by: George Jones
Published: March 19, 2013
When Goldman Sachs’ CEO Lloyd Blankfein was testifying before Congress in April, 2010, Greg Smith was watching the hearing from a client’s living room in Asia. Greg was astounded when his company’s CEO argued, in Greg’s words, “that in a sales and trading business there is no fiduciary responsibility; that we are not obliged to do what is in the client’s best interest; that we were not advising the client.” In essence Greg was hearing that the core values of Goldman Sachs were now very different from those in place when he had joined the firm and those he had subsequently internalized in his own client relationships.
The next morning, accompanied by a local Goldman Partner, Greg meets with another Asian client. The subject of the congressional hearing comes up and the client is nonplussed. “We haven’t trusted you guys for a long time,” he tells Greg.
At the time he left Goldman, Greg Smith was a rapidly rising star and “culture carrier,” a person who “retains and spreads the culture, values and traditions,” in Goldman’s organization. Operating out of the London office, he was in charge of the sales of all U.S. equity derivative products across Europe, Africa and the Middle East. His exposure to the London office’s open focus on taking advantage of their clients, his realization that he could no longer enthusiastically recruit or mentor new hires, and his witness of Blankfein’s congressional testimony brought him to a place where his basic integrity and sense of self compelled him to leave both the firm he loved and the money he was making. On March 14, 2012, he publicly submitted his
resignation in an Op-Ed piece in the New York Times.
To understand his perspective and the reason why the organization’s culture shift should matter as greatly to us as to him, Greg Smith spends the first half of his book tracing his career with Goldman Sachs. A native of South Africa, Greg won a coveted full scholarship to Stanford University. He majored in economics and was offered an internship at Goldman Sachs in Manhattan for the summer before his senior year. He was also a finalist for a Rhodes scholarship. In short, he is one smart dude.
The interns endure a brutal initiation at Goldman, which is the same way we turn young men and women into Marines. Arthur Andersen, where I was once a partner, had a similar but less intense approach. It is one of the best ways to inculcate the culture of an organization, the “who we are, why we are the best, and how we
treat ourselves, our clients and our profession,” into a new hire. The core values at
Goldman were “teamwork, integrity, a spirit of humility, and always doing right by our clients.”
By the time Greg reports to work as an analyst in New Markets Sales he is already fully pumped, proud to be with Goldman and ready to start a long career.
Greg’s recap of nearly twelve years at Goldman is entertaining and insightful. His writing is as lively and fast paced as the environment he was part of. Along the way he introduces many of the people he worked with and worked for, particularly the mentors he respected. We are with him when he takes his Series 7 exam the day the World Trade Center buildings collapse and again the day Warren Buffet and Lloyd Blankfein walk thru the trading floor after Buffet announced a multi-billion infusion into the firm.
More importantly we see the culture shift through his eyes, starting with the demanding environment where client calls are stacked up like planes circling O’Hare and a mistake may cost your employer a million dollars because you are doing what is right for the client. We are with him as the August 2003 regional power blackout hits while the market is still open. That day we are with him and his boss as they calm down panicked futures clients. We stay with him after hours as he meticulously double checks each of the day’s trades, the only guy left on the floor. Greg walked down fifty floors that evening, proud of himself and the organization he was a part of.
And then we get an education on how and why the firm’s business shifted from commission based transactions where any mistakes are absorbed by the firm to deals in which the internal, non transparent mark up to the client could be a million dollars profit for the firm. These “elephants,” as they were called within the organization, soon dwarfed the firm’s traditional business.
As the culture shifted from teamwork and doing what is right for the clients to generating “elephant” revenue, Greg shows us that Goldman personnel began openly taking advantage of their clients.
On April 16, 2010 the SEC charged Goldman Sachs with structuring and marketing an investment product, a CDO, while failing to disclose “vital information” about that investment.
That was why CEO Lloyd Blankfein appeared before the U.S. Senate and why Goldman and many other firms had allegedly sold investment products that played a key role in bringing the world economy to a near collapse. That is why we should care why Greg Smith left Goldman Sachs.
George Jones co-authored "The Seven Layers of Integrity®", a book on professional and business ethics used in college and university courses. He lectured at Rice University where he developed and taught “Science Policy and Ethics” for a graduate school program. A management consultant, George’s career began with Arthur Andersen’s consulting division, now Accenture, where he was a partner for five years. He then worked with information technology startups for over twenty years and continues to do so in Santa Fe and Albuquerque. He earned his M.S. in Computer Science at The Ohio State University and is a CPA. His blog site on corporate ethics is www.ethicsbite.com. He resides in Santa Fe.