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Companies are increasingly looking in top MBA programs for finance talent.
Alix Stuart, CFO Magazine
March 1, 2007
It's 7:30 A.M. on a Saturday and Ananda Baron is juggling a cup of coffee and a bagel, trying to down a quick breakfast before a long day of interviews. One of 25 MBA students invited to PG&E Corp.'s San Francisco headquarters for second-round interviews, Baron has been cruising a crowded conference room to network with company executives since the breakfast formally began 30 minutes earlier. That's on top of several hours spent networking the night before, when she sat next to the CEO at a group dinner and learned, among other things, how he met his wife.
Before Baron can spread the cream cheese, though, Steve Arnold, PG&E's chief tax executive, sails up to her. "I love your first name — what's the story behind it?" he asks. Breakfast waits another 20 minutes while Baron, a student at Northwestern University's Kellogg School of Management, tells him about her parents' hippie phase (her name is Hindu but her family is not). Then she neatly segues into how she's using her finance skills to help her father with his San Diego–based surfboard business.
Despite the friendly patter, there's little that is casual about this conversation. Baron, on the hunt for a high-level finance job, is trying to make a strong impression while deciding whether PG&E presents a better opportunity than the other three companies with which she is currently talking. Arnold, meanwhile, is trying to promote his company as a cool place to work while getting a sense of whether Baron could ever hack it as a replacement for him — or, someday, the CFO.
Scenarios like this are playing out all over the country, as companies increasingly look to MBAs to fill critical gaps in their succession-planning efforts for top roles in finance and beyond. The recruiting processes can be elaborate and time-intensive, as executives like Arnold take the opportunity to get to know candidates in casual and formal settings, in large groups and one-on-ones. In fact, recruiting MBAs might be among the more robust hiring processes a company undertakes these days, with more executive-level involvement than ever in picking future leaders.
Such involvement even extends to visiting business-school campuses. "When companies don't send a senior-level person to campus, you don't get the sense they're very committed to the school," says Everette Fortner, career director at the University of Virginia's Darden School of Business. American Express noted that fact a number of years ago and has since begun asking its best-performing middle managers to hit the campuses rather than asking for volunteers. Says Alan Gallo, senior vice president of corporate planning and analysis and head of MBA campus recruiting for finance: "If you don't send your best people to campus, there's less of a chance you'll get the best people."
Back in Demand
It wasn't that long ago that many companies were scaling back on MBA recruiting, figuring they could train undergrads at a lower cost and with the same results. But some employers are finding that MBAs, because of their prior work experience, are worth the salary premium. "We are hiring [MBAs] who had important positions with previous employers, or had their own start-ups. It's hard to replicate that with undergrads," says Gallo.
PG&E's finance department began recruiting more MBAs in 2000, prizing their skills, experience, and leadership potential, says CFO Chris Johns. Other departments took notice, and the company stepped up such recruiting for all functions. Last year, PG&E hired 13 MBAs; this year, it's aiming for a dozen, says Johns.
"Companies that were hiring one or two MBAs for the past few years are now looking for eight or nine, and a whole slew of new companies are coming onto the campuses," comments Maury Hanigan, president of the MBA Scouting Report, a consulting firm that helps employers target recruiting efforts. Companies such as American Express, Johnson & Johnson, Raytheon, and Textron report they are increasing the number of campuses they visit and the level of hiring for their MBA finance-recruiting programs, most of which are just five or six years old.
Salaries are going up, too: at Wharton, the median salary offered to the 22 percent of the class going into corporate finance has jumped from $85,000 to $95,000 over the past two years, plus sign-on bonuses. Meanwhile, the travel and entertainment costs involved in recruiting have tripled this recruiting season at PG&E compared with the previous one.
How to retain these up-and-comers until they reach maturity, however, is another issue. The general turnover rate among MBAs who have worked for a company 18 to 24 months is "staggering — probably 50 percent leave," says Hanigan. That puts pressure on every step of the recruiting process — from selecting the right campuses and deciding whom to put on the interview beat to identifying the right prospects and nurturing their careers.
