After nearly four years as a management consultant at such firms as Deloitte Consulting and Booz Allen Hamilton, Ari Perlman was itching to try his hand at investment banking. So this summer the 26-year-old MBA student at the University of Virginia's Darden School of Business signed on with Lehman Brothers for an internship. Then all hell broke loose.
With the economy unraveling and much of Wall Street seemingly on the brink of collapse, Lehman slashed bonuses for interns. And by the time Perlman returned to campus, the company had filed for bankruptcy. Lehman's last check for Perlman's travel expenses? Bounced. An e-mail explained that a new check would be in the mail. Eventually.
"I haven't heard anything from them since," says Perlman, who's now looking for a consulting job. "And frankly, I am not too hopeful."
On the nation's B-school campuses, hope used to spring eternal. No more.
Students like Perlman are downsizing their expectations, rejiggering career plans and settling for less as the cascading effects of the global financial crisis start to be felt at MBA programs around the country. With companies pulling back on second-year recruiting and competition for the few remaining finance jobs becoming fierce, students are entering what surely is the toughest MBA job market since the dot-com bust.
"I think next fall is going to be very, very difficult," says George G. Daly, dean of Georgetown University's McDonough School of Business. "This is terra incognita."
Despite the gloomy outlook for current students, applications to B-schools are on the upswing, driven largely by applicants who have been laid off or are otherwise hoping to ride out the recession. With more applicants to choose from, admissions officers can be pickier, making 2009 a difficult year to land a slot at a top B-school.
Meanwhile, professors and deans are attempting to make sense of the financial crisis in the classroom, offering new electives and town-hall-style meetings on the meltdown, altering syllabi, and writing new case studies based on recent market-churning events. Risk management, until recently an unpopular elective, is expected to become a more important part of many B-schools' curriculums in three to five years, a trend that Robert Meyer, co-director of the Risk Management & Decision Processes Center at the University of Pennsylvania's Wharton School, calls "potentially transformational."
For current students, though, the only concern is finding a job -- and nowhere is that dream receding faster than on Wall Street.
Brian Mirochnik, 26, an MBA student at the University of Rochester's Simon Graduate School of Business, is facing that reality head-on as he looks for jobs in the investment banking field. He didn't receive a job offer from UBS after his summer internship and now is scrambling to find a position, a search he fears could easily stretch into the spring.
"Banks are telling me they are going through their own layoffs and don't know when they are going to start hiring again," says Mirochnik, who has given up on the big Wall Street firms and is looking exclusively at boutique investment firms and mid-market banks. "A lot of the factors affecting my future employment are just out of my hands."
Second-year students such as Mirochnik without job offers appear to be in the most precarious position. According to a survey by the umbrella group MBA Career Services Council, about 70% of the 77 schools surveyed said they saw a downturn in full-time recruiting opportunities in financial services in October. Meanwhile, about half of the schools said overall full-time job postings and on-campus recruiting this fall was either flat or down 5% during the same period, with some indicating it has fallen as much as 10%.
In the coming year, the job market for MBAs may begin to bear a striking similarity to the period following the dot-com bust when some banks and consulting firms rescinded or renegotiated job offers they had extended to second-year students. That hasn't happened this time around-yet.
But many are worried that the situation could change if the economy drifts into a deep and prolonged recession. "The dot-com meltdown was horrific," says Georgetown's Daly. "This has not reached those levels, but I expect it to."
With investment banking the hardest hit, many students are abandoning hope for Wall Street careers and pursuing jobs in consulting instead.
At New York University's Stern School of Business -- where about 40% of every class typically goes into investment banking -- attendance at recruiting presentations by consulting firms has been standing room only, says Gary Fraser, Stern's dean of students, who oversees the office of career development. Attendance at interview preparation sessions offered by the management consulting club is up about 80% this fall. And some consulting companies are noticing a jump in applications from students who have done an about-face on Wall Street. Says Nikki Rath, the senior manager of campus recruiting and diversity initiatives at Booz & Co.: "We have definitely seen an increase in résumés that had a lot of banking on them."
But consulting may not be the haven many think it is. For one thing, the rush of finance students to consulting will make consulting jobs that much more difficult to land. With more students seeking consulting jobs, each one is likely to get fewer offers, making big signing bonuses unnecessary.
Tom Rodenhauser, vice-president of consulting at Kennedy Information, which tracks the consulting industry, isn't optimistic. He says top students will get two or three offers this year, down from six in good years. Signing bonuses will dip to $20,000 or lower. The worst-case scenario? A student could receive a token bonus of $5,000 or none at all. Meanwhile, expectations are that 2009 will be a challenging year for many consulting firms as companies determined to trim costs cut back on discretionary projects.
All the bad news for B-school students has turned out to be good news for B-schools, which tend to do brisk business when the economy falters. Already, admissions officers say they are experiencing double-digit increases in applications for 2009 and increased interest from students. So far this year, the University of Chicago Booth School of Business has seen a 20% increase in attendance at information sessions worldwide and a surge in U.S. applications, says Rosemaria Martinelli, associate dean for student recruitment and admissions. At the University of Notre Dame's Mendoza College of Business, applications are up 20% from last year and admissions interviews are up 50%.
Meanwhile, worldwide registration for the Graduate Management Admission Test --a required standardized test for business school applicants and a leading indicator of future B-school applications-- was up 16% in September from the same four-week period in 2007. The current surge in registration volume is similar to one that followed the bursting of the dot-com bubble, which led to an explosion in B-school applications about a year later. This time, the impact on applications is expected to be even more pronounced, since the downturn is not limited to a single industry.
Says Dave A. Wilson, president and chief executive of the Graduate Management Admission Council, which administers the exam: "You are going to see a good surge in application volume next year, and maybe into the tail end of 2010."
Wherever they end up, those new applicants will find a B-school landscape in many ways transformed by the events of the past 18 months. While long-term curriculum shifts may take a few years, students can expect to encounter new classes, new case studies, and a new emphasis on risk. Much of this has already begun, with a growing number of business schools planning to add concentrations in risk management in coming years, ramping up the number of classes they offer and starting new risk management centers. Wharton's Meyer, also a professor at the University of Miami School of Business, is setting up such a center there this fall and predicts that others will soon follow suit.
At the same time, faculty are revising course descriptions and incorporating discussion of recent events in their classes.
At Harvard Business School, professors Clayton Rose and Daniel Bergstresser are writing a case study examining JPMorgan Chase's hastily arranged takeover of Bear Stearns. They plan to teach the case to first-year students this spring in a class called "Leadership and Corporate Accountability." Rose says he is also working on two other case studies, one on Lehman and another examining investor Warren E. Buffett's $5 billion investment in Goldman Sachs.
"There are many lessons in financial management and strategy that will come out of this last year and a half and will probably extend into the future," he says. "These are big policy issues, so there will be plenty to write about and reflect on." NYU is adding a class on the Great Depression. One theme: How reforms implemented in the wake of that crisis may have contributed to this one.
At Georgetown, James J. Angel, an associate professor of finance, has already introduced an elective this fall titled "The Changing Structure of Financial Markets: Financial Crises Past, Present and Future." The class was so popular that 95 students registered for the 65 available seats. "In many ways, I felt like a geologist teaching a class about earthquakes," says Angel, who tore up his syllabus several times as turmoil in the financial markets rewrote history. "When the big one hits, the first instinct is, 'Wow, that's cool,' and the second one, you say, 'Oh no.' "
Reprinted from the Nov. 13, 2008 edition of BusinessWeek.com by special permission
Copyright 2008 by The McGraw-Hill Companies