How Free Are Free Agents?
Black and White on Wall Street: The Untold Story of the Man Wrongly Accused of Bringing Down Kidder Peabody
Joseph Jett with Sabra Chartrand
William Morrow and Company, 1999
Six years ago, the investment bank Kidder Peabody named its biggest bond trader, an African-American named Joseph Jett, Man of the Year. Three months later, it accused him of single-handedly faking $350 million in transactions and practically destroying the firm. Now Jett tells his side of the story, claiming that the deals were sound and were carried out under his boss’s directions. Along with his account of Kidder’s fall, he offers a detailed memoir of his education and brief career on Wall Street.
Despite its title, Black and White on Wall Street is not a one-dimensional book. In fact, it can be read as four different but related stories. The first story depicts Wall Street as a vast frat house. Every day, Jett tells us, traders exchange billions of dollars in securities and millions of bathroom jokes. This account is, of course, a familiar one. It cannot be false: too many books, articles, and firsthand reports confirm it. In June, for example, the Bloomberg e-mail service, used widely by traders and brokers, installed software that blocks offensive language; according to news reports, it caused widespread frustration and even outrage. Yet the locker-room view cannot be the entire truth—we can point to people like former Treasury Secretary Robert Rubin, universally regarded as a man of thorough decency, who started their careers in these trenches.
The second story is about race. Jett describes the endless obstacle course facing members of minority groups—particularly black men—who pursue careers on Wall Street. He alleges, with abundant detail, that many of his colleagues were preoccupied with the sexuality of black men. He believes that his boss received frequent reports on Jett’s dealings with female coworkers and tried to monitor Jett’s personal life—in hopes of finding grounds for dismissal. It is impossible to assess the accuracy of those specific allegations, but the larger story of bias on Wall Street has been told before. Moreover, the small number of black employees at Wall Street firms—roughly 5% overall and fewer among managers—seems to confirm his charges.
The third story is the reason Jett wrote the book. In addition to explaining what he did and why he was fired, Jett describes investigations by the U.S. Justice Department, the Securities and Exchange Commission, and the National Association of Securities Dealers. Unfortunately, this part of the story is a whodunit without a final chapter. Despite the detailed descriptions of Jett’s transactions, it remains extremely difficult to determine who committed what violation. It is clear that Jett and his superiors concealed roughly $30 billion in assets drawn from Kidder’s parent, General Electric, and that some of those funds financed Jett’s transactions. But the big questions—whether the transactions themselves were improper and whether Jett acted alone—remain unanswered.
The difficulty in reaching definitive conclusions results partly from the intrinsic complexity of Jett’s work. Jett and his department traded what are called “strips.” These are government bonds that have been stripped into two components, one representing the stream of interest payments and the other representing the principal. Each component trades separately, and there is money to be made through a variety of complicated transactions, such as buying the components, putting the bonds back together, and then selling the reconstituted bond for more than what the components cost. Besides carrying out this arbitrage, Jett engaged in forward accounting that temporarily obscured the full scale of his transactions.
Jett argues that his strategy and transactions were well known to his boss and his colleagues, discussed with them on many occasions, documented in detail in Kidder Peabody’s accounting system, and audited by Kidder Peabody accountants. He claims that he hid nothing and had nothing to hide. The strongest evidence for his position is that an arbitration panel of the National Association of Securities Dealers examined his transactions, found no evidence of fraud, and ordered Kidder Peabody to unfreeze several million dollars of Jett’s personal funds. (The Justice Department found no cause for prosecution.) It also seems implausible that Jett’s superiors let a young trader manage, all by himself, an amount of money larger than the GDP of many countries. Yet an SEC judge convicted him of record-keeping violations, and she inferred intent to defraud from the very complexity of his transactions. He is now appealing her decision.
