Goodbye to all that

A departing employee’s now famous attack on Goldman Sachs and its ‘toxic’ culture

Written by New York Times | Published: March 16, 2012 12:19 am

A departing employee’s now famous attack on Goldman Sachs and its ‘toxic’ culture

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 sceptical 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 organisation.

For more than a decade I recruited and mentored candidates through our gruelling interview process. I knew it was time to leave when I realised 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 fibre represents the single most serious threat to its long-run survival.

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 axe 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. 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 email. Even after the SEC,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.

My proudest moments in life 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 resigned 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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