When people think of investment banks, they typically think of large integrated banks with numerous divisions and a large balance sheet.\u00a0 Most employees of these firms don\u2019t even know what their employers\u2019 lines of business are, let alone how the different business lines interact.\u00a0 However, Greenhill & Co. operates under a much simpler business model and is thus able structure its entire operating structure in the pursuit of one goal: maximizing advisory fees.<\/p>\n
What is Greenhill and How Does it Make Money?<\/strong><\/p>\n Greenhill is a global independent investment bank focused entirely on providing financial advice on M&A, restructurings, financings and capital raising to corporations, partnerships, institutions and governments. It does not trade, invest, underwrite, make loans or write research reports.\u00a0 The only way that Greenhill generates revenue is through fees from advisory assignments, which are typically some combination of a retainer, a fixed monthly fee and a success fee, which is calculated as percentage of the total deal value (with retainers and monthly fees often credited against this).\u00a0 Further, Greenhill maximizes the fees it generates per transaction by emphasizing larger transactions, which involve the same amount of work as smaller deals but pay far larger fees.<\/p>\n So, How Does Greenhill Attract Clients?<\/strong><\/p>\n As the firm\u2019s only product is advisory, it can only attract new clients and retain existing clients by offering high quality, independent advice.\u00a0 There is no ability to win assignments by offering cheap financing or other products.\u00a0 Thus, the firm focuses on three key differentiators: independence, expertise and service.\u00a0 Since advisory is the firm\u2019s only business line, there are no inherent conflicts of interest.\u00a0 The firm is so focused on maintaining this point of differentiation that it spun out its private equity fund, Greenhill Capital Partners, in 2009, in order to maintain true independence.\u00a0 By employing managing directors that are experts in their field (many former group heads at bulge bracket firms) and having them dedicate significant time to their clients, Greenhill is able to market superior expertise and service.<\/p>\n Organizational Structure<\/strong><\/p>\n In addition to maximizing advisory fees, the other key goal of the business model is minimizing overhead costs.\u00a0 As a pure-play advisory firm, employees are both the sole driver of revenue and the most significant component of the cost structure.\u00a0 In order to optimize this, Greenhill\u2019s organization is designed to be shaped like an hourglass, with many senior bankers who are responsible for managing relationships and generating all of the fees that drive the firm\u2019s revenue, and many junior bankers, who are the least expensive resources and are responsible for the vast majority of deal execution tasks.\u00a0 Greenhill employs very few mid-level bankers, as they are cost ineffective workers and do not generate any fees of their own.\u00a0 The few mid-level bankers are simultaneously staffed across numerous projects and are responsible largely for managing junior staff.\u00a0 Further, hiring practices ensure that this employee mix is maintained.\u00a0 Junior bankers are hired on two year contracts with the expectation that they will leave for other opportunities at that point. The firm then helps analysts land private equity and hedge fund jobs, ensuring that junior bankers are motivated to work hard (often very long hours) for the senior bankers helping them land jobs, yet preventing the expectation of a long-term career at Greenhill.\u00a0 Further, the majority of senior bankers are hired from outside the firm, filling any talent voids and bringing in new clients.<\/p>\n Keeping Everyone Motivated <\/strong><\/p>\n Given Greenhill\u2019s lean deal teams, it is crucial that employees are properly motivated.\u00a0 Greenhill achieves this by having a compensation structure that is aligned with its business model. \u00a0Performance-based pay makes up the vast majority of compensation for all bankers at the firm, with salary representing approximately half of the compensation of junior bankers and a far lower percentage of total compensation for senior bankers.\u00a0 In rough terms, managing directors keep one third of the fees they generate, with another third paying for firm overhead and the final third going to shareholders.\u00a0 This ensures that managing directors are focused on signing new clients and generating fees.\u00a0 On the other hand, junior bankers\u2019 performance bonuses are set based on their performance reviews, ensuring that they work hard and uphold high standards when executing transactions.\u00a0 This is crucial to make sure that Greenhill is able to maintain the high quality and responsiveness that keeps existing clients happy and allows managing directors to continue to win new business.<\/p>\n <\/p>\n http:\/\/www.greenhill.com\/sites\/default\/files\/greenhill-fact-sheet-2015.pdf<\/p>\n http:\/\/www.greenhill.com\/investor\/letter<\/p>\n http:\/\/www.greenhill.com\/sites\/default\/files\/november_19_2015_goldman_sachs_investor_presentation_0.pdf<\/p>\n","protected":false},"excerpt":{"rendered":" Greenhill’s business model and operating structure are perfectly aligned to maximize profitability by driving fee based revenue while minimizing headcount and overhead<\/p>\n","protected":false},"author":900,"featured_media":7410,"comment_status":"open","ping_status":"closed","template":"","categories":[264,1169,1026],"class_list":["post-7409","hck-submission","type-hck-submission","status-publish","has-post-thumbnail","hentry","category-finance","category-greenhill-co","category-investment-banking"],"connected_submission_link":"https:\/\/d3.harvard.edu\/platform-rctom\/assignment\/the-tom-challenge-tom-winners-and-losers-assignment\/","yoast_head":"\n