It was bizarre sort of pop quiz; he had come out of private equity, while I had been building servers for the last four years. I floundered.
"Equity," he solemnly informed me, after a few minutes of bewildered guessing. "Debt payments are capped. Equity has unlimited upside, while debt payments are capped.
This is conventional wisdom at America's business schools, and over the next few years, I definitely lived it. We borrowed money for school, for living expenses, for books. I bought a car, went skiing, went to Mexico on spring break. Why shouldn't we? We were "consumption smoothing"; in a few years, we'd be making more than $100K, so why not spend a little of that now?
Then we were unleashed on the world to tell companies about the astonishing benefits of leverage. Leverage let you turn a small investment into a huge profit. Leverage means you get all that juicy corporate upside for yourself. You should never use equity finance if you can use debt.
That logic is alive and well, as Joe Weisenthal reports:
We remarked after Goldman Sachs (GS) came out with earnings, that analysts were already pestering the company about its mere 14x leverage ratio, wondering when they might start to get more aggressive -- this after the financial system nearly collapsed due to too much leverage.He goes on to quote an HBS blog lamenting Google's lack of leverage. To which one of his commenters retorts:Nobody's learned anything.
Joe - have you ever looked at a finance textbook? If you can borrow long-term funds at a cheap rate to acquire/fund businesses that will grow/earn CFs at a faster rate, then that is value-creating, bottom line. It's a better strategy than using equity (or not buying back equity) due to the higher cost of capital (opportunity cost) of that equity.
In short - if someone will lend you money at 6% to invest in a business that returns 10%, then you have a positive economic return.
The trouble is NOT in taking on debt, per se, but in terms of taking on debt to fund projects/do LBOs that don't earn cash at a rate ABOVE the cost of that debt.
What's missing from that picture? Risk. I didn't get that $100,000+ job I was expecting; I ended up in journalism, making less than half that. My loan payments ate up something like 45% of my take-home, which made it extremely difficult to live. Loan payments have limited upside for the investor. But they have unlimited downside for the borrower: if you can't make your loan payments, you're bankrupt, and out of business, or at the very least, forced through an awful restructuring.
The problem is, in an expected value calculation, going bust shows up as a zero. But in fact, it's an extremely negative-utility event. Oh, some people can merrily declare bankruptcy and walk away. But most people, and firms, find it deeply traumatic. That isn't captured when you blithely declare that equity is more expensive than debt. Or talk about investing in a business that returns 10%, as if there were some kind of textbook world where you could actually get a guaranteed return.
American debt levels are hugely out of line with other countries. I'm a big fan of American exceptionalism, but in this case, I'll say that we're at least partially in error. We need to take the downside of leverage much more seriously, starting with our nation's business schools. OF course, I don't expect people taking on $100,000 worth of debt to be too easy to persuade of the dangers of leverage.
Careful, you are starting to sound like Dave Ramsey.
Not that it's a bad thing....
It's a self-perpetuating thing as far as student loans and higher education are concerned. If it weren't for the availability of student loans, colleges and graduate schools wouldn't be able to charge such exhorbitant amounts.
Here is the part that makes me wonder in all this. Since there is more money flowing into education (via subsidized student loans) consumers are driving up the price of a degree, since they can throw more money at it. This makes sense. But producers should be making more products available to capture that marker, there should be more schools opening up, since it is now much more profitable to run one, and the new schools should increase competition and drive the price down. Why isn't that happening?
Probably because start-up costs would be huge. And it's not something you can start overnight.
It's very difficult for a "start-up" school to establish the sort of branding that a more established institution has. There may, in fact, already be schools where you can get just as good or better a liberal arts education as you can at an Ivy League school for much less money, but students and their families keep paying more to the Ivies just for the brand. And this is not entirely irrational on the part of the students, because employers know the big-name schools but, if a less established school creates a better academic program, it's very hard for this information to find its way to employers.
Ken,
The "product" is the signaling not the actual education. An Ivy Leauge degree indicates that you're among the elite when it comes to smart, workaholic, perfectionist, hoop jumpers.
What does my no-name degree and experience indicate? That I may be smart, but not quite up to the level of workaholic perfectionism that elite employers are looking for.
An Ivy Leauge degree indicates that you're among the elite when it comes to smart, workaholic, perfectionist, hoop jumpers.
