Managing Future Income Risk

Managing future income risk, I believe, all starts from the day you are born. Every decision made in life, affects where you will be in the future. Some of the biggest factors are what your major is, activities and organizations you are apart of, and your location.

The University of Illinois has a great career services, which has what seems like an unlimited amount of resources for students to search career opportunities. With all these resources, what makes a student qualified for a job? Certain requirements include GPA, major, location preference, courses taken, and many others. If you do not have one of the qualifications that a job requires, applying for the position could not be a possibility for you anymore. So ultimately, your decision to not take a class or to pick a certain major could be the reason why you are or are not qualified for a certain job.

At U of I certain majors are more heavily recruited; for example, an accounting major. U of I has one of the most prestigious accounting programs in the world and because of that, all of the best accounting firms do whatever they can to recruit and hire as much U of I graduates as possible. The Big Four (PwC, Deloitte, KMPG, & Ernst and Young) have dedicated so much time at the College of Business and donated so much money to make sure that the College of Business does a good job marketing their companies so that every accounting graduate wants to work for one of the Big Four.

I have a friend who graduated from U of I in May 2013 with a Masters Degree in Accounting. When he described his recruitment process for how he obtained his current job at PwC, (with a very nice salary) he explained it as “very easy.” He interned for PwC for two summers in a row and said that he expected nothing less but than to receive a full time job offer from them. He explained that the reason it was so easy is because being an Accounting major at U of I, having a GPA over 3.5, and being personable are the 3 things that any accounting firm is looking for and will hire almost without a doubt.

It was interesting to hear about how “simple” his process was in comparison to the struggle that other U of I graduates with different majors face to land a full time job. He made it sound too easy and almost unfair. From my perspective, he was working for that job offer for three years. He chose a difficult major, was able to maintain a great GPA, and sacrificed his summers to intern at an accounting firm instead of the typical life guard job that most students have over summers. He sacrificed a lot to make sure getting a full time job was easy. He managed his income risk by doing all the work beforehand to guarantee the results and the income that he wanted. 

Opportunism

Opportunism – “the taking of opportunities as and when they arise,

regardless of planning or principle.”

In college, opportunistic opportunities arise regularly. For a college student, it is quite simple to take advantage of opportunistic opportunities in regards to taking advantage of a parent’s financials. While I believe that if you are going to take advantage of something in an unethical manner, it shouldn’t be with your parents money, however not every student would agree.

I have a friend who did this exact thing. For our apartment we each had to put down a quite large security deposit. The security deposit was an equivalent to our first month’s rent, and with Champaign’s rates, I’m sure everyone can imagine the high number that it is. We all received our security deposit about a week ago with checks made out to our names. Even though I know that each of us had our parents finance our apartments, one friend of mine thought it would be okay to cash that check and keep it for ourselves. I, on the other hand, wouldn’t be able to do that to my parents. I know that my parents most likely forgot about the security deposit that they were expecting to get back, but I knew that stealing their money wouldn’t be the ethical thing to do. After all they have done for me, there was no way I would have felt comfortable not returning them their money.

This situation made me think of how there are so many opportunistic opportunities that stand on a fine line of who would take advantage of them and who wouldn’t. Most of these opportunities have low risks of getting caught, but if you do, there are big consequences. The consequences usually, I believe, are reputational related.

Organizations and Transaction Costs

The summer of 2012 I interned at BMO Harris Bank as a Strategic Initiatives and Integration Intern. While it was a busy summer to say the least, this was primarily due to the fact that this was the summer that BMO Harris Bank was acquiring M&I Bank. This acquisition took a lot of work, money, and time for BMO. The reason for the acquisition is for expansion in locations that BMO Harris Bank did not have a strong presence in. M&I Bank was a diversified financial services corporation headquartered in Milwaukee, Wisconsin, USA, with $63.5 billion in assets. This large acquisition nearly doubled BMO Harris Bank’s footprint and has been creating great opportunities in their financial services.

