling as shining a light in the “dark space” that exists beyond measures of cognitive competency and technical skills.

Crucially, she points out that the most desirable behavioural profile, or “fingerprint”, is unique to every firm, and even varies within the same industry. Some fingerprints show clear ‘spikes’ in measurements of behavioural traits such as “grit”, “polish”, “teamwork” and “curiosity”. Others show a balance of different traits.Koru’s work with a range of other clients — which have been as varied as McKinsey, Reebok, LinkedIn and Airbnb — has enabled it to build a database of 30,000 applicant fingerprints.
And these 30,000 profiles are helping Deutsche solve a problem that bankers at some Wall Street institutions admit they are still grappling with: how to find talent hidden away in thousands of US colleges. It is a problem that has become more pressing since the financial crisis, which has led many Ivy League graduates to turn their backs on banking as a career.
For banks still in a state of flux, such as Deutsche — which dropped out of the world’s top three investment banks last year as it restructured itself — attracting talent remains a real challenge.
But even Mr Volpe’s counterparts at the big US investment banks are now intrigued by Deutsche’s approach — and admit to flaws in their traditional reliance on candidates’ grade point averages or college majors.
One senior investment banker at a Wall Street giant admits that a test that accurately predicted a candidate’s likelihood of thriving and staying on “would be terrific”.

Key indicators in Koru’s behavioural profiling

Skill	Description
Teamwork	Collaborates effectively with colleagues
Ownership	Takes initiative in the service of others
Polish	Communicates professionally and confidently
Impact	Ability to use time efficiently and target resources
Rigour	Holding analytical skills and ability to mine data
Grit	Tenacious and resilient in fast-paced environment
Curiosity	Capacity to learn quickly, also creative and innovative

Using behavioural profiling to widen the candidate pool appeals to banks because academic research consistently finds that more diverse team members improve decision-making. They not only bring new ideas to the table, but also force those from traditional backgrounds to become more open to new ideas. That diversity of thought is particularly sought after in banking where a “herd mentality” was blamed for disastrous decisions in the run-up to the financial crisis.

Abbas Elegba, an associate in Deutsche’s New York-based financial sponsors group, is an example of the benefits to the bank of valuing diversity. Of African American descent, he spent his early 20s in the army, and came to Deutsche after the bank visited his MBA school: the University of Virginia (Darden). He believes having staff from diverse backgrounds can also help with staff retention.
“When you go to war, it’s not about what you’re getting paid,” he points out. “What you really, really care about is that your leaders care about you and that they’re not going to waste you or your life on something that is fruitless … That’s the part that I think [army] veterans add to banks: by really thinking deeply about the people you work with, and the people that are junior to you, and how you treat them …[by] leading and not managing.”

Deutsche’s previous diversity programmes, and other innovations to empower junior bankers, have resulted in the number of analysts progressing to become associates in its US corporate finance business rise from 11 two years ago to 40 this year. This increase was achieved with a similar intake size.Deutsche Bank is using behavioural tests to hire bankers resembling the ones it has already. You would have thought it was keen to recruit trainees who are the polar opposite of the current lot lousing up the P&L, says Jonathan Guthrie.However, the big difference between what Deutsche is doing now, and its approach when people like Mr Elegba were hired, is the more targeted way it can run recruit programmes. Having spoken to his international colleagues, Mr Volpe is optimistic that Deutsche will roll out the Koru behavioural profiling across other parts of its business.
“There must be [a commercial benefit],” he says. Even though he concedes he cannot prove this directly, he fervently believes there is a greater good — for the culture of the firm, and for the satisfaction of those it employs.
“There’s a reason why many managing directors and directors on Wall Street have no idea who their analysts are,” he says. “They’re seen as transitory, two years in and out. I won’t fix all of it.