No, it doesn't. One only need look at our last President to know that's not what is signaled. There are plenty of lazy, legacy students that go to Ivy League schools. It's about power conferring that power on the next generation.
No, it doesn't. One only need look at our last President to know that's not what is signaled.
W. graduated 40 years ago - things have changed.
Maybe its less about signaling and more about networking?
W. graduated 40 years ago - things have changed.
And your proof is? Just because Princeton(no thanks to idiots like Alito), or other Ivy's, now admit women and minorities?
In the post "On Income and Consumption Inequality" M.Jed links to a study on debt and income inequality that's worth a look.
Just remember, Chauncey is betting the mortgage on Megan being wrong. Bernanke has his foot mashed to the floor, and Tim is borrowing as fast as he possibly can.
The three of them have one heck of a bet riding on people and businesses borrowing and spending a LOT of money.
Soon.
So when is hiring going to pick up? Because if it doesn't, then they are screwed. How are "B-52" Ben and Timmy Geithner going to force companies to hire?
I think the regulatory uncertainty is keeping the hiring down to a minimum. companies don't want to hire people if they are afraid they would not be able to do lay offs when necessary
Care to explain further? What regulatory uncertainty do you mean? Companies are laying off people left and right at present. So how can you say that?
Calvin: Everyone know change is coming, but not one knows exactly what its going to be, and what kind of unforeseen consequences it will have.
Will union get stronger and make it much more difficult to fire people?
How much higher will taxes go? What are the compliance costs going to be?
Just what kind of regulations are going to be imposed on the financial market?
Which companies will gain and which will loose if we get national healthcare?
No one wants to bet on the wrong horse, so everyone is waiting.
I wonder that too. I was out for about 3 1/2 months while the startup that I was working for was being sold. Luckily, I had a job to come back to once that went through - others didn't though. The point is, the company learned to operate with less people and those of us remaining are working a lot harder. There is some amount of slack in just about any company (duplicative or unnecessary work) and this will have to be removed before any new hiring occurs.
Productivity may be the enemy of the recovery.
According to Chauncey and Bullwinkle, it already has - haven't you heard? Bullwinkle Biden is claiming all sorts of success right now, in Richmond VA, as this is typed.
Joe sees jobs! Joe sees success!
It's easy to believe that Joe also sees unicorns, gnomes and fairies dancing by his bedside, each night before the Secret Service "posey's" him...
And W.'s job creation record was just so stellar!!
The W Quoque is reaching Godwin levels of usage right now.
If that's your best response after triumphing a candidate who promised hope and change in response the flawed policies of his predecessor, you might as well concede the argument. Speaking of which, how is he doing in regards to state secrets, indefinite detention without trial, deficit spending, and gay marriage?
Would tuition for B school be any less of a gamble if you promised your lenders 50% of your lifetime earnings above the poverty line instead of promising them a fixed repayment?
Good point. Megan should imagine a situation where she sold her 'equity' (a portion of her future earnings til death) to finance her MBA but did get that $100K/year job. Does being an indentured servant for the rest of your life sound like a good deal?
Excellent, Megan, thanks.
As with so many things that Obama has done, I'm very concerned with his speeches deriding excess borrowing and credit-living and his actions of trying to re-stimulate that lifestyle in the U.S.
Seems to be me it would be far better to help the economy ease down to a reasonable base and start building again, rather than trying to re-start the credit free for all.
But hey, I'm just about to enter business school, what do I know?
I think there is a fundamental desire for people in these positions to highly leverage. It's a greed thing, obviously, but lets put it in terms for the layman:
You've got $50,000 in capital (not unusual for someone in the middle class with 15-20 years of work under their belt), sitting around in a money market making 4% interest or in equities or whatnot, you are making $2,000 a year off of it.
Now if you leverage that up 20x, it's worth $2 million. If you sink that into an investment that generates 3% more than the interest on the leveraged money, you've got an extra $60,000 coming off the top.
And ALL you have to do is beat the interest rate by 3%. Or 2%. Or 10%.
There are alot of people out there who take those sorts of initial investments and repeat them over and over and generate loads of capital for themselves. And others who lose out. Creative destruction and all that.
I think teaching that in business school is actually a good thing (I anticipate, we'll see)....but the problem comes up when you've got massive businesses with TOO MUCH of their assets highly leveraged.
