April 26, 2018

Goldman Sachs


In the New York Times there is an absolutely devastating attack on the culture of Goldman Sachs, by one of its senior executives. He announces that he is resigning today because he has had it with the firm’s alleged practices. He criticises the way in which one of the world’s largest and most important investment banks now looks after the interests of its clients.

This is what is known as a public relations disaster.

Greg Smith, a Goldman Sachs executive director and head of the firm’s United States equity derivatives business in Europe, the Middle East and Africa, says that he can no longer look students in the eye and tell them that they should want to work at Goldman Sachs.

He writes:

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 fibre represents the single most serious threat to its long-run survival.

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.

Goodness, that reference to the history books. This is going to run and run. Smith has got to have a best-selling book on Goldman Sachs and a long speaking-tour in him.

Watch now for the reaction of the firm and the army of PR people it employs. I am sure it will be said in some quarters that Smith is jumping before he was pushed, etc.

But it is a very tricky one to handle. If Smith is immediately machine-gunned by legions of Goldman “flacks” – financial PRs – won’t it actually rather confirm the thrust of his allegations about the culture of Goldman Sachs? Have they the wit to engage properly?

Goldman Sachs is no ordinary bank. It is, thanks to the way it survived the financial crisis, and the huge influence it has wielded over politicians, at the centre of the financial-political nexus which concerns so many citizens on both sides of the Atlantic. Blankfein, the firms’s chief executive, famously said that it is doing “God’s work”. He was joking, although it sounded extremely sinister.

But large institutions that have accrued so much power can be curiously vulnerable when the zeitgeist changes and they are too big to notice. This is a good thing. We are forever hearing that large global corporates and giant technology companies – the denizens of Davos – really run the world now. It is refreshing when we rediscover that a knee in the nuts, in the form of an op-ed in a newspaper, can still have a serious impact.

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