The financial physician

Siegmund Warburg was born into a talented banking family. Its members included Paul Warburg, who played a leading role in establishing the United States’ Federal Reserve System; and Eric Warburg, whose firm Warburg Pincus is one of today’s leading private equity firms. He himself played a prominent role in the development of merchant banking.

Warburg formed a view that what companies really required was financial expertise and advice – what he called Vermittlung or ‘mediation’. “Highly qualified mediation activity” was Warburg’s description of the business model he had in mind. To Warburg, a merchant banker (entrepreneur, dealmaker, joint venture strategist) was similar to a physician. He makes this point explicitly in an interview in 1970:

“The motives of a doctor are a mixture of altruism – the wish to help others – and of the ambition to do a good job. He hopes to obtain both the inner satisfaction arising from well-accomplished achievements as well as material recognition. On this basis a good doctor should in the first place listen with great attention to the problems and complaints of his patient and try to gain a comprehensive picture of his strong and weak points, looking not only at the patient’s specific ailments but observing the state of the patient as a whole with its physical and psychological ramifications.

A doctor must neither neglect smaller impairments of the health of his patient nor must he despair over the patient’s most critical afflictions nor desert him even on his deathbed. Moreover a good doctor must have the courage to tell the patient unpleasant facts and to oppose the patient when the patient wants to do things which appear to the doctor to be unwise.

Finally, the doctor when looking after his patient should think only how he can give the best care to his patient and should not give any thought to the bill which he will send to the patient afterwards. However, once the doctor has performed a good service, he should not be shy about sending proper bills to those who can afford to pay them. The primary point seems to me always to be the quality of the service and the courage to persist in giving well-considered advice, no matter how unpopular that might be at times.”

To Warburg, good bankers (entrepreneur, dealmaker, joint venture strategist), like good doctors, have the courage to tell clients unpleasant facts and to oppose clients when they want to act unwisely. Courage to give “well-considered advice, no matter how unpopular that might be at times” was at the heart of Warburg’s business model.

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