An individual or small group or small percentage of a large group have methods of handling that sort of risk if the worse comes. A large institution should not be able to take on that level of risk above a certain percentage of their overall resources....
I'm not a fan of regulation, but that seems like a reasonable one....the business is only limited by it's overall revenue....gain revenue, gain the ability to leverage more assets.
Maybe i'm talking out my bum :)
Joe
You're ignoring limited liability of corporations (and other limited liability forms of business). The owners can't lose more than the company itself is worth, no matter how much risk the company takes on.
It's not uncommon for certain types of investors, especially developers, to set up a separate limited liability company for each development project. They do this to limit their downside for losses, while maximizing their upside profit potential. Basically the banks/bondholders shoulder the majority of the risk while being limited on their reward. It makes sense from the developer's perspective, but I'm not sure why lenders are so eager to lend on essentially speculative acts.
Lenders are eager to lend on essentially speculative acts because the downside belongs to the shareholders and the upside belongs to the bonus pool for the executives.
That makes sense, also the government is put at risk, through its guarantees for the depositors (and implicitly through bailing out anyone too big to fail).
You're ignoring limited liability of corporations (and other limited liability forms of business). The owners can't lose more than the company itself is worth, no matter how much risk the company takes on.
Ah, to live in the U.S., where apparently "limited liability corporation" actually means something. Up here in the Great White North, small business owners are routinely required by banks to sign so-called "personal guarantees" when their business seeks a loan from said banks. The personal guarantee basically says the bank can come after the owners if something goes horribly wrong and the liquidation value of the company isn't enough to re-pay the debt to the bank. Don't want to sign a personal guarantee? that's easy — don't seek a loan from the bank.
After doing a cursory google search, it appears our small businesses usually have to too. Learned something new, thanks.
Another way to phrase it...
The borrower may go bankrupt, but they're losing the bank's money, not their own.
Megan,
Same commentor as on Joe's original piece.
Yes, risk is a factor, and my 'analysis' if you want to call it that does accept the 10% as a given.
I wasn't trying to say that it makes sense to borrow at 6% b/c some analyst tells you can go earn 10%. But it DOES make sense to borrow at those levels if your risk-adjusted returns on a given project are at that level.
Additionally, if those loans are project-recourse, not corporate, then the affects of BK may not be as traumatic (although certainly a major downside, nonetheless) as you may have described.
Or, to put another way, I happen to deal in highly regulated industries where we can get a fair sense of the actual returns on a given project given steady demand and end usage. Given their more guaranteed and stable nature, returns are quite low. In this case, debt on a project level is extremely important and useful in order, so long as the borrowing cost is somewhat below those returns, in order to earn a decent return on equity.
That's fair . . . but regulated industries have much lower risk than most businesses making investment decisions.
Fair enough. But that all depends on your ability to accurately predit risk. Two years ago most people in the business would have said that credit default swaps and mortgage backed securities had measuable, controlled, risk profiles - except they spectacularly didn't.
You're very correct to say that leverage is an efficient means of building profits out of minimal capital. But that doesn't necessarily trend that there shouldn't be rational limits on leverage v. equity.
Duh! If you could accurately predict risk, it wouldn't be risk!
;-)
Ken,
Maybe its less about signaling and more about networking?
For an MBA maybe. But for kids being hired out of undergrad, I'd say 80% of the time companies are simply looking for people who are willing to bust their a*s for prestige and money.
Ken,
Question and possible topic for Megan: What goes into an employers decisions to recruit/hire at a particular school? With Megan as an example, what goes into a company deciding to recruit MBA grads at U of Chicago vs. U of Illinois?
Modern finance seems like a very sophisticated game of hot potato, where the potato represents risk.
Employers used to give IQ tests to applicants. When Congress and the Supreme Court effectively outlawed the practice, employers who need bright people started using entrance into elite schools as a surrogate IQ test. Harvard isn't going to teach you more than your local state school, but the fact that you got in puts you at the top end of the IQ scale, and that's what Big Law wants in a new hire.
For the elite schools it's a great deal, too, since it's a self-reinforcing system. The harder your school is to get into, the more employers want your graduates, which creates more competition for entrants.
Employers cannot test for IQ? I thought they mostly quit because its too impractical, with results not corresponding too well to performance, but I had no idea it was actually illegal.
Hell, I've had to take several tests that seemed very similar to an IQ test for promotional purposes.
