60 Minutes ran a piece on Greg Smith,
an ex Goldman Sachs employee who wrote a “tell all” book on his
former employer. In it, he recounts how Goldman routinely screwed
their own clients out of their money with nefarious investments that
only a physicist could understand.
I found another article, below, where
another Goldman Sachs employee discusses what Smith never touched
upon, and that was the culture inside of Goldman. The culture prepped
and preened it's own to insure compliance to the overriding Goldman
goal, “make money in any shape and form.” This included
buggering their own customers.
I can't but help
think of this from history. Mein Ehre heißt Treue. The
SS creed. “My Honor is my Loyalty.” In both cases, remaining
loyal to Goldman or the SS, meant carrying out any order, no matter
how ridiculous.
*****
"...Smith doesn’t get, and therefore
couldn’t articulate, the implications of Goldman’s cultishness.
Just the way fish don’t recognize that they are swimming in water,
Smith likely does not appreciate how insular and inward looking
Goldman is. The aggressiveness of Goldman’s response isn’t just
to protect its external reputation; it’s also because, on some
level, people at Goldman really believe their PR. Look at how
remarkably thin-skinned Wall Street employees have been in the wake
of the crisis, how utterly unwilling the overwhelming majority are to
take any responsibility for blowing up the global economy. Goldman,
with its exaggerated sense of righteousness, is even less willing to
hear even a very watered down version of reality.
It’s been nearly 30 years since I
worked at Goldman, but even back then, Goldman was quite explicit
about the lengths it went to to build and reinforce its “culture,”
and from everything I can tell, it has if anything gotten more
extreme since then. For instance, it still puts recruits through far
more interviews than other firms do, which helps screen not just for
“fit” but also for how badly they want the job (most sane people
would lose patience with the process). Goldman then, and I believe
still, prefers younger MBAs (as in those with less rather than more
work experience) because it likes to “shape” people.
Even though the investment banking
industry is famous for requiring that staffers be willing to put in
punishing hours, in my era, Goldman was unique on the Street in
thinking it was perfectly normal to ask people to reschedule their
wedding if it conflicted with a deal timetable. I did a summer at
Salomon, and Salomon people didn’t socialize much outside of work,
while at Goldman, there was quiet pressure to; junior Goldmanites
were encouraged to get their summer “shares” in the same area
frequented by other Goldman employees. To give an idea of how insular
Goldman was then: of all the married non-secretarial women, the only
women who were not married to Goldman men had come to the firm
married.
The firm enforced behavior on far more
levels than other firms: dress code, communication (both frequency,
which was one of the firm’s strengths, but also mode: a sort of
PC-ness about giving credit, not being openly political or
self-promoting, not denegrating competitors or clients). The firm was
dead serious about preferring people who hewed tightly to the Goldman
cultural ideal. Guys who drove fast cars, got divorced and were a bit
too flashy would not be promoted as quickly as guys who were somewhat
less big producers but were complaint Goldman soldiers (yes, I can
name exceptions to that pattern, but they were far fewer than you’d
see anywhere else on the Street).
The firm was Machiavellian in its
organizational design. In investment banking, it had product
specialists (corporate finance, meaning stock and bond underwriting,
M&A, real estate) and salesmen who covered clients and sold all
products to them (Hank Paulson came out of that corporate calling
group, called Investment Banking Services). The party line was that
this promoted expertise and made sure there was consistent attention
to corporate clients and prospects. That no doubt was true, but I
doubt this was the operative truth. This structure also circumvented
the way big producers normally had leverage over a firm, that if push
came to shove, they could leave and take clients with them. If you
have one person who has the relationship dependent on other people
executing the business, neither group can readily leave with clients.
Similarly, in my day (and it has changed since then) people were
hired into a department and people very very rarely switched
departments; the internal PR was that (again) it was to promote
expertise. Again, the operative truth was that Goldman went to great
lengths to keep politics to a bare minimum, recognizing how it
diverted energy from making money for the firm. Having partners poach
on other departments for talent would be enormously divisive, so best
to make that an exceptional event.
Goldman people then genuinely believe
Goldman was the best place to work; leaving was seen as a fall from
grace. I knew very successful individuals who departed after I did,
and were 6-10 years into their careers, and each said virtually the
same thing, verbatim: that it took them two years to get over the
idea that leaving Goldman meant they had taken a big career step down
(and objectively, none of them had).
This is a long winded intro, but the
critics of Smith’s naivete about Goldman’s conduct don’t get
that the failings he saw were a big deal if you’ve identified
strongly with the Goldman culture, and the firm works extremely hard
to recruit and inculcate people with that end in mind. It appears
from Smith’s age and his tenure at the firm that this was his first
real job, so he was the perfect sort to be imprinted by Goldman. It’s
like having been a loyal Catholic, say 40 years ago, and realizing
not only that the church had pedophile priests, but the top
leadership was aware of it and refused to do anything about it. Now
with hedge and PE funds having knocked Goldman off the apex of
financial glamor jobs, and the firm now a sprawling global
enterprise, it’s actually remarkable that it has managed to
maintain as much of its cultishness, um, cohesiveness as it has.
Goldman’s dedication to clients has
fallen in the Blankfein era. Even though Smith doesn’t deliver the
goods in his book, his bottom line is correct: Goldman’s internal
ethics have declined, and the fall over Smith’s tenure likely is on
a steeper trajectory than in its peers.
I’d have dinner a few times a year
with a senior Goldman officer in a staff function that put him in
front of the of the Executive Committee and department heads on a
regular basis. He was extremely circumspect about his day-to-day
activities. However, he found it pretty much impossible not to convey
to me how the firm was changing, and how disturbing he found it to
be. While he did not think much of Hank Paulson, he did regard the
co-presidents under him, John Thain and John Thornton as both
concerned with preserving Goldman’s culture and franchise (Thornton
had been particularly opposed to going public for that reason) and
were long-term oriented. By contrast, he was distressed by and
contemptuous of Blankfein and the new leadership, who largely came
out of the commodities/trading side of the firm (the view from the
old Goldman that commodities was lower class and less ethical than
the more highly regulated securities markets was strong in my day and
was confirmed by the negative reactions internally by non-partners to
Goldman’s acquisition of J. Aron. I was the most junior staffer on
that deal). My dinner buddy made it clear he thought the new
management team was less able, less thoughtful, concerned only about
as much money as possible now, and didn’t care much about what
impact that might have long term.
Confirmation of the change in the firm
under Blankfein comes from former Goldman co-chairman John
Whitehead’s unusually direct criticism of Goldman’s bonus
policies in 2007. Similarly, I’ve been told that the Weinberg
family (Sydney Weinberg played a huge role in Goldman’s rise to
pre-eminence; his son John was co-chairman with Whitehead) is
distraught over the disclosures made over firm practices in recent
years.
Goldman has such a strongly developed
internal culture that even a change at the top would take a while to
percolate through, and Smith appears to have seen the impact.
Finally, critics don’t recognize a
hidden upside to Smith’s dramatic exit. If you leave Goldman, the
assumption is you are some sort of loser and perhaps on the verge of
being fired. Yet in Goldman’s efforts to trash Smith, the worst
they had on his was his bonus ask was way too high given the firm’s
overall results; one managing director even told him that he needed
to be patient, it had taken him a long time to become managing
director and Smith needed to keep the faith. So Goldman officially
confirmed that while Smith was not on the fast track, he was still a
contender, which is a lot more than most places will say when someone
slams the door on their way out."
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