What Happened to Goldman Sachs: An Insider's Story of Organizational Drift and Its Unintended Consequences (6 page)
Authors: Steven G. Mandis
The Study
While my experiences at Citigroup and McKinsey, as well as in helping build a firm, combined with distance, time, and maturity, helped put my experiences at Goldman into perspective, my insider experience also made me aware of how difficult it can be to perceive this kind of change from within, even though examples such as these may seem to suggest that the change should be obvious. Also, recognizing that change had occurred and understanding why and how that’s the case are very different propositions. This is why the perspective from sociological theory is so helpful. Personal perspective isn’t enough.
The analysis of Goldman that I offer here is based on established sociological approaches to studying organizational change, behavior, and innovation, an approach I’ve learned at both the sociology department and the business school at Columbia University. It doesn’t come naturally to me. Having been a banker, consultant, and investor, typically I try to understand problems quantitatively. Those in the financial industry seem to share this trait, because they have a certain comfort with quantifying things and using numbers and metrics to hold people accountable. This approach is also followed by many regulators, policy makers, and economics and finance professionals. They focus on quantitative measures—such as imposing regulatory capital requirements or limiting activities to certain percentages—as the best way to prevent other crises.
The quantitative approach is reasonable, but it is not complete. Those trying to regulate Goldman and similar financial institutions have focused relatively little on the social activity, structures, and functions of their organizational culture—the hallmarks of the sociological approach—and I believe this focus will help get us closer to the root of the issues.
This book is based on my doctoral dissertation in sociology at Columbia, work that I started in 2011. It is the result of more than 100 hours of semistructured interviews with over fifty of Goldman’s partners, clients, competitors, equity research analysts, investors, regulators, and legal experts.
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I also researched business school case studies, news reports, and books about Goldman; quotations from those sources are peppered throughout the book. In addition, I analyzed publicly available documents filed by Goldman with the SEC (including financial data), congressional testimony, and legal documents filed in lawsuits against Goldman.
The purpose of going beyond interviews was to challenge, support, and illuminate the interviewees’ and my own conclusions. I suspect that many of the people to whom I spoke are bound by nondisclosure agreements, but I never asked. I did agree that I would keep their participation confidential and not quote them. I did not take notes during the interviews, nor did I use a recording device. The only interviewee whose name I disclose, with his permission, is John Whitehead. He worked at Goldman from 1947 to 1984. Since he wrote the original business principles, he was able to clearly describe what he meant when he wrote them and what the culture was like at the time.
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It is not my intent to glorify or vilify any individual, group, or era in Goldman’s history, although I suspect parts will be used to do so. I’ve tried not to be influenced by nostalgia for the Goldman that once was, and I’ve tried to recognize that the people I interviewed were looking back in hindsight and may have had agendas or other issues, something I tried to overcome by speaking to many different people and by balancing the interview data with other information and analysis. I’ve tried not to be affected by many people’s contempt for the firm or by the recent economic recovery. I have relied on publicly available data to confirm and disprove various claims and theories advanced by those I interviewed.
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I do not wish to assert that the change in culture at Goldman I’ve analyzed is necessarily change for the worse, or that the changes will lead to an organizational failure or a disaster (though some would argue that it does). The concept of drift, loosely defined, has often been used to study how a series of small, seemingly inconsequential changes can lead to disaster, such as the explosion of the space shuttle
Challenger
or the accidental shooting of two Black Hawk helicopters over Iraq in 1994 by US F-15 fighter jets. Though the change at Goldman is different in a number of regards from both of those examples, they do nonetheless offer important insights into why and how Goldman’s culture has drifted. In both cases—analyzed by Columbia University sociologist Diane Vaughan and Harvard Business School professor Scott Snook, respectively—pressures to meet organizational goals generally caused an unintended and unnoticed slow process of change in practices and the implementation of them, which in those cases led to major failures.
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Each tiny shift made perfect sense in the local context, but together they created a recipe for disaster.