Effetively outlawed. Sure, you can give an IQ test, if you don't mind being sued out of business.
tsotha,
IQ tests will weed out the stupid but they won't weed out the lazy. Hiring a kid from a middle class background who went to Princeton (as an example) and you're almost guaranteed someone who's been busting his hump since kindergarten.
You're better off hiring a lazy smart kid than a hard-working kid of average intelligence. Lazy people can be motivated, but you can't make someone smarter.
I disagree, I'll take workers with a good work ethic over intelligence most of the time. You can make up for lack of intelligence with more people and more time, but its hard to make up poor work ethic. You have to try to "catch" people, and if they happen to be smart, its awfully hard to do
It's not either or. You can hire a smart kid or a hard working kid or pay extra and get the kid who is both smart and hard working.
The easiest way to do that is hire someone from a middle class background who went to an elite school.
Lazy is never particularly good, but smart people who have somewhere to be at 5:30 can be very, very efficient. They're not the ones who sit around gossiping all day.
Maybe I should have qualified with "In some businesses..." Certainly in my business intelligence is much more valuable than work ethic - there's a lot of loss to "friction" as you add people to development teams. I'll admit there are other businesses where that's not the case, but those kinds of places don't hire Harvard grads.
Harvard isn't going to teach you more than your local state school, but the fact that you got in puts you at the top end of the IQ scale, and that's what Big Law wants in a new hire.
Seriously? Going to Harvard doesn't guarantee anything(except being able to get a high paying job when you graduate). It surely doesn't guarantee anyone has a high IQ.
Guarantee? No. But as a business I like the odds.
Calvin,
I assume you'd agree that if you hire a kid from a middle class background who went to Harvard/Stanford/Princeton etc. you can be pretty sure he's both very smart and very hard working?
How was that "effectively outlawed"? I've never heard of an actual law against that, and it doesn't fall under the definition of unconstitutional discrimination.
Griggs v. Duke Power Co. Of course, in theory it doesn't outlaw the tests, but the legal playing field is set up such that you'd be mad to actually give one to an applicant.
This gets into the area of "disparate impact" under anti-discrimination law. First, it is fairly easy to construct a racially biased test. Testing knowledge of Country & Western lyrics would probably be biased in favor of whites. Testing knowlege of rap would probably be biased in favor of blacks. So, if you want to discriminate based on race, it is fairly easy to do so using a test.
Constructing an IQ test is hard, because it is hard to separate IQ as most people think of it from specific knowledge. Language is a good example. If you administer an IQ test in English, people who don't speak English will score poorly. The same applies to cultural knowledge. Consider the question, "Horse is to polo as club is to: (a) disco; (b) sandwich; or (c) golf." Answering that question requires specific knowledge of how polo and golf are played, as well as an ability to reason.
Generalized IQ tests score some racial groups higher than others. Most general IQ tests will score whites as a group higher than blacks as a group. Note that this is a group statement, and doesn't apply to individuals - it doesn't mean that no black person will outscore any white person. Despite efforts to remove obvious problems, like asking about polo, group differences remain. No one, as far as I know, has succeeded in constructing a test which plausibly measures IQ and does not produce higher group scores for whites than for blacks.
In the 1970s, Duke Power used generalized IQ tests in hiring its employees, like linemen. Because of the above, more whites than blacks were hired, and the un-hired blacks sued. The Supreme Court held, and Congress agreed, that using IQ tests like this amounted to racial discrimination, unless the employer could show a close correlation between the tests and the actual demands of the job. Thus, using generalized IQ tests in hiring has been effectively outlawed.
"This is conventional wisdom at America's business schools"
I don't for a minute believe that your finance professors at Chicago talked about leverage without pointing out repeatedly that it increases risk. In my classes, I go through several numerical examples to show how, even in the case where there's no risk of bankruptcy, even small amounts of leverage increase the variance in equity returns. The MBAs may not always get the message, but it is always given.
As for firms using debt rather than equity because it has a lower required return, in business schools we emphasize weighted average cost of capital (WACC), and again I go through numerical examples to show how switching from higher cost equity to lower cost debt doesn't necessarily lower and can even increase the WACC because more debt increases the risk and hence the required return on equity.
