By Greg Smith, New York Times, March 14, 2012
Greg Smith is resigning today as a Goldman Sachs executive director and head of the firm’s United States equity derivatives business in Europe, the Middle East and Africa.
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.
It might sound surprising to a skeptical public, but culture was always a vital part of Goldman Sachs’s success. It revolved around teamwork, integrity, a spirit of humility, and always doing right by our clients. The culture was the secret sauce that made this place great and allowed us to earn our clients’ trust for 143 years. It wasn’t just about making money; this alone will not sustain a firm for so long. It had something to do with pride and belief in the organization. I am sad to say that I look around today and see virtually no trace of the culture that made me love working for this firm for many years. I no longer have the pride, or the belief.
But this was not always the case. For more than a decade I recruited and mentored candidates through our grueling interview process. I was selected as one of 10 people (out of a firm of more than 30,000) to appear on our recruiting video, which is played on every college campus we visit around the world. In 2006 I managed the summer intern program in sales and trading in New York for the 80 college students who made the cut, out of the thousands who applied.
I knew it was time to leave when I realized I could no longer look students in the eye and tell them what a great place this was to work.
When the history books are written about Goldman Sachs, they may reflect that the current chief executive officer, Lloyd C. Blankfein, and the president, Gary D. Cohn, lost hold of the firm’s culture on their watch. I truly believe that this decline in the firm’s moral fiber represents the single most serious threat to its long-run survival.
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.
It makes me ill how callously people talk about ripping their clients off. Over the last 12 months I have seen five different managing directors refer to their own clients as “muppets,” sometimes over internal e-mail. Even after the S.E.C., Fabulous Fab, Abacus, God’s work, Carl Levin, Vampire Squids? No humility? I mean, come on. Integrity? It is eroding. I don’t know of any illegal behavior, but will people push the envelope and pitch lucrative and complicated products to clients even if they are not the simplest investments or the ones most directly aligned with the client’s goals? Absolutely. Every day, in fact.
It astounds me how little senior management gets a basic truth: If clients don’t trust you they will eventually stop doing business with you. It doesn’t matter how smart you are.
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.
When I was a first-year analyst I didn’t know where the bathroom was, or how to tie my shoelaces. I was taught to be concerned with learning the ropes, finding out what a derivative was, understanding finance, getting to know our clients and what motivated them, learning how they defined success and what we could do to help them get there.
My proudest moments in life — getting a full scholarship to go from South Africa to Stanford University, being selected as a Rhodes Scholar national finalist, winning a bronze medal for table tennis at the Maccabiah Games in Israel, known as the Jewish Olympics — have all come through hard work, with no shortcuts. Goldman Sachs today has become too much about shortcuts and not enough about achievement. It just doesn’t feel right to me anymore.
I hope this can be a wake-up call to the board of directors. Make the client the focal point of your business again. Without clients you will not make money. In fact, you will not exist. Weed out the morally bankrupt people, no matter how much money they make for the firm. And get the culture right again, so people want to work here for the right reasons. People who care only about making money will not sustain this firm — or the trust of its clients — for very much longer.
This public resignation from one of the "gold-plated" investment firms in the U.S. is not only a wake-up call for the board of the directors of the firm, but, more importantly, a wake-up call for the American economy, the American political system, the Congress, the President, and the devious minds that guide Wall Street. (Perhaps it should henceforth be called "Gall Street", with the "G" standing for both gall and greed.) It is not that none of this was hidden from view; there have been other "bad-boy" lectures to Goldman Sachs, for instance by Senator Levin from Michigan who apparently harrangued the firm and Wall Street for some eleven hours in a Congressional Committee back in 2008.
However, an insider dumping on the culture of greed, narcissism and the wanton pursuit of profit over every other consideration, such as the interests of the client, exposes what those of us in the 99% suspected all along...that we cannot, could not and most likely will not trust the financial services sector of the economy for the rest of our lives.
Capitalism runs on the premise that making a profit generates investors, and investors generate capital needed to run the company; so making a profit is the stated or unstated goal of every corporation in the world. That is not new. What is new is the degree to which that motive has come to control, even to conceptualize the very underpinnings of the corporate culture, leaving such motives as serving the client, employing enterprising individuals, most of them highly educated and also highly intelligent and highly motivated, in the ditch.
It used to be that students in graduate schools, including those in finance, and mathematics and economics and law and business were educated on the principles of capitalism, that included the need to provide a service, a good, or something of value in exchange for the profit it sought.
That teaching is now obsolete, and so the American economy, and also much of the world's economy, struggles to recover from the devastation that this culture has wreaked on all of us.
I once worked as a clergy in a mainline protestant church in the U.S., for a bishop whose annual "vision" for his diocese in 1998 was "10% more people and 15% more money"....and I knew that my time in the church was going to be limited, from the date of that address to the diocesan synod. Unfortunately, while I dubbed the speech "General Motors Religion" publicly, and evoked the wrath not only of the hierarchy but of the parishoners, for that and for other reasons. My termination, mutually agreed, was neither pretty nor just, given that there was absolutely no due process.
Looking back, I wish that I had had the courage and the foresight of Mr. Smith formerly of Goldman Sach, and I, too, would have published an essay on why I could no longer carry out my assigned duties in such a culture. a culture which I knew was not going to change, based as it was/is on the premise that at the centre of every church is a necessity to collect money, to recruit new members and to balance the budgets, regardless of whether anyone in the church, including the clergy, is committed to his/her spiritual growth.
When money and its pursuit come to dominate the culture of a corporation, including a christian church, there is no longer any purpose or need to keep such an institution alive, and if no one person or agency puts it out of its misery, it will atrophy into the mists of time, as it should.
Congratulations, Mr. Smith.
Let's hope that your writing is read in every corner of the globe, by all those wondering what is wrong with American, and its primary model, the private corporation at whose altar the political class, and even the churches worship.