Structure was one of the most difficult issues BMO Harris Bank was having with the acquisition. Because M&I Bank already had their own structure, having to tell them the new structure and all of the changes going to be made was a difficult task. The systems all had to be merged, employees of M&I Bank had to not only learn these new systems, but a lot of people were being moved around the bank, losing their jobs, or getting new roles at the Bank. Merging the two banks was difficult because in order for the acquisition to be successful, they had to make the merge seem as flawless as possible to the public.

Being a large sized Middle Market Bank, the organization structure is bureaucratic and had to stay that way with the acquisition. Everyone had specific job functions with individual responsibilities. There is a clear hierarchal structure within the bank, which had to be merged with M&I Bank.

Their brand and new marketing techniques was a critical part in the acquisition that I helped a lot with. It was important for the public to have the honest facts about the acquisition and changes that are being made to ensure and keep the strong relationships they have with their clients. The budget for marketing for the summer of 2012 was more than double what it normally was and that was due to their new logo that followed after the acquisition.

I was hired as an intern for BMO Harris Bank (along with 32 other interns in the Line of Business I worked in) because it was more economic for them to hire interns. Hiring a third-party of full time employee to do the work I did would be unnecessary costs for them and as interns, it is almost like an investment for BMO Harris Bank since a lot of interns receive full time offers. The benefits of hiring me were high enough to cover the company's transaction costs. Had they outsourced, the transaction costs of that service would have been much higher than the benefits.

Laura D'Andrea Tyson

Laura D’Andrea Tyson is an American economist born on June 28, 1947 in New Jersey. She is married to writer Erik S. Tarloff and has one son, Elliot S. Tarloff. 

Laura graduated with a B.A. in Economics from Smith College in 1969 and earned her Ph.D. in Economics from the Massachusetts Institute of Technology in 1974. She joined the faculty of the economics department a Princeton University in 1974 and remained in the position until 1977 when she became a professor of economics at the University of California, Berkeley. She was appointed a professor of business administration in 1990. She served in the Clinton Administration as Chairman of the President's Council of Economic Advisers from 1993 to 1995. She was a spokesperson in favour of GATT, arguing with Sir James Goldsmith on Charlie Rose that American jobs will be increased by the trade agreement. Tyson was Director of the National Economic Council from 1995 to 1996. Tyson has been a member of the Council on Foreign Relations since 1987, a board director of Morgan Stanley since 1997, a board director of AT&T Inc. since 1999, a board director of Eastman Kodak and is a member of the Committee on Capital Markets Regulation. From 1998 to 2001, she was Dean of the Haas Business School. From 2002 to 2006, Tyson was the first female Dean of London Business School. In December, 2009 it was announced that Tyson will join CB Richard Ellis Board of Directors on March 4, 2010. Tyson also sits on the FINANCE Strategic Advisory Board.

Laura Tyson has published a number of books and articles on industrial competitiveness, trade, and also on the economies of Central Europe and their transitions to market systems. Some of her books include Who’s Bashing Whom, The Global Gender Gap Report 2008, Economic Adjustment in Eastern Europe, and many more.

In addition to her professorship at UC Berkeley, Tyson is also a member of the Board of Trustees at UC Berkeley's Blum Center for Developing Economies. The Center is focused on finding solutions to address the crisis of extreme poverty and disease in the developing world. Her current research and interests is focused on changes in the global economy, doing business in emerging market economies, and US trade policy. 

I did not know about Laura before I was assigned this alias, however, I was able to learn that her work is very important. Over her lifetime she has had many prestigious positions throughout her career to prove her importance and intelligence. Her knowledge about Economics is a very large range and therefore she has written many books, written many columns, and lectured many individuals over her career to share her knowledge. Her expertise will relate to the material we will be discussing in the course on a broader level, an international level. A lot of what Laura studied had to do with international economics and the organization for that is much different than on a smaller level. The behavior of international leaders can differentiate because they have different incentives and motivations. It will be interesting to see the differences in structure of the two and the difference in the level of difficulty.