What we emphasize in business schools regarding use of debt is that there's a huge debt tax shield. It's because of that tax distortion that companies are foolish not to use some debt. I always point out in my finance classes that this is a questionable distortion and that politicians should rethink the choice of giving firms an incentive to use substantial amounts of debt.
Ann - I pray, as someone about to enter business school, that you could actually turn your paragraph into a more layman term comment.
I'm no complete newbie and I'm fairly quick on the take-up, but I could not follow along. Maybe there's just too many terms in there I haven't been using for years.
Joe
Joe - I'll be happy to answer any questions. On the effects of leverage, it may help to think in terms of rate of return. If you borrow at 6% to invest at 10%, then on average the more leverage you use, the higher the return. If you borrow half the money and put in half of your own, your expected return on your own money goes from 10% (if you only invested your own money) to 14% (ignoring transaction costs, etc.), because you earn 10% on your money plus get a "free" 4% on the other money invested, after paying the bank only 6%.
But after the fact, if you end up getting a return of only 4% on your money, you still have to pay the bank 6% on what you borrowed. So, you get 4% on what you invested and -2% on the other half, for an average return of only 2%. If you had borrowed 90% of the money and put in only 10% yourself, the expected return is even higher, but the bad times are even more painful. And 'bad' in this sense doesn't have to mean a return below 0%, just any return below the 6% you borrowed at. More leverage means higher average returns, but also wider variance in returns.
As Megan pointed out, if you also factor in some nasty deadweight losses every time your return is below some threshold, then the effect can be even worse.
If you want me to explain what I posted about the WACC (weighted average cost of capital, which is pretty much the same as the average return in my portfolio example above), I'll be happy to. If you're on your way to business school, you'll see the formulas for WACC which, I have to admit, are pretty boring. Just remember that the weights have to add to one!
Or if you were actually asking about the debt tax shield, I can discuss that more. It just means that interest payments are tax-deductible while dividends to stockholders are not. So, of two otherwise identical companies, one that has a moderate debt level will pay strictly less tax than the other that is all-equity.
I meant among the business school students, not the professors.
Thanks, Megan. I just wanted to keep the record straight.
Megan, you should also keep in mind that you went to business school during the internet bubble. I taught MBAs before, during and after that bubble, and students were different during it, particularly in terms of their attitude towards debt vs. equity. After all, in the "new economy", I was told by my students that all firms preferred equity.
Megan, you went to the University of Chicago, didn't you? Didn't Merton Miller get his Nobel showing that once you adjust for risk (and putting aside different tax treatment), there is no difference between debt and equity? Did your classmate skip his course?
MDF - The Modigliani-Miller models (1958 for debt and 1961 for dividends, I think) assumed perfect, frictionless markets that simplified reality in many ways, not just in terms of taxes. The models were very useful because they convinced people to focus on market frictions (taxes, deadweight bankruptcy costs, transaction costs, private information) rather than on preferences (people don't mind a little risk but get too nervous if the firm gets 'too risky'). But if we believe that there are these various frictions, then we need to add them into the model.
I remember. But I also remember that Miller was quite brutal to those MBA students who suggested that markets contain more friction than just the bare minimums, and that most qualitative distinctions drawn between debt and equity were foolish. That said, he was quite brutal to MBA students generally, along with the Swiss, the CFTC, the Chicago Tribune, anyone doubting the efficient markets hypothesis, etc. (I was just a cross-registered JD student in one of his classes, though; he took pity on me the way one might a small mentally challenged puppy.)
I wonder about this. One of my best friends got a decidedly non-liberal arts education - EE major, graduated with an M.S. and a 3.8 cumulative GPA - and he had to undergo some rather rigorous screening at McD's. Same thing with some of my old math buds who became actuaries. According to them, the school you went to is less important - much less important - than how well you do on the actuary exams. Graduating from Duke won't help you any if you only score a 75 and you're competing with people who are scoring 92's on average.
It would seem then that a liberal arts education indicates that you don't really have all that much to offer, jobwise, whatever school you go to.
Oops: 75 is dangerously close to (4/5)*92 -- sounds like we need a wise latina to rein in this ruthless meritocracy.
"I'm a big fan of American exceptionalism, but in this case, I'll say that we're at least partially in error. "
Actually, usually when it comes to "American exceptionalism"
you're totally in error. Generally your view of overseas is a wild mixture of ignorance and stupidity.
