Race Bias #35 - "Consulting and the Information Elite"

The excerpt reprinted below is important in understanding how large U.S. employers can indulge in racial preference schemes without damaging their business.

In Race Bias #13 we read about large U.S. corporations creating and encouraging minority networks organized for the purpose of getting minorities promoted. Previous posts in the series have illustrated the many private preference schemes maintained for minorities by U.S. corporations.

Discrimination against the talented ordinarily entails economic costs. Thus only governmental employers and regulated utilities insulated against the economic effects of the practice can indulge it on a large scale.

Many of you may have wondered how large corporations can afford these costs.

The answer has three parts:

First, the programs are limited in scope.

Second, affirmative action is mandated by government against all employers with the result that no large competitor can gain an advantage (at least within the U.S. economy) by administering tests that restrict the workforce to the most talented.

Third, consulting firms and investment banks increasingly do all the "heavy lifting".

As the quoted excerpts from the following article show, consulting firms and investment banks more or less uniformly hire the brightest and most talented business school graduates. Private industry seldom hires any. Most management functions are reduced to rote, repetitive decisions with only minor factual variations from problems solved earlier.

American corporations have found that they can operate with less expensive talent, as long as the managers they do hire are trained to turn to the high paid consultants before tackling the tough problems.

In this environment of "outsourcing" the difficult tasks, management has little difficulty creating "easy" management jobs for minorities to fill.

As you might expect, the information elite is now employed by consulting firms and investment banks. There are tens of thousands employed in the computer consulting arms of major accounting firms, and more tens of thousands in general business consulting. Additional tens of thousands are employed in the niche areas of investment banking and smaller fields such as employee benefits and labor relations.

The only way these consulting firms can survive is to hire smarter people than those employed at the corporations. And they do. As you might expect, these consulting firms tend to be ruthless meritocracies with promotion, ownership and income levels strictly tied to merit.

As a general observation, there is no "affirmative action" in these enclaves of the information elite. They have their own oases of employment largely untouched by the political and social costs imposed on large manufacturing corporations.

These firms pay much more at the entry level than corporations, and create many more high paying senior positions than are created in the relatively narrow pay pyramids of the typical industrial corporation.

Thus the top students no longer work for the corporations.

The struggle for supremacy within corporations is waged among those of less talent and more political skill.

Thus jobs within the corporation are, to some degree, insulated from the economic consequence of racial preferences.

The article below discusses the general trend, but also discloses the efforts of a few corporations to hire top business talent and to create special tracks for them. The careers of the information elites will not be slowed by affirmative action efforts designed to benefit minorities.


Dec. 30, 1994 Wall Street Journal p B1

Manufacturers Put on the Ritz to Woo M.B.A.s



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Ten leading business schools queried by The Wall Street Journal said the proportion of new M.B.A. degree holders choosing consulting rose between 1989 and 1994. Seven of the 10 said the share selecting investment banking and other financial services also increased. Manufacturers snared a smaller portion of graduates this year from all but two of the 10 schools.

Money is a big problem. This year's graduates of Dartmouth College's Tuck School of Business were offered median salaries of $60,000 from manufacturers and $80,000 from consulting firms. And while they've long offered more lucrative salary packages, consulting firms are sweetening those deals even more.

Now many industrial concerns are trying to get back in the game. They are promising M.B.A.s juicier pay packages. including signing bonuses. More employers send senior officers to recruit on campus- To combat the glamour and intellectual challenge promised by a consulting job, other manufacturers have devised faster career tracks, expanding leadership-development programs or moving rising stars into important jobs quickly.

"The competition for the top students is so ferocious that industrial companies think they have to ratchet up the level of recruiting," observes Dick Kwartler, editor and publisher of the M.B.A. Newsletter in Floral Park, N.Y.

ITT'S aggressive pursuit of bright business-school graduates typifies the industrial sector's intensified talent hunt. Rand V. Araskog, chairman and chief executive officer of the New York conglomerate, created the Chairman's MBA Career Development Program in 1992. At that time few young ITT managers held positions responsible enough to propel them "into top management by the time they were 40," he recalls. Yet an early start can be crucial. The 63-year-old Mr. Araskog took over a Honeywell Inc. division at age 30.

Every school year, three ITT executive vice presidents and a senior vice president visit seven schools to interview candidates for the program. They target M.B.A. students with at least three years of business experience.

Chairman's MBAs enter ITT at the executive rank, at base salaries of $80,000 to $100,000 and often with a signing bonus. Each soon receives options for between 500 and 1,000 ITT shares a year. Another unusual perk is that these hotshots attend a luncheon with the board. High-level officials closely track the new managers. "I think a CEO could easily come from this group," Mr. Araskog says. Several recruits have already progressed to key posts.

* * *

But the arrival of a well-paid but relatively inexperienced Young Turk can rankle older managers. Even Frydenberg, a Chairman's MBA and 1993 Stanford University graduate, leapfrogged over more experienced workers when he joined ITT at age 29. He immediately became executive assistant manager of the Sheraton Copenhagen, overseeing about 230 workers.

"Most people in my position are no younger than 35" and worked their way up within a hotel, Mr. Frydenberg says. "I felt [resentment] from people with a little more seniority than me. When colleagues grow jealous, he observes, "you don't get the cooperation, you don't get the support that you need."

And despite its program's visibility, ITT is scoring fewer successes on campus. Just 10 of 17 M.B.A.s accepted ITT's offer this year- in 1993, 12 of 15 signed on. "There is tremendous competition," Mr. Araskog says. "It's a whole new ballgame." Indeed. Consultants A.T. Kearney Inc. wants to hire about 270 M.B.A.s in 1995, up from about 50 in 1993. The Chicago concern says that each new M.B.A. will receive between $90,000 and $95,000 in salary and signing bonus. The salary packages could soar to $200,000 by 1999, one Kearney executive predicts.

Michael Spence, a second-year M.B.A. student at the University of Pennsylvania's Wharton School, is weighing widely disparate offers from Mercer Management Consulting Inc. and Ford Motor Co. The 29-year-old was a Mercer consultant for three years before enrolling in business school . Mr. Spence says Mercer will pay him $85,000 in salary, a $45,000 signing bonus and a year-end performance bonus. Ford's offer was $72,000 straight salary, he adds.

A Ford spokesman says that it doesn't offer signing bonuses and declines to discuss performance bonuses.

Mr. Spence, who worked for Ford this summer, wants to become a hands-on manager in industry. But money talks. He will owe about $48,000 in student loans after graduation. "There isn't an understanding in industry" of how much money indebted M.B.A.s need, he contends.

Unable - or unwilling - to match consultants' lucrative packages, more major manufacturers are beefing up leadership development efforts that rotate a new M.B.A. through numerous business areas. United Technologies Corp. this year revived its program, moribund since 1991. Whirlpool Corp. plans to hire nearly 20 business-school graduates next spring for its development program, up from 11 in 1994. Some participants land an overseas assignment almost immediately.

Still, manufacturers have a long way to go. Industrial companies "need to reassess the job content of the positions they're putting M.B.A.s into," contends Maury Hanigan, a New York recruiting consultant. Too many businesses "are still putting them into fairly low-level jobs that aren't keeping them intellectually challenged."

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