My analysis also draws on the sociological literature about the normalization of deviant behavior, which illuminates processes by which a deviance away from original values and culture can become socially normalized and accepted within an organization. Another factor that clearly comes through is that Goldman’s business has become more complex, and that there is less cross-department and other communication, which contributed to what Diane Vaughan calls
structural secrecy
—the ways in which organizational structure, the flow of information, and business processes tend to undermine the understanding of change that may be taking place.
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(For more on these concepts and an academic study of organizational cultural drift, see
appendix A
.)
My argument, in essence, is that Goldman came under numerous types of pressure—organizational, competitive, regulatory, technological—to achieve growth, and that pressure, from both inside and outside of Goldman, resulted in many incremental changes. Those included changes in the structure of the firm, from a partnership to a public company, which in turn accelerated many changes already occurring at the firm. The change in structure also limited executives’ personal exposure to risk, as well as ushering in changes in compensation policies, which led to different incentives. The pressure for growth resulted in the mix of business also shifting over time, with trading becoming more dominant, which carried its own impetus for change. The growing complexity of the company’s business also led both to more structural secrecy and to more potential for conflicts of interest. At the same time the external environment was also rapidly changing and impacting the firm.
These and many other changes, added up over time, caused Goldman to drift from the original interpretation of the firm’s principles, most notably from the first principle of always putting clients’ interests first. As the firm got larger and growth became more challenging because of the law of large numbers, there was even more pressure to change the standards to allow the maximum opportunities. Those within Goldman were unable to appreciate the degree of change at the time, and are unable to now, due in part to a process of normalization of the deviance from the firm’s principles that occurred as those changes unfolded. That blindness (or willful blindness) to the degree of change was enabled in part by rationalization and also by the sense that the firm serves a higher purpose because of the good works of the firm and its alumni, which mitigated against recognition from within that the firm was engaging in conflicts.
Whether or not this process of drift is a harbinger of potential failure at the firm is an open question. Certainly there is reason to worry that the many interdependent and compounding pressures that led Goldman to slowly change and adopt its new standard of ethics from one that was a higher than legal requirement to meeting only the legal requirements will combine with its increasing size, more complexity, and greater interrelatedness, and the consequences will be an increasing risk of conflicts and organizational failure.
Since Goldman plays such a prominent role in the economy, as do other investment banks, this is an urgent issue for further exploration. Maybe even more so because I believe that Goldman is becoming even more important and powerful in our economic system. Goldman almost went bankrupt in the late 1920s, was struggling in 1994, and took government money directly and indirectly in order to hold off possible collapse in 2009 (Goldman denies this), even despite the profits or protection (depending on one’s view) from the infamous “hedging” bets taken against toxic mortgage assets. Many other financial firms disappeared, of course; the economy was near collapse, and taxpayers were left with an enormous bill. I hope the analysis in this book can demonstrate that sociology can contribute to the public understanding and debate about risks in the system.
I also hope the book will help leaders and managers consider the dangers that can accompany the responses to organizational, competitive, technological, and regulatory pressures in striving to meet organizational goals.
Finally, I hope the book is an interesting journey inside Goldman, with which I’ll also seek to answer a handful of questions that continue to nag other observers: why Goldman performed so well (relatively speaking) during the financial crisis, what role Lloyd Blankfein and the trading culture he is associated with played in the change, and why clients continue to flock to Goldman.
This book isn’t intended as a history of Goldman—there are several authors who have admirably tackled that job (and without which this study would not be possible)—but I have also included a Goldman timeline and short biographies on selected Goldman executives in the appendices to help a reader unfamiliar with Goldman’s history or people.
Part One
HOW GOLDMAN SUCCEEDED
Chapter 2
Shared Principles and Values
I
N 1979, GOLDMAN CO-SENIOR PARTNER JOHN WHITEHEAD
wrote down the firm’s principles “one Sunday afternoon.” Whitehead explained, “In the first draft, there were ten principles, and somebody told me that it looked too much like the Ten Commandments, so I made it into twelve. I believe it’s up to fourteen now, because the lawyers got hold of it and they’ve changed a few words and added to it a little bit.”
