A few years ago, Harvard's Boris Groysberg conducted a study of 1,052 ‘star stock analysts’ from 78 US investment banks between 1988 and 1996. Defined as analysts ranked among the industry’s best by Institutional Investor magazine, stars were recognized for their superior performance and perceived as invaluable assets. However, his findings revealed surprising outcomes when stars switched employers:
☐ Decline in individual performance. Stars’ performance dropped sharply after moving to a new bank, with 46% performing poorly within the first year. Their output declined by an average of 20% and showed no significant recovery even five years later.
☐ Team disruption. The presence of an outlier can lead to interpersonal conflicts, communication breakdowns, and overall demoralization. Teams experienced prolonged declines in performance due to these disruptions.
☐ Negative impact on valuation. While star hires generate positive headlines, they tend to erode shareholder value. Groysberg found that announcements of individual star hires led to a 0.74% decline in stock prices, costing banks an average of $24 million per hire (star).
Banks (and star bankers) often underestimate how much a star banker’s success depends on their prior organization’s assets. Key factors include:
☐ Corporate routines and systems. Team-based research processes, investment committees, and technology play critical roles in supporting star performance.
☐ Managerial support. Managers allocate resources, direct priorities, and provide mentorship essential for stars to thrive. In Groysberg’s study, stars often credited their success to their supervisors’ guidance.
☐ Reputation. The bank’s name, resources, and networks amplify individual performance by allowing stars to focus on high-value tasks.
☐ Informal networks. Star bankers often underestimate the importance of internal relationships and trust-building. Successful integration across the bank requires fostering cross-functional collaborations to unlock synergies.
☐ Collegial inspiration. Stars rely on talented colleagues for inspiration, coaching, and support. As Goldman Sachs’s John Whitehead famously emphasized, “At Goldman Sachs, we never say I.”
Groysberg’s study highlights that hiring stars is rarely an effective growth strategy. European and Asian banks attempting to enter the U.S. market by poaching top analysts repeatedly failed, incurring substantial losses before retreating. Instead of recruiting (external) stars, investment banks should focus on cultivating talent internally. Homegrown stars typically outperform imported ones and demonstrate greater loyalty, recognizing that their success depends on their firm’s capabilities. By nurturing internal competencies and providing robust support systems, investment banks can retain top talent and create sustainable value. For more details, visit https://pieterklaasjagersma.com/on-becoming-extraordinary.