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Home > Blogs > Leslie Kossoff > Goldman Sachs' Culture: When Making Money Isn't Enough

Goldman Sachs' Culture: When Making Money Isn't Enough

Goldman Sachs' Culture: When Making Money Isn't Enough Leslie Kossoff

You know you've hit a nerve when not only are the Twitter stream and blogosphere overrun with comments and links - but the originating publication has to close its comments on your article because the volume has become too much...and run a live blog on the commentary that has ensued.

Normally, you'd think that this is a Lady Gaga announcement about her new Foundation getting her Little Monsters going. Or Justin Bieber doing something Justin Bierber-ish. Or something.

But no. This is Greg Smith's doing.

Who's Greg Smith? You might well ask - because, until today, unless you knew who he was there was no way you'd know his name. Or need to. Or care.

Mr. Smith was - until last week - an executive director of Goldman Sachs and head of their US equity derivatives business in Europe, Middle East and Asia.

Now, because he's written an Op-Ed piece for the NY Times taking the lid off of Goldman so that we can all see what he's been seeing - and what has led him to decide to resign - there's no stopping the commentary. For the business and finance types - and everybody who's still angry at all the banks and investment houses that caused the 2008 crash - he's the ultimate celebrity.

It's better than who the contestants are for this round of "Dancing with the Stars"...by a long shot.

In fact, as interesting as what Mr. Smith has to say - and he doesn't pull his punches - the reaction from within and outside Goldman is just as compelling.

First, let's start with what Mr. Smith wrote about his soon-to-be former employer. Then we'll take on what his well-written rant has wrought.

Integrity and Disillusionment


When Mr. Smith joined Goldman twelve years ago, it was an organization that respected its clients. Now, not so much. In fact, from what he describes, not at all.

How could they be respected when it's acceptable for staff to refer to them as "muppets" and the best way to move up Goldman's corporate ladder is by:

  1. Persuading clients to invest in stocks or other products Goldman is trying to "get rid of" because they don't have a lot of potential profits
  2. Getting your clients to trade "whatever will bring the biggest profit to Goldman" and
  3. Trading any "illiquid, opaque product with a three letter acronym."

What he describes - and is the basis of his decision - is that any integrity attached to selling clients a product that is in their best interests is gone. That's because the culture has shifted so that the only focus is on making money for the organization, itself. Not its clients. For Goldman.

Which makes its clients roadkill. Institutionalized roadkill.

He puts the blame for this directly on the current CEO, Lloyd C. Blankfein, and President, Gary D. Cohn. As far as Smith is concerned, the two titans leading the organization lost sight of what had been the culture long ago - and this is the outcome.

For Mr. Smith, who had real pride in having gotten a job at Goldman, moving up the ranks and, most particularly, pitching the company as the go-to answer for best-of-the best graduating students, his own integrity was on the line. His disillusionment with this company he loved - and which had treated him so well - was complete.

Which leads us to what the rest of the world has to say.

From Within and Without


Not unexpectedly, Goldman is doing its best to counter the arguments that Smith put forward. Citing everything from employee surveys to their own personal commitment to clients, Blankfein, Cohn, et al are doing their best to make it seem as if:
  • What Mr. Smith describes is a surprise to them
  • There's no basis for his comments and,
  • He never said anything about it to them anyway - so there was no way they could have known of his perception or his disillusion...

...which, of course, is wrong. So they say.

As for the rest of the writing/blogging/Tweeting/commenting world, the reaction depends, in part, on which side your bread is buttered.

For those who want to stay in good with Goldman (which, after all, is still one of the largest, most successful investment banks in the world), the tendency is to demean Smith. That's typical and to be expected.

Among the financial types, there's a lot of skepticism with not a lot of support for Mr. Smith or his position. Of those, though, the most surprising to me came from Joshua Brown on his blog, The Reformed Broker.

Brown is a Vice President at Fusion Analytics and the author of Backstage Wall Street - an expose of how Wall Street really works. So, while he states, quite correctly, that there's nothing new in financial service companies like Goldman being out for themselves - to the point that he cites Goldman's complicity in moving the 1929 Crash forward after they had protected their assets - given his intolerance for the behaviors of his Wall Street brethren, his impatience with Mr. Smith's Op-Ed was unexpected. At least to me.

Which leads us to the leadership lessons learned from this very big and public debacle for Goldman. If you're the leader of your organization:

  1. Make sure you're clear about what you want your organizational culture to be, and
  2. Make sure your employees know - and are rewarded - for perpetuating that culture.

Most important, if the culture of your organization is not something you'd want discussed by everyone and their cousin on the front page of every newspaper, blog and Google News search, either do something about it or find a way to rewrite your employee handbook's section on proprietary information, non-disclosure and confidentiality.

Because, if you don't, one day you may find yourself with a Greg Smith on your hands. And it's not pretty.

Just ask the boys at Goldman.

Tags: backstage wall street , equity derivatives , Goldman Sachs , Greg Smith , investment banking , investment banks , josh brown , Reformed Broker , Wall Street
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