In his resignation from Goldman Sachs that appeared as a Times Op-Ed
this week, Greg Smith spoke of a culture of greed and excess at the
investment bank in which the goal is to "rip-off" clients. Does
morality have a place on Wall Street? Was Smith being naïve to think
that what he saw was anything other than business as usual?
Why I Am Leaving Goldman Sachs
By GREG SMITH
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.
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.
More:
http://www.nytimes.com/2012/03/14/opinion/why-i-am-leaving-goldman-sachs.html?_r=3&pagewanted=all
--
Together, we can change the world, one mind at a time.
Have a great day,
Tommy
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Together, we can change the world, one mind at a time.
Have a great day,
Tommy
--
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