Willis Consulting has experienced the power of networking, but even after nine years of growth and expansion, we still need to remind ourselves each day to get up and leave the computer.

Sure, the real-time searches, the web site postings and blogs, the e-mails, the hundreds of phone calls all serve their purpose in the 21^st century, and you’re dead without them these days, but the proven and real successes come when you are out there the old fashioned way – interacting and meeting face to face…the morning meetings, the double lunch days (company president Bill Willis does these), the afternoon meetings…

Then there is my specialty…networking arena – the Laker games! (Now THAT’S real networking!)

But you get my point…get up and get out there!

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Never thought I’d see it either, but witness last week’s events! The divide between Wall Street and Washington was pushed even further: business bashing and finger pointing has reached extremes of incivility it would appear.

The Wall Street Journal hosted the Future of Finance Initiative conference on Tuesday where finance executives expressed anger at Washington’s anti-Wall Street rhetoric.

Goldman Sachs blamed AIG for its losses; fund managers called for a complete overhaul of regulation of the markets and former Federal Reserve chairman, Paul Volcker voiced the opinion of many of the attendees by acknowledging that

“…we’re in a government-dependent financial system and I never thought I’d see the day!”

Now follow up that with Thursday’s proposal for measures that would regulate hedge funds and allow the government the power to “seize and dismantle” companies deemed a threat to the economy! I agree Paul, I never thought I’d see the day!

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An interesting solution to fixing the bonus problems caught my attention in March 17 Wall Street Journal; “Real Time Economics” column, as reported by Justin Lahart.

It seems that some firms have already begun compensating executives by putting bonus money into an escrow account, or “clawback”…in other words, the money is there but you have to earn it with good performance.

But economists Alex Edmans at Wharton, Xavier Gabaix and Tomasz Sadzik at NYU, and Yully Sannikov at Princeton have gone beyond the clawback approach and come forth with what they call “dynamic incentive accounts.” Top managers’ compensation would be placed into escrow accounts that would be invested in company stock and cash. Each month the account would be rebalanced, so that if the money in stocks declined due to the price of the stock declining, then the cash account would be drawn down to buy more stock.

Their thinking is that this would ensure that managers held company stock even if the firm’s value fell. (Would also solve the problem of managers’ stock options getting repriced lower after a decline, which only rewards them for failure).

Taking it even a step further, each month a fraction of the incentive account would vest and be paid out. After leaving the firm the account would continue to vest slowly, paying out after a number of years and preventing the problem of CEO’s pushing for short term gains as they retire.

I don’t really have an opinion on this at this point…just watching and waiting for it all to fall in place, but it makes for interesting reading. I’m sure we will see more creative “solutions” in the weeks to come….

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Well, the continuing hot news on Wall Street centers around reform, regulation, and compensation overhauls…

     ”radical change amid intense pressure”

          - Market Watch, by Alistar Barr on 03/16/09

Top that with the AIG hearings and outrage this past week and you’re bound to see more and more investments firms looking to buy or build a bank in order to grow deposits and assets.

Quite a turnaround from the era of private firms going public to put their “risk” on the shareholders versus the partners!

And in the center of all this we are already seeing some change on Wall Street, i.e. Morgan Stanley is now paying part of year-end bonuses to vest over three years, some of which could be taken back if employees engage “in conduct detrimental to the firm.” (CEO John Mack’s internal memo stated he and other senior executives would be paid partly based on Morgan Stanley’s performance over three years, rather than one.)

This could go a step further as some lawmakers are looking to pass legislation that would tie all Wall Street pay to the long-term performance of firms.

Now add in the regulatory tidal wave to restrict the firms’ private-equity businesses and limits on investment banks trading with their own money and you’ll inevitably see a drop in the profitability of the mega banking / investment firms.

So, where does the money left on the table go?

Like I have been predicting and we are now seeing as financial recruiters, the smaller investment banks and boutiques are expanding and hiring top advisors and bankers from larger firms, thus rewarding those that did not have highly leveraged balance sheets when the crisis hit.

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