1
Although he helped bring in deal after deal and helped make strategic decisions for Goldman, Whitehead said that committing the firm’s values to words on paper was his greatest contribution.
2
More than anything else, it was a statement about the perceived power of the codified values to nourish and support the partnership culture.
3
From my interviews with those who were partners in the 1980s, it is apparent that all of them thought the principles reflected the culture and agreed with and relied upon them, which they believed allowed the firm to be less hierarchical than its peers.
4
Although many firms now have codified principles of ethical behavior (some more revered than others), Whitehead’s commandments were revolutionary for the Wall Street at the time.
5
The principles promoted cohesiveness in a firm with decentralized management, among Goldman partners who were owners and managers of businesses.
The list of twelve principles was approved by the management committee—which is responsible for policy, strategy, and management of the business and is chaired by the head of the firm—and was then distributed to every Goldman employee. A copy was sent to each employee’s home as well to help family members understand and cope with the long hours and extensive travel demanded of their loved ones.
6
Whitehead’s hope was that family members would be proud of their association with an ethical firm that espoused high standards, and that employees—especially new partners with heavy travel schedules—would feel less guilty about spending so much time away from home.
7
Goldman managers were expected to hold quarterly group meetings for the sole purpose of discussing the firm’s values and principles as they applied to the group’s own business.
8
When I started at Goldman in 1992, it was typical, when introducing ourselves and the firm in initial meetings with clients, to include the “Firm Principles” on the first page of the presentation (essentially a sales pitch), letting the clients know what differentiated Goldman from its competitors.
9
By the time of the tech boom in the late 1990s, the practice of managers holding regular meetings to specifically discuss the principles seems to have been discontinued, although they were certainly discussed in general meetings and in training sessions. One current Goldman partner told me that the principles are still talked about and discussed.
10
They have not been abandoned, but he believes they are not as revered as they once were. He told me he could not recall seeing the principles hanging on the walls like they used to, although they can be found in annual reports and on Goldman’s website. However, the partner explained that with the recent regulatory and legal scrutiny, along with media attention, there is a renewed focus and more training sessions on the business principles.
Goldman’s principles were modified slightly over the years when, as Whitehead put it, the lawyers got hold of them. I also remember when a fellow analyst wrote a memo in 1992 pointing out grammar and punctuation errors in the principles and sent it to a member of the management committee. I believe a few of his recommended changes were made. As mentioned earlier, the most significant modification to the list of principles, made just before Goldman went public, was the addition of the principle related to returns to shareholders, which was given prominence by being listed third.