If Black and White on Wall Street consisted only of those three stories, it would be easy to dismiss it as old news. Wall Street has long been condemned as a shrine to greed and recklessness. More recently, so-called rogue traders destroyed Baring Brothers and lost billions at Sumitomo Metal. Whether Kidder crashed because of Jett’s malfeasance or because Jett’s boss went too far in manipulating GE’s investment, the question is the same. Why should readers outside the industry bother with a new version of those stories?
The answer is that they point to a fourth story, one that casts light on the future of a growing number of people. Jett’s experiences, when placed in the larger context of work life, become a cautionary tale about the serious challenges to personal integrity faced by knowledge workers in the new economy.
The new economy is a fluid, technology-driven, and intensely competitive world, epitomized by Silicon Valley. It is also the world in which Jett worked. Although Wall Street has been around for a long time, its job mobility and technological sophistication have risen substantially in the past two decades. Despite some well-publicized scandals around the edges, financial markets have become highly efficient. The rewards go increasingly to those who creatively add value to portfolios, not to those who have privileged institutional positions.
Jett was not immune to the lure of financial rewards, but he also believed that the Wall Street version of the new economy offered valuable solutions to some age-old problems. He would be a free agent, choosing where and how he worked. He could select work that was exciting and personally fulfilling. And his pay and promotions would depend on his performance, not on connections, company politics, or skin color. In short, Jett thought he would be his own man.
While not immune to the lure of financial rewards, Jett believed Wall Street offered valuable solutions to age-old problems.
Maintaining integrity was of paramount importance to Jett. Throughout the book, he describes himself convincingly as an outsider. Most whites didn’t accept him, and he refused to conform to the black norms he discerned at school and at work. (His self-descriptions make him seem like a porcupine, bristling with suspicions and resentments.) With two degrees from MIT, a degree from Harvard, and strong mathematical skills, he viewed himself as a nerd. Jett had no family connections to help him, he held affirmative action programs in contempt, and his father had imbued him with an intense work ethic and an independent spirit. He wanted to work in a place where he would sink or swim based on his skills and effort. Jett’s sense of who he was, what he valued, and how he wanted to make his way in life all pointed him to Wall Street.
But maintaining personal integrity was still a struggle. Free agents, Jett found, were not exempt from the timeless questions: What ideals and values should guide my decisions? How can I live a good life amidst pressures and temptations? What is the difference between a compromise and a sellout? To understand why these questions can be so hard to answer in the contemporary workplace, it is useful to compare Jett’s expectations of Wall Street with what he found.
The new economy is also called the free-agent economy. The implicit comparison is to professional sports, Hollywood, and other industries with highly paid migratory workers. Free agents are loyal primarily to themselves, their talents, and to a series of projects—not to the companies that happen to sign their paychecks. Andy Grove, the former chairman of Intel, has compared Silicon Valley firms to Broadway productions. Some close after a couple of nights; others have long, lucrative runs. But sooner or later the talent moves on to the next opportunity. Wall Street traders share that view. In the three years before Jett joined Kidder Peabody, he worked at two other investment banks. And when Kidder fired him, Jett assumed that he would simply move on to another bank, taking some of his best traders with him.
Silicon Valley and Wall Street epitomize this environment, but countless other industries are embracing it. Among other benefits, free agency has been touted as a safeguard of personal integrity. In the dark days of the old economy, people spent most or all of their careers bound to a single employer. To get ahead, they had to go along. Bosses could make or break careers. And sometimes people had to cut corners, bend or break the rules, and sacrifice their principles to climb the ladder or just hang on to their rung.
Life is supposed to be different for free agents. They work for mentors and coaches, not bosses. And if the pressures to fit in or sell out become too strong, free agents can move on, taking their talents and ideas with them. A long and complicated résumé carries no stigma—indeed, it can even indicate broad experience and strong and varied demands for a person’s talents.
