At the IIMs, campus recruitment happens through something known as the slotting system. Slot zero has the highest paying jobs, with the most (alleged) prestige attached to them. This slot typically attracts consultancies, commodity trading desks, and importantly for the purposes of this post- investement banks.
As the investment banks have first crack at us, they typically pick the people with the highest grades, the most impressive work experience and extra curricular activities, and the best analytical skills that their interview techniques pick up. The sort of people you’d expect were the smartest of the lot.
All well and good. Slot zero ends, and the smartest people take up jobs with investment banks. Slot one begins, with the people who are arguably less smart.
Now, here’s the interesting part. Guess who shows up in Slot one. The India-based offshore centres of the investment banks, who hire people for the back office work that investment banks need: rating securities, coming up with valuations for companies, and generally telling the investment banks whether they should be long or short on a particular deal.
Now this is where it gets interesting: the smart people at the investment banks who make a particular deal have to rely on the supposedly less smart people at the back office to provide them with information to help them make a decision on that deal. The guy at the back office, being less smart, is more likely to get the valuation wrong. Using this wrong information, the smarter guy goes ahead and makes the deal, and the deal fails spectacularly.
You know, this just might explain the fate of the AOL-Time Warner merger, the HP-Compaq merger, and so many other mergers in the history of corporate finance.