Stars need careful handling

The intimate and often difficult relationship between such firms and their top players is the subject of Aligning the Stars, a book by Jay Lorsch, professor of organisational behaviour at Harvard Business School, and Thomas Tierney, the former chief executive of Bain & Company, the strategy consultancy firm. Some firms manage the relationship successfully, while others do not.

After three years studying a variety of professional services firms, including Goldman Sachs and BT Alex Brown (later bought by Deutsche Bank), Lorsch and Tierney conclude that managing stars is at least as important as managing clients. 'You can't have satisfied clients without stars, and you also can't have stars without satisfied clients,' they say.

But simply hiring stars and keeping hold of them will not guarantee success. Lorsch says: 'We are not talking about prima donnas. We are talking about stars who are good team players. People who are similar to sports stars, not Hollywood stars.'

If stars are to be persuaded away from Hollywood-style tantrums, Lorsch and Tierney say they must be encouraged to forego self-interest for the good of their employer. Stars need to be aligned.

This is easier said than done. Stars are naturally independent and the work they do tends to be of a decentralised nature. Unless stars are operating within a partnership, putting the firm first is tantamount to an 'unnatural act' as far as they are concerned, say the authors. Yet at top firms this is precisely what happens.

One place where 'unnatural acts' occur is Goldman Sachs. Lorsch and Tierney argue that despite the IPO in 1999, the firm still behaves like the partnership it used to be. 'In the eyes of its senior stars it is culturally still a partnership, and they are working to sustain this culture,' they say.

Evidence of this is that the title of partner still exists and up-and-coming stars are chosen for the partner compensation plan for high-flyers, a partnership committee articulates partners' opinions, and partners still meet to discuss important issues.

Elsewhere in the investment banking sector, stars have traditionally been less self-sacrificial. CSFB, in particular, fell foul of its stars when Frank Quattrone in technology and Jack DiMaio in fixed income negotiated generous pay and lengthy guarantees for themselves and their teams. Under John Mack, who took over as chief executive last year, these privileges have been relinquished - evidence perhaps of a new-found sense of alignment.

Hollywood-style behaviour is unlikely to ever be entirely stamped out from investment banking, though. The tendency of firms to hire talent from outside, instead of cultivating it internally, is one reason why loyalty levels are low. This tendency appears to be increasing a survey by the headhunter TMP Worldwide found that external hiring for board level appointments increased by 76% between 1999 and 2001.

Stars have also become more important to their firms as deals have become fewer and further between. Ben Jones, a financial services consultant at TMP, says that as firms attempt to lure originators from competitors, the pay disparity between stars and non-stars is growing.

Lorsch and Tierney say the most aligned stars tend to be those who are home-grown, and that star making is more important than rainmaking.

At top firms, senior staff go out of their way to nurture recruits. The authors quote Rob Kaplan, co-head of investment banking at Goldman Sachs, as revealing a caring attitude towards associates. He says: 'If someone isn't doing very well, I get very actively involved as soon as possible. Some people are very talented, but they're shy, and so the best thing can be to move them into an industry group where they can become experts and gain confidence.'

Nurturing stars in-house should also bring other benefits. Homegrown stars are less likely to leave than those brought in from outside, and if they do, loyalty to their alma mater might even make them less inclined to take clients with them.

Making sure clients do not walk out of the door requires additional precautions, however. In an article in the Harvard Business Review, US academics Needa Bendapudi and Robert Leone offer advice on losing stars without losing clients.

They say that a client's bonds with a firm should be so deep that they transcend any one employee that firms should take pains to communicate the value of all their employees, not just the stars, and that clients should be told of a star's planned departure as early as possible.