Here are the principles (as updated, now including fourteen):
- Our clients’ interests always come first
. Our experience shows that if we serve our clients well, our own success will follow. - Our assets are our people, capital and reputation
. If any of these is ever diminished, the last is the most difficult to restore. We are dedicated to complying fully with the letter and spirit of the laws, rules and ethical principles that govern us. Our continued success depends upon unswerving adherence to this standard. - Our goal is to provide superior returns to our shareholders
. Profitability is critical to achieving superior returns, building our capital, and attracting and keeping our best people. Significant employee stock ownership aligns the interests of our employees and our shareholders. - We take great pride in the professional quality of our work
. We have an uncompromising determination to achieve excellence in everything we undertake. Though we may be involved in a wide variety and heavy volume of activity, we would, if it came to a choice, rather be best than biggest. - We stress creativity and imagination in everything we do
. While recognizing that the old way may still be the best way, we constantly strive to find a better solution to a client’s problems. We pride ourselves on having pioneered many of the practices and techniques that have become standard in the industry. - We make an unusual effort to identify and recruit the very best person for every job
. Although our activities are measured in billions of dollars, we select our people one by one. In a service business, we know that without the best people, we cannot be the best firm. - We offer our people the opportunity to move ahead more rapidly than is possible at most other places
. Advancement depends on merit and we have yet to find the limits to the responsibility our best people are able to assume. For us to be successful, our men and women must reflect the diversity of the communities and cultures in which we operate. That means we must attract, retain and motivate people from many backgrounds and perspectives. Being diverse is not optional; it is what we must be. - We stress teamwork in everything we do
. While individual creativity is always encouraged, we have found that team effort often produces the best results. We have no room for those who put their personal interests ahead of the interests of the firm and its clients. - The dedication of our people to the firm and the intense effort they give their jobs are greater than one finds in most other organizations
. We think that this is an important part of our success. - We consider our size as an asset that we try hard to preserve
. We want to be big enough to undertake the largest project that any of our clients could contemplate, yet small enough to maintain the loyalty, the intimacy and the esprit de corps that we all treasure and that contribute greatly to our success. - We constantly strive to anticipate the rapidly changing needs of our clients and to develop new services to meet those needs
. We know that the world of finance will not stand still and that complacency can lead to extinction. - We regularly receive confidential information as part of our normal client relationships
. To breach a confidence or to use confidential information improperly or carelessly would be unthinkable. - Our business is highly competitive, and we aggressively seek to expand our client relationships
. However, we must always be fair competitors and must never denigrate other firms. - Integrity and honesty are at the heart of our business
. We expect our people to maintain high ethical standards in everything they do, both in their work for the firm and in their personal lives.
The emphasis on the principles helped distinguish the firm, and over the years, most successful interview candidates were very familiar with them. The principles guided thousands of interactions each day—interactions that put the firm’s reputation and partners’ capital at risk.
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One senior partner said, “As a small firm, we passed on our shared ideals and culture in an avuncular style. Everyone sat next to someone who was very experienced and had been there a long time. We were very small, concentrated in a few offices around the United States, so it was easy to do … Every boss I ever had worked harder than I did … This is a really good business and it’s also a pleasant place to work, if you select the right people on the way in.”
12
Goldman’s principles also provided a way to substantiate the firm’s trustworthiness in the eyes of clients and potential candidates.
The principles, combined with actual strategic business practice and policy decisions (such as not representing hostile raiders, as I discuss later), created for Goldman a powerful “good guy” image—both internally and externally. In 1984, a Morgan Stanley banker even publicly conceded that the principles and resulting practices made clients perceive Goldman as “less mercenary and more trustworthy than Morgan Stanley.”
13
The ultimate fate of the Water Street Corporate Recovery Fund provides a good example of Goldman’s sensitivity to the potential impact of its strategic business decisions on the firm’s reputation after the principles were written. In 1989, two Goldman partners convinced the management committee to commit as much as $100 million of the firm’s money toward starting Water Street, a fund that bought controlling blocks of distressed high-yield junk bonds. The fund began soliciting outside investors in April 1990, with the goal of raising $400 million. Within a few months, Goldman had raised almost $700 million and stopped accepting investments. The partners were willing to give Water Street four years to see whether it could produce an annual return of 25 percent to 35 percent.
14
However, several corporate executives and large money-management firms complained to Goldman that the fund was a “vulture” investing business, claiming it was in direct conflict with the firm’s reputation for acting at all times in the best interests of clients. The executives were particularly concerned that the fund was also being run by someone who was actively involved in Goldman’s corporate finance advisory business. The dual roles would potentially allow the Water Street Fund to access confidential information from investment banking clients that it could use to benefit its investing. Nine of the twenty-one Water Street investments were in current or former clients. Even though the fund was making a lot of money for Goldman, the management committee, advised by John L. Weinberg, shut it down. At the time, investing clients who bought stocks and bonds also were threatening to boycott Goldman’s trading desks because of their concern about potential conflicts (although many discounted that would actually happen). John L. was concerned that clients thought the fund violated Goldman’s number one principle. According to partners I interviewed, the firm’s decision to shut the fund down sent a powerful message, internally, especially considering how profitable the fund was. Many clients at the time also felt it sent a powerful message differentiating the firm from the principles of its competitors.