What Companies Want
Later that Saturday at PG&E, seated in a tony executive office, Ananda Baron attempts to answer the "So why are you here?" question. In her case, the biggest draw was the California utility's new and ambitious goal to cut greenhouse emissions through alternative fuel sources, such as solar power and cow manure. This is a good answer: interviewer Rand Rosenberg, senior vice president of corporate strategy and development and a former investment banker, eagerly explains that the "green" initiative was what convinced him to join the company a year earlier.
The conversation has become more formal since breakfast. As leader of PG&E's MBA leadership-development program, CFO Johns has urged his colleagues to focus on the 3 (out of 12) hiring criteria they have been assigned and to be judicious about how high they score the students on the five-point scale they're using. "They're all good, so you have to ask pretty probing questions to see what distinguishes them," he says.
Now Rosenberg is trying to follow the rules. Responsible for assessing Baron's skills in strategic thinking, ethical convictions, and concern for high performance, he swallows his enthusiasm for the environmental stuff and moves on to ask her what the one thing he should remember about her is; what her biggest disappointment in life was, and what she learned from it; and how her past experience in the nonprofit world led her to business school.
Recruiting MBA students is one thing, but hiring the right ones is something else entirely. At most companies, anyone who makes it to the second round of interviews has already been screened for basic skills, interest in the program, and leadership capability. How companies structure this process varies, from PG&E's two one-day blitzes to several small dinners of four candidates each at Chevron to a three-day Florida weekend for all the "bring-backs" at Johnson & Johnson. The objective, though, is always the same: find out how well candidates perform under pressure and how they would fit into the company, both culturally and professionally.
"We have gotten very, very targeted about who we'll recruit into the firm," says Peter Hong, vice president and treasurer at Avaya, a communications software and networking company. "The first question to an MBA is: 'What do you want out of your career?'" Five years ago a mere interest in finance would have sufficed, but now Hong and his colleagues are listening for someone who wants to build a well-rounded skill set. And, like most recruiters, Hong wants specific examples of how a candidate has led change, not just a list of his or her technical skills.
In fact, the level of technical skills desired varies quite a bit across companies. PG&E would gladly take someone without specific finance skills, while Raytheon wants people with proven experience in finance. At Johnson & Johnson, a background in finance isn't required at the start, but "we always encourage MBAs to become CMAs [certified management accountants]," says program director Don Kohlhepp, since a working knowledge of key technical areas will soon become necessary.
Equally important at most companies is cultural fit. Since corporate finance departments usually can't compete with investment banks or consulting firms on pay, they're looking for people who care about the company's products and opportunities for advancement, and who value the work/life balance an office job is likely to give them. Candidates who waver too much over which path to choose or who seem like Wall Street wannabes are usually discounted. "You can tell if they're leaning toward [investment banking or consulting] from how they describe previous experiences in those fields," says Judy Durkin, vice president of financial planning for Raytheon and head of its MBA development program. "Those who didn't like it are usually pretty vocal."
What MBAs Want
As discerning as companies might be, MBA students hold a lot of power in the process, considering some 75 percent have at least one offer in hand by the time they start their second year of school. One lesson most employers have learned is that the content of the jobs they are offering is king. The most popular companies have fairly structured programs, says Chris Higgins, career director at Wharton, typically rotating MBAs through an assignment or two per year in various areas of the company with lots of feedback and executive attention along the way. Alumni networks play a big role in a program's success, too; prospective hires will often consult recent graduates to find out if a leadership-development program is all it's cracked up to be.
Indeed, "one of my biggest fears was that I would be bored, or that the pace would be too slow," says Sienna Rogers, a Dartmouth MBA and former investment banker who is now on her second of three assignments in PG&E's leadership-development program. She hasn't found that to be the case, but it took a lot of convincing from some former classmates who had joined the utility a year before she agreed to join. Baron, too, had contacted about five people currently in the program before coming to the second-round interviews, including a Kellogg alum who put her in touch with the company's director of federal environmental affairs and corporate responsibility.