Free-agent work also offers opportunities for excitement, self-expression, and social contribution. The Biblical condemnation—to earn one’s daily bread through toil and drudgery—has somehow been rescinded. Work in the new economy delivers exhilarating highs, partly because it offers opportunities to change the world. Young traders spend their days playing a complicated, interactive computer game—with real money. But at the same time, they are contributing to society by allocating the world’s capital to its most efficient uses. Similarly, the classic Silicon Valley opportunity is an intense, exhilarating start-up that promises to revolutionize a business or an industry. All this is very heady stuff. And if a job doesn’t provide fulfillment and excitement, a free agent can look elsewhere—an ethos captured in the name of a recent Web start-up, Ububu.com.
Even better, the new economy promises that doing good can mean doing well. Compensation reaches sky-high levels. Salaries are for the timid and old fashioned; stock options fuel Silicon Valley and make billionaires out of 30-somethings. In comparison, Wall Street seems a modest, almost puritanical place, where highfliers like Jett were willing to work for as little as $3 million a year. But young people there still earn more in a “good” year than their parents’ entire neighborhoods earned in a lifetime.
And those immense paychecks are rightfully theirs; they are earned on merit. Free agents take big risks and work furiously and endlessly, and then customers—not company politics or old-boy networks—decide which companies and technologies live and die. Jett was drawn to Wall Street by rewards that were based on objective results. His father had taught him, and he fervently believed, that “Only when success, power and inclusion could be determined on an economic scale would blacks have true freedom . . .. Numbers were cold, hard, color-blind facts. Top grades. Bottom-line profits in business. Votes at the ballot box. If you had any one of these, skin color didn’t matter.”
Jett’s roller-coaster ride on Wall Street suggests that the optimistic view of the new economy is only partly accurate. It underplays the many ways in which the old realities of organizational life and interpersonal relationships continue to shape the workplace, impeding the efforts of individuals to live by their values and ideals.
Jett was a free agent, but he still had to deal with old-fashioned, self-interested bosses. At times they served as mentors, teaching him the ropes, encouraging him to develop his talents, and taking risks on his ideas. And when Jett began making money for Kidder, his bosses were friends and supporters. But his spectacular success made him their rival, which led to old-style efforts to undermine him, including rumor mongering about his personal life. When Jett fell from grace, his friends, allies, and mentors were nowhere to be found—or rather, they were in law offices and courtrooms, trying to cut deals to save their skins, often at Jett’s expense. Bosses still cast long shadows, even in the new economy. Their assessments follow free agents as they move from firm to firm because people still check references before hiring. As a result, unethical bosses can still push people to cut corners and break the law.
Jett found that neither hierarchy nor power struggles vanish in a world of free agents. There are still decisions to be made and budgets to be met, and specific individuals—not everyone on “the team”—have the authority to make those decisions. Bosses today may well consult and listen more than their predecessors, but the buck must stop on someone’s desk. So struggles for influence and power continue.
Consider, for example, the pay-for-performance ethic. Even if everyone operates on the premise that “you eat what you kill,” some hunting grounds will always be better than others, and bosses usually decide who gets them. Given the high stakes, classic turf battles ensue. As Jett tells the story, his bosses preferred to see people like themselves getting the better opportunities, and so they took steps—some conscious, some unconscious—to make that happen. As in the old economy, the cream doesn’t simply rise to the top; it is pushed and pulled there by people in power.
Even if everyone operates on the premise that “you eat what you kill,” some hunting grounds are better than others.
Jett also found that he was not judged solely on his talents. He may have become a free agent, but he was still a black man in an overwhelmingly white world. Some coworkers viewed him as a curiosity, others as a prizewinner in the affirmative-action sweepstakes, and still others as a sexual predator. At least that is how Jett saw the world. But his perceptions of his white colleagues, and his allegations about them, are inevitably influenced by his own acute awareness of race, just as their perceptions of him were influenced by their awareness of race. The performance-based, free-agent workplace has not yet wiped away age-old biases.