Best and Brightest
Goldman’s corporate ethos, its common value system, John L. called “the glue that holds the firm together.”
15
Goldman executives were conscious of sustaining this culture when recruiting and tried to hire the best of the best, but not just for their intelligence, drive, or experience. The partners looked for people who fit a certain profile: people who had all the requisite skills and knowledge, were hardworking and driven, and also espoused a value system consistent with Goldman’s.
16
New hires were immersed in the Goldman culture and encouraged to apply their preexisting values and principles in a business context.
Goldman was not known as the highest payer on Wall Street for entry-level positions, and yet talented people often prioritized working for Goldman. Interviews revealed that they were attracted by the allure of partnership and the feeling that the firm’s culture of putting clients’ interests first and being long-term greedy was different from the other firms on Wall Street. They pointed to the principles and the firm’s actions and policies, along with stories and lore that reinforced this differentiation.
Although many firms had high hiring standards, they did not as regularly send senior executives to college campuses to interview potential recruits. In the 1980s and 1990s, this was a critical part of a Goldman executive’s job, an outward expression of the company’s passion and culture. It was one of the roles of a
culture carrier
—someone who always put the firm and clients first, had the right priorities, cared about the firm’s reputation, and put the firm’s principles and long-term goals before short-term profits.
17
Whitehead described Jimmy Weinberg, brother of John L. Weinberg, as “one of the most important culture carriers … He was an advocate of team play, no internal ugly competition, service to customers, putting the customers’ interests before the firm’s interests and all of those good things that make a partnership.”
18
In a speech to the partnership, a partner stated, “Hiring the right people is the most important contribution you can make. Hire people better than yourself.”
19
Partners wanted people smarter even than they were, but they also wanted recruits who shared their values. The relatively low wages paid during employees’ early years, partners thought, fostered an appropriately long-term perspective.
20
To this end, sometimes twenty or more employees, including several partners, often interviewed successful candidates. Whitehead told me that during his time, a potential candidate also had to be interviewed and approved by at least one secretarial assistant, because how one treated assistants was considered important. It showed one’s values. Sometimes the interview process itself weeded out candidates better suited to a firm where “individual performance was applauded and assimilation was less important.”
21
Author Charles Ellis notes that “extensive interviewing was becoming a firm tradition … It gave the firm multiple opportunities to assess a recruit’s capabilities, interests, and personal fit with the firm … ‘You could say that our commitment to interviewing was carried through to a fault.’”
22
Whitehead was clear that, as a service business, Goldman needed to select the best people if it was to be the best firm: “Recruiting is the most important thing we can ever do. And if we ever stop recruiting very well, within just five years, we will be on that slippery down slope, doomed to mediocrity.”
23
Active participation by the most senior partners underscored Goldman’s emphasis on hiring the best people.
24
Goldman also made sure that the future leaders devoted a “material” amount of time to recruiting. Rob Kaplan—who joined Goldman in 1983, went on to run investment banking, and retired as a vice chairman—credits Goldman’s recruiting process with helping build a “powerhouse operation.” He describes his impressions of the process: “I grew up [at Goldman]. We identified attracting, retaining, and developing superb talent as a critical priority. As a junior person, I was enormously impressed that the very senior leaders of the firm were willing to interview candidates and attend recruiting events on a regular basis. I learned from their example that there wasn’t anything more important than recruiting and developing talent.”
25
As evidence of his commitment to recruiting, Whitehead personally conducted on-campus interviews. The qualities he looked for in potential recruits were “brains, leadership potential, and ambition in roughly equal parts.”
26
During a meeting I challenged him, saying that every firm claims to look for these qualities. “What about values?” I said.