It is interesting how your view of "American exceptionalism" shifts when you have to pay cash for your own decisions.
Kudos, Megan.
You got it - Risk. Generally speaking the difference between the pricing of debt and equity is risk.
However, there are two more subtle things which affect this pricing which make the business school know-it-all's pop quiz look, well, business school.
1) Not everything is available all the times in equal amounts. Or, as the Stones would say, "You can't always get what you want." Sometimes banks aren't lending. Sometimes equity isn't buying. The entire REIT industry of the early nineties was created largely because debt was not available and equity was - making it cheaper at the time. Markets sometimes have scarcities which go beyond normal risk-reward pricing.
2) One thing that makes equity more convenient and thus cheaper is the timing of payments. Debt, except in extraordinary circumstances, requires timely and relentlessly regular payments. Equity does not. Cumulative returns, delayed payouts are pretty regular and, while they may equal out in the long run (as a percentage return, IRR, what have you), can get you through some uncertain times (loss of a major tenant, delayed IPO, didn't get that defense contract, etc.). Nothing ever goes quite according to plan in the real world. The flexibility that equity provides has major benefits that are not quite so easily quantified.
The problem is, in an expected value calculation, going bust shows up as a zero.
In theory, risk should be priced in. Just look at the WACC (Weighted Average Cost of Capital) formula, and the risk premium is right in there.
Where your point is sound, though, is that corporate finance coursework implicitly assumes that resources are always abundant. The courses don't do well with managing for scarcity. That blind spot may be OK for old line, lumbering behemoths with endless resources, but that can be a kiss of death for entrepreneurial companies whose fortunes are less stable.
The fact that it looks vaguely scientific endows false credibility on the analysis -- it's complicated, so it **must** be right. That feeds a bubble mentality, as we have just seen with the financial meltdown, which was ultimately a massive underpricing of risk.
Leverage has its benefits, but the main detriment is that the repayment is tied to schedules that may conflict with the future unanticipated needs of the enterprise. Tech companies tend to avoid debt, in part because they can go from hero to zero in a heartbeat. In practice, the risk premium may be hard to price, because they're in a fickle sector and might, for all we know, implode in a few years' time if some other flavor of the month comes along to replace it.
Having debt imposes a payment schedule that would effectively put their Plan B at the mercy of lenders, bondholders, etc., who demand payment, no matter what. That could bar them from responding to changes in the market when they need to change most. Equity is generally more patient (and has fewer rights for immediate repayment), which is of benefit at those times when your business is up against the wall.
Avoiding debt can also lead to better management judgment. Scarce resources tend to impose discipline on management teams, because there isn't as much to piss away and they have to make do with what they have generated internally. Shoveling bucketloads of cash at them won't lead to better choices, but just feeds bigger losses because they'll squander it. A company with substantial earnings should think about why they would take on a repayment commitment when they should be able to find other ways to grow the business without taking on that burden.
Small biz benefits most from easy access to short-term debt; debt to their supply chain, in particular.
No business plan survives a cash flow needs analysis intact.
I mentioned this elsewhere a few months ago ("Lessons from Brooklyn's New Economy"), but the academic perspective on the virtues of debt always seemed counterintuitive to me.
In an NY Institute of Finance class a couple of years ago, for example, the instructor, a veteran CPA and CFA, lectured that it was a bad thing for a company to have a lot of cash on its balance sheet (because that dragged down returns on equity). He said that a company flush with cash it couldn't put to use ought to use it to buy back its stock, and then lever up and buy back some more stock. Of course, companies that followed that sort of advice in the last couple of years haven't been well served by it, while companies holding net cash may now have some attractive opportunities to put it to use in a depressed market.
Dave,
As true as that may be, the market can remain irrational much longer than you can keep your job as a corporate treasurer.
A personal question for you Dave - In your business, how long could an employee remain dramatically less productive than his peers and still keep his job?
Considering that my business consists of just me at this point, JMO, it's tough to say. I can't fire myself for being unproductive. I did fire a vendor recently (an attorney) for failing to produce something, repeatedly, on a timely basis.
To answer your question from the experience of jobs I've had in the past, I'd say it depends on the firm. The shortest time frame I've seen was one week -- that was at a small, over-the-counter investment bank/brokerage where cold callers were fired every Monday based on their lack of productivity. The longest I've seen was a few years, at a larger company.