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| Greg Smith |
By GREG SMITH, Op-Ed, NY 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.
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.
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| Lloyd C. Blankfein, front, chief executive of Goldman Sachs, and Gary D. Cohn, its president. |
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.
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.
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| Goldman Sachs Chairman and CEO Lloyd Blankfein testifying before Congress at a hearing on Wall Street and the financial crisis |
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