Whitehead told me that he had overlooked the word
values
because it should have been obvious that Goldman would hire only people who exhibited values like the firm’s. To him, it was the first prerequisite for employment—and the firm dedicated senior people to the task. Most importantly, he wanted people who shared the Goldman values and were willing to act in concert with its ethical principles both within the firm and in interactions with clients. For example, the boasting and displays of ego common on Wall Street were not welcome at Goldman; offenders were quickly reminded that their accomplishments were possible only because of everyone’s hard work and contributions. Whitehead once admonished an associate for saying “I” rather than “we.”
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When I interviewed him, Whitehead himself used “we” instead of “I.” To this day, my wife and non-Goldman friends tease me for the same subconscious substitution—it is that ingrained.
Goldman’s practice was to hire directly from top business schools rather than from other firms because recent MBAs were more malleable; the “plasticity” of a young MBA’s character made it easier to inculcate the Goldman ethos.
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The firm’s recruiting focused on merit rather than pedigree.
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A privileged background was often a strike against a candidate: it was thought that perhaps he or she might not work as hard or be as careful with money as someone who had not come from wealth.
My own experience in interviewing for my job at Goldman in 1992 told me, in no uncertain terms, exactly what Goldman valued in an employee. A partner who interviewed me explained that I would regularly have to work one hundred hours a week—until two or three o’clock in the morning, Saturdays and Sundays included, and most holidays.
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I was then asked what I had done that demonstrated my ability to maintain that pace and still excel, so I explained that I had done well academically while playing two sports in college and performing community service.
Playing team sports in college, serving in the military, performing public service, or being involved with the Boy Scouts or Girl Scouts were seen as big advantages at Goldman, because they demonstrated teamwork, discipline, and a sense of community and obligation to society. Teamwork is codified in Goldman’s principle 8 (“We stress teamwork in everything we do”), and discipline is implicit in principle 9 (regarding the “dedication of our people to the firm and the intense effort they give their jobs”). Interestingly, a sense of community and obligation to society is not written as a business principle, but it is so ingrained that almost every internal and external communication about the firm prominently describes and displays its “citizenship.” (For examples, see
appendix E
.)
At the close of the interview, the partner asked me whether I had any questions as he filled out a form for human resources. “If I work until two or three o’clock in the morning, how will I get home?” I asked. “Are the subways open at that hour?”
He chuckled. “There are always Lincoln Town Cars lined up outside the building. You can take one of them home.”
Coming from a middle-class Midwestern background, I had never heard of such a thing (I couldn’t contemplate someone else driving a car with me in the backseat), so I asked what I thought was a practical question: “So do I drive the car back when I come back in the morning?”
He burst out laughing. While having trouble to stop laughing, he then explained that I would be “chauffeured” and dropped off at home. There he sat, with his sleeves rolled up on his white shirt, top button undone and back of his shirt slightly untucked, Brooks Brothers striped tie loosened a little. It was the standard look in M&A. You looked as if you were working hard. He leaned over and said, “Let me read what I wrote on your review form: ‘Lunch pail kind of guy—knows nothing but will kill himself for us—and smart enough so we can teach him.’” That was me in a nutshell—and just the kind of person Goldman wanted.
I was surprised that other candidates and I were interviewed by the people they would work with, not human resources people.
After completing ten or fifteen interviews, I got an offer the next day.
Soon after I was hired, I was asked to review résumés from Midwestern schools for candidates to interview. When I was given hundreds of them bound in three-ring folders, I asked the vice president who had given me the assignment, “How should I go about choosing?”
He shrugged and told me to take anyone who didn’t have a certain grade point average and SAT score and throw them out, and then get back to him.
I did that, but I was still left with what still seemed like hundreds of résumés. So I asked, “Now what do I do?”
“Take out anyone who doesn’t play a varsity sport or do something really exceptional or substantive in public service,” he told me, waving me out of his office.
Once again I culled the folders, but still I had too many. So I went back again.