The optimistic view of the new economy overlooks its lows: burn-out, depression, costly errors resulting from exhaustion, and the temptation to take shortcuts to success, as Jett says his bosses did in covering up their actions from Kidder’s banks and from General Electric. The temptation to cheat must surely grow as more and more zeros are added to the payoff. In the old economy, white-collar criminals broke the law for a few thousand dollars. What will people do for several million? And when individuals are under intense pressure, when they are exhausted and disoriented by long hours, their judgment and character are likely to weaken. This may explain why concealing $30 billion in assets while reporting the earnings on them looked like a brilliant idea to so many people at Kidder Peabody.
Cynicism is a related risk. When free agents are moving from company to company, working close to a hundred hours a week year after year, and exercising lucrative options or collecting big bonuses, everyone’s expectations are raised. Perhaps many free agents who don’t hit the jackpot will be satisfied with the excitement of the journey and with pride in their hard work. But some will view themselves as victims of so-called churn and burn personnel policies and decide to take what they believe they deserve, regardless of the risks involved.
As in the old economy, cream doesn’t simply rise to the top; it is pushed and pulled there by people in power.
And even in the new economy, the world continues to look as if it is fundamentally organized into power bases run by shrewd, tough, long-term players. That was apparent after Jett was fired. The veterans survived the calamity at Kidder Peabody, while the roof collapsed on the heads of their younger colleagues. Once the scandal erupted, the young free agents—Jett’s peers and colleagues—were scattered to the wind with damaged reputations and large debts to lawyers. When Jett’s accounts were finally unfrozen, he withdrew about $5 million and paid it to his attorneys. By contrast, Jett’s boss, Edward Cerullo, whose memory unaccountably and repeatedly failed him when questioned under oath about Jett’s transactions, retired with a multimillion-dollar severance package. Almost everyone above Cerullo went on, albeit with tarnished reputations, to the next round of action.
It would be naive to expect the new economy to be radically different from the old one. Even if economic relationships have changed, human nature has not. Were Niccolò Machiavelli alive today, he would hardly be surprised to find that self-interested bosses, backroom politics, prejudice, and the seductions of power and money still shape behavior. Machiavelli lived and worked in an era not unlike ours, a period of extraordinary economic and cultural change. Hence, his fundamental question—Can men and women in positions of responsibility lead lives of integrity in the face of uncertainty and relentless competition?—remains acutely relevant in this new economic era.
Jett’s experiences point to several lessons about maintaining integrity in the free-agent workplace. First, don’t kid yourself. What happened to Jett can happen to anyone. His parents had taught him sound values. He was ambitious, talented, and hardworking. He was school-smart and street-smart. He had no desire to become the poster boy for scandal. But Jett placed himself in a force field of grand ambition, intense self-interest, and multimillion-dollar payouts. Those factors overwhelmed his judgment—whether or not he committed fraud, he did help conceal the $30 billion in assets—and devastated his career. The first lesson is that anyone, saints aside, can be confused and even corrupted.
Second, be a fighter. Jett wasn’t handed anything on a silver platter. His early years were tough, but they prepared him for what lay ahead. His parents fought against outright discrimination, and Jett struggled against black stereotypes. He had to fight tenaciously to defend his dignity and get what was rightfully his. This prepared him for the battles he faced as a free agent. Investment bankers had a huge financial pie to divide, but no one was giving slices away. When Jett felt his bonus didn’t represent his contribution, when he concluded the sales force wasn’t being compensated for selling his products, and when he believed his boss was snooping into his private life, he fought back hard. Had he not done so, he would never have earned the career opportunities and the rewards that he did. Later, he fought, almost alone, against General Electric, its battalion of lawyers, GE’s subsidiary NBC, the Justice Department, and the SEC—all of whom accused or suspected him of masterminding a colossal fraud. The battle cost him his entire savings and left him living in a run-down apartment and working in a series of odd jobs. But he persevered, he was never convicted of fraud, and he is now rebuilding his life and career.