Putting MBAs on special projects for top executives is another way to burnish a program's reputation. Raytheon recently began this approach in response to feedback from current students, according to Judy Durkin. At PG&E, new recruits track the company's competitors and regularly report to senior leadership on where the utility stands in the marketplace.
The size of a company's finance program matters, too. In consultant Hanigan's experience, the most successful recruiters are the companies "that generally reduce the number of hires they bring in," she says, so that each one gets a proper amount of responsibility. That's what Avaya did two years ago after realizing that most of the MBAs it had hired in 2002 had left the company three years later. Once hiring as many as 18 new graduates per year, Avaya found it became "hard to give meaningful assignments to each person in the program," says Hong. Now, the aim is to hire only about 5 per year, so that the two-year development program has only 10 to 12 participants at any time.
The Final Cut
By 3 P.M., Baron and 24 other candidates have finished interviewing at PG&E. Now, Chris Johns, Steve Arnold, and 23 of their colleagues huddle around conference tables, waiting for each candidate's scores to be tallied up. The group has split into two; each will discuss about half the candidates before joining up again to make final decisions.
CFO Johns leads the process, encouraging strong voices to make strong cases and timid voices to come forward. "I want to make sure we fully flesh out a concern before it turns into groupthink," he says. That means even the top-ranked candidate isn't immune from criticism, and first-year hires can play a crucial role. While the leading candidate seems to be a perfect fit, one executive recalls that he had an "edge" that could make him hard to work with. To help resolve the dilemma, the group brings in one of last year's hires, who is also a former classmate of the candidate in question, for more details. Assured that the former classmate considers the candidate a good fit, the group decides to extend an offer — but only after Johns double-checks that interviewers who gave the candidate relatively low scores are on board as well.
A similar process occurs at many other companies, including Raytheon. Candidates are sliced, diced, and ranked, and then discussed on a qualitative level by everyone who interacted with them. An applicant's "drive" is just as important as his numerical score, says Durkin, since "the worst thing we could do is bring in the wrong person with a strong résumé."
Once the offers go out, though, it's the company that has to wait on pins and needles. Most companies expect about a 50 percent acceptance rate and realize that candidates will typically wait until all their offers are in to make a final decision. Baron, for one, receives an offer from PG&E, but spends another month assessing opportunities at other companies. By January 12, three days before the company deadline, she decides to accept, as do half of those who also got offers from the company. Now it only remains to match candidates' preferences with available assignments and set them up with mentors.
For this season, at least, the mating dance is over. Both Ananda Baron and Chris Johns can rest easy — no more awkward meals, no more numerical rankings — until next fall, when it starts all over again, on campus.
Alix Stuart is senior writer at CFO.
What I Did Last Summer
With the market for MBAs heating up, some companies are taking no chances on getting leftovers. Summer internships are now a common prelude to full-time employment at many firms, with some companies persuading as many as 100 percent of their interns to come back after graduation.
Since recruiting has become so competitive, "we have really shifted our emphasis to recruiting first-year MBAs for summer assignments," says Peter Hong, vice president and treasurer at Avaya. In the past two years, the company has had between five and eight interns each summer, making offers to all of them at the end of their internships. This season, the program yielded two new full-time hires.
Meanwhile, Chevron extended offers to all six of its summer interns last year for its two-year finance rotation, and all accepted, making it an unusually good year, according to program leader Eduardo Fernandez-Moran. The company hired an additional four second-year MBAs to round out the incoming class.
The approach reduces the risk of hiring. "A summer internship is like a 12-week interview for us; you really get a sense of whether this person would be successful," says Alan Gallo, senior vice president of corporate planning and analysis and head of MBA campus recruitment for finance at American Express. At Raytheon, the company admittedly does less initial screening for interns, but extends offers to only about 40 percent of them after closer evaluation over the summer.
The big caveat with summer internships? Avoiding the bait and switch, says Hong. "We try very hard to make sure the projects we give to summer associates are representative of work we'll give to people in the financial leadership rotation program," he adds. — A.S.