Goldman Sachs was at the center of the Occupy Movement. This resignation sends several messages about the firm’s culture. With the many questions that the author raises, I wonder whether this is the best way to show disapproval of the firm’s conduct. Should Greg not resign but deal with the problem internally? I wonder, whether one can win such a war, anyway.
I also wonder what the situation truly is like at Goldman Sachs and what it means for their clients both great and small, and both in developed and developing countries? I am confident Goldman Sachs advises several governments in the world. Does this signal a way through which multinational firms can screw weak governments. I wonder how many countries or clients have fallen prey of this game.
via Mark Thoma | By Greg Smith, The New York Times
TODAY is my last day at Goldman Sachs. After almost 12 years at the firm — first as a summer intern while at Stanford, then in New York for 10 years, and now in London — I believe I have worked here long enough to understand the trajectory of its culture, its people and its identity. And I can honestly say that the environment now is as toxic and destructive as I have ever seen it.
To put the problem in the simplest terms, the interests of the client continue to be sidelined in the way the firm operates and thinks about making money. Goldman Sachs is one of the world’s largest and most important investment banks and it is too integral to global finance to continue to act this way. The firm has veered so far from the place I joined right out of college that I can no longer in good conscience say that I identify with what it stands for.
Over the course of my career I have had the privilege of advising two of the largest hedge funds on the planet, five of the largest asset managers in the United States, and three of the most prominent sovereign wealth funds in the Middle East and Asia. My clients have a total asset base of more than a trillion dollars. I have always taken a lot of pride in advising my clients to do what I believe is right for them, even if it means less money for the firm. This view is becoming increasingly unpopular at Goldman Sachs. Another sign that it was time to leave.
How did we get here? The firm changed the way it thought about leadership. Leadership used to be about ideas, setting an example and doing the right thing. Today, if you make enough money for the firm (and are not currently an ax murderer) you will be promoted into a position of influence.
What are three quick ways to become a leader? a) Execute on the firm’s “axes,” which is Goldman-speak for persuading your clients to invest in the stocks or other products that we are trying to get rid of because they are not seen as having a lot of potential profit. b) “Hunt Elephants.” In English: get your clients — some of whom are sophisticated, and some of whom aren’t — to trade whatever will bring the biggest profit to Goldman. Call me old-fashioned, but I don’t like selling my clients a product that is wrong for them. c) Find yourself sitting in a seat where your job is to trade any illiquid, opaque product with a three-letter acronym.
Today, many of these leaders display a Goldman Sachs culture quotient of exactly zero percent. I attend derivatives sales meetings where not one single minute is spent asking questions about how we can help clients. It’s purely about how we can make the most possible money off of them. If you were an alien from Mars and sat in on one of these meetings, you would believe that a client’s success or progress was not part of the thought process at all.
These days, the most common question I get from junior analysts about derivatives is, “How much money did we make off the client?” It bothers me every time I hear it, because it is a clear reflection of what they are observing from their leaders about the way they should behave. Now project 10 years into the future: You don’t have to be a rocket scientist to figure out that the junior analyst sitting quietly in the corner of the room hearing about “muppets,” “ripping eyeballs out” and “getting paid” doesn’t exactly turn into a model citizen.
Goldman Sachs will continue to be a powerhouse financial facilitator. But what this letter points to is some urgent internal philosophical questions this firm and other controversial firms should ask themselves. It also points to a weak system of social cohesion within banking – if a high profile banker can’t negotiate a change in his company except by leaving it and spilling beans to the public, that probably means there are heavy chains of command dictating the course of work. So much for markets being “free”.
When my brother got out of business school one of the places he sent his resume was to Goldman Sachs. We know a couple of family friends who work there, some in New York and some in London. Whenever my brother talked to them about wanting to work there they all alluded to the type of mental preparation you need to work there. “They make you work like crazy and you probably won’t have a social life,” they said. They made it sound like a scary place to work, and yet it’s one of the most sought after companies to work for. Even now, I’m sure, people will want to work for the big paycheck and status Goldman Sachs has. It shows you how money revolves around the heads of many. One might start out as an idealist, but in a corporate environment very few make it out with their morals in tact.
We need to continue this conversation in light of what just happened, losing a musician to drugs again. This is serious.