Third, have something worth fighting for. Jett does less well by this criterion. His parents seemed to know what they wanted: to earn a decent living, to end discrimination, and to raise children who would take pride in themselves. But Jett appears to have replaced his parents’ dream with a common but vacuous version of the American dream: work hard, make a lot of money, and keep your options open. But for what? What was all the money for? Which of his many options really meant something to him? What was the larger purpose that justified the staggering amount of energy he poured into his work? From time to time, free agents may need to ask themselves what they want to do with their hard-won freedom.
Jett doesn’t seem to have done that. Perhaps, like many people, Jett was postponing the issue until he was established and financially set. But this approach leads nowhere. In a world of intense competition and perpetual change, few people ever become established or financially set. One of the fundamental issues of integrity—deciding what to live for—can easily be postponed year after year until the roads not taken are closed forever.
Larger goals can also help people draw lines that they won’t cross. Every business has its temptations. Some auto mechanics make unnecessary repairs; some academics plagiarize; some managers confuse their own interests with their company’s. In Jett’s case, the complexity of the product and the sheer volume of transactions made detailed supervision difficult, setting the stage for creative accounting and worse. It is useful for people to reflect not only on the heroes and superachievers but also on the scoundrels and failures in their line of work. How did those people get into trouble? When and how did they move from playing the games that go on everywhere to ethical and legal violations?
Fourth, resist the isolation caused by the long, unpredictable work hours and the frequent job changes. Jett lived inside a cone defined by his work. Perhaps he had adult relationships, but he doesn’t describe them in the book. In fact, his social life seems to have consisted almost entirely of acquaintances, rivals, and enemies at work. Maybe Jett had trouble making friends, but the 24—seven work life of the new economy seems to have left him, as it leaves many others, with just enough spare time for sleep, exercise, and personal hygiene.
Hence, when Jett made the decisions that led to the trouble and when he later tried to dig himself out, he was acting in isolation. He had no one to offer advice, warnings, or support—aside from his parents, who lived far away and understood little about his plight. When Aristotle wrote, “Man is a political creature,” he was not referring to elections or lobbying but to his belief that the best and most natural life for human beings is within a close community. Traditional companies, with long-term or lifetime employment, were communities of sorts. Free agency erodes the loyalty and stability of traditional companies, increasing the risk that people will make life-shaping choices from positions of isolation.1
Finally, consider underachieving at times. The new economy holds out its highest rewards for people whose lives are overwhelmingly skewed toward work. It’s true that getting to the top of anything—a downtown bank, the local archdiocese, or one of Caesar’s divisions—has always required some mix of luck, connections, and lots of plain hard work. But a life of long hours was generally reserved for people at the top of large organizations or demanding professions (and even they usually found time for a little golf). One of the few advantages of working on a factory floor was that you couldn’t take the work home with you.
By contrast, the new economy democratizes and glamorizes imbalanced lifestyles. Extreme work, like extreme sports, is spreading. Jett and his colleagues, like countless other ordinary people, ate, slept, and breathed their jobs. And such single-minded focus is often viewed as high virtue rather than as a disconcerting competition based on people’s ability to shrink their lives.
The new economy democratizes and glamorizes imbalanced lifestyles. Extreme work, like extreme sports, is spreading.
Little is accomplished without hard work. But free agents need to find ways to keep the cult of extreme work from carrying out a takeover of their mind and spirit. This often requires more character and strength than pulling another all-nighter does. It takes courage to tell the boss, “I’m sorry but I can’t make that trip—I’ve been on the road too much lately.” It also takes discipline and a spirit of moderation to live with the probable consequences. If you don’t make the trip, someone else will—and he or she may move a notch above you. But that is the inevitable price for creating a sphere of life that is truly your own.
1. For more on this issue, see Nicholas G. Carr, “Being Virtual: Character and the New Economy,” HBR May–June 1999.
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