“Now throw out any that don’t have both sports and public service, and raise your grade and SAT requirements.”
After this round, I came up with the thirty people we would interview to select the one or two who would get an offer.
It seemed to me that a large percentage of people hired by Goldman in the United States had roots in the Midwest or in Judaism, and when I discussed this with Whitehead and others, they said that there was no conscious effort to hire to a certain ethnic or regional profile; it was most likely only that people are attracted to people who have similar values and backgrounds. The similarities in backgrounds can be seen in this list of the past five CEOs or senior partners:
- Lloyd Blankfein: Jewish; raised in New York public housing in the Bronx
- Hank Paulson: Christian Scientist; raised in Barrington Hills, Illinois, on a farm; played football in college; Eagle Scout; worked in the government before joining Goldman
- Jon Corzine: Church of Christ; raised on a farm in Central Illinois; football quarterback and basketball captain in high school
- Stephen Friedman: Jewish; on his college wrestling team
- Robert Rubin: Jewish; Eagle Scout
Partners modeled and reinforced the desired behaviors and delivered “sermonettes of perceived wisdom” as deemed appropriate.
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French sociologist Pierre Bourdieu argued that in analyzing any society, as well as a firm’s culture, what matters “is not merely what is publicly discussed, but what is
not
mentioned in public … Areas of social silence, in other words, are crucial to supporting a story that a society is telling itself.”
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The written principles were important, but it is how they were interpreted and put into action—brought alive each day—that really mattered. The Goldman partners reinforced the importance of the values by their actions; they didn’t need to be specifically mentioned because they were understood by watching. The way these CEOs and partners acted, dressed, and behaved reinforced unwritten norms or uncodified principles. The men at the top wore Timex watches and not Rolexes (and this is before Ironman watches were fashionable). Partners did not wear expensive suits or drive fancy cars (most drove Fords because it was such a good client and many partners got a special discount). They lived relatively modestly, considering their wealth. It was simply not in the ethos to be flashy but rather to be understated, with Midwestern restraint.
The archetype for proper behavior was John L. Weinberg: “Revered by his partners and trusted by the firm’s blue-chip corporate clients, he was entirely without pretension, he spoke blunt common sense, [and] wore off-the-peg suits.”
33
The unwritten commandment to keep a low profile was not, until rather recently, violated casually. In the early 1990s, an analyst was riding in a taxi past the famous and pricey Le Cirque restaurant in New York when he spotted a low-key Goldman vice president standing outside. To tease the VP in a funny, friendly way, the analyst rolled down the cab window and yelled out several times, “VP at Goldman Sachs!” Clearly, the subtext was, “VP at Goldman Sachs dining extravagantly at an elite restaurant!” The VP took it so seriously that the next morning he called the analyst into his office, along with a few of the analyst’s friends (including me), who, he correctly assumed, had already heard the funny story. The VP explained that he had been invited to Le Cirque by his girlfriend’s parents and that he would never have gone there on his own. Then he asked us to please not tell anyone or discuss (or joke about) the matter further.
The low-key imperative extended even to the modest Goldman offices. Goldman did not want clients to view an ostentatious display of corporate wealth, fearing it would be seen as an indication that the fees for the firm’s services were too high or that the firm had the wrong priorities.
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When I started at the firm, there was no sign bearing the name Goldman Sachs when one entered 85 Broad Street; behind the reception desk there just was a list of the partners’ names and floor numbers. There was even a floor for retired partners, but their names were not listed individually, the label for that floor just said, “Limited Partners” and a floor number. Even the twenty-second-floor offices of the senior partners were relatively modest, with the elevator doors opening to a gallery of senior partners’ portraits. It all served to reinforce the message: keep a low profile, respect the history, and remember whose money is at risk here. Such organizational humility, combined with the business principles and a drive for excellence, helped Goldman develop strong client relationships and allowed the firm’s culture to hold materialism at bay for a long time.