The story was a coup for Edward Novotny, a young former journalist turned public-relations guru, who quietly started working for Goldman in 1970 and continued until his death in 2004. Over time, Goldman paid Novotny upward of $200,000 a year to manage its PR from his home office at Tudor Tower, on the east side of Manhattan. Goldman’s aggressive public-relations efforts became part of its legend. “He was the invisible man,” explained a former Goldman executive. “You dialed Ed Novotny’s extension at the firm and it rang in his home office in Tudor Towers where it was, and he had a secretary in there, and he operated on a deep well of power.” He said that Novotny’s “whole thing” was “this incredible paranoia,” where “the firm would never go on the record.” If Novotny told a reporter something it would always be on “deep, deep, deep, deep, deep—five ‘deeps’ in a row—background,” the former Goldman executive said. “Every time he would describe a reporter to me it would be he or she ‘is very, very, very dangerous.’ Even Bill Cunningham, the society photographer, was ‘very, very, very dangerous. So watch it.’ ”
The conceit of the Times article was that Goldman was unusual on Wall Street for having equally respected and profitable investment banking and trading operations under one roof, in this case with trading on the fourth floor of 55 Broad Street, “which rips with action,” and banking one floor above, where the “atmosphere is subdued and Ivy League and the action more difficult to see.” But, the Times reported, Goldman “seems to have no trouble at all in accommodating them under a single business roof and, in fact, has continued to look for more activities.” The firm’s next moves, the paper reported, would be in growing its bond underwriting and trading for both corporations and municipalities. Goldman was considering becoming a government bond dealer and was moving into real-estate finance, lease finance, and international markets. The goal was to boost profits beyond the $20 million Goldman made in 1970, an astounding almost 50 percent return on its $49 million in capital. By then, Goldman had opened its first foreign office—in London—as part of “a major international effort,” Levy explained, which was separate from the alliance Goldman once had with Kleinwort Benson.
The Times article not only glorified Levy but also showcased the new generation of leaders at the firm. There was John Whitehead—a “49-year-old amiable, reflective investment banker” and graduate of both Haverford College and Harvard Business School—who was responsible for the firm’s New Business Group within investment banking. Whitehead had taken to his role with such relish that not only had he identified the four thousand U.S. companies that made at least $1 million in profits a year, but he also had figured out which of Goldman’s bankers would call on them and try to convince them to do business with Goldman Sachs.
The idea for a more systematic and aggressive calling effort came to Whitehead as Sidney Weinberg was getting older and Whitehead realized that Weinberg seemed like the only person at the firm capable of bringing in investment banking business, such as debt or equity underwriting or M&A deals. “Every single piece of investment banking business … every single one during at least a ten-year period, was produced by Sidney Weinberg,” Whitehead said in a May 2003 speech. He wrote a confidential memo for Weinberg’s eyes only about how a new group, inside investment banking, could be organized as a new business effort. “I knew the memo had to be approved by Sidney,” Whitehead said, “so I wrote it in a delicate way. I said nobody will ever duplicate Sidney Weinberg—we don’t have anybody here and couldn’t get anybody, but if we could have ten people who each produced 20 percent of the business that Sidney Weinberg produces every year, our business would be twice as big as it is today.” Weinberg stuffed the memo in his desk drawer and ignored it. One day, months later, after he had become a partner, Whitehead summoned the courage to ask Weinberg about his idea. He opened his desk drawer, looked at the forlorn document. “What a crazy idea,” Weinberg responded. “We don’t need anything like this. Do you really want to do it?”
Whitehead did. He had hoped to discuss the idea at the next partners’ meeting. But “there weren’t any partners’ meetings,” he said. “There never was a partner meeting. The only partner meeting was the annual event, which took place at various different exclusive places. And the year I first became a partner it took place in the private room of the ‘21 Club.’ And the partners came. It was all in tuxedos.” He later convinced the partnership to approve the plan by discussing it with them individually and getting their support. By July 1971, Whitehead was happy to report to the Times that, by his analysis, Goldman had made significant market share gains in investment banking. In 1968, Whitehead figured Goldman had 7.8 percent of the market—what he described as the “public and private financing we would have done if asked”—and that Goldman’s share had increased to 11.6 percent in 1970 and so far in 1971 it was “higher still.”
The Times article also featured John Weinberg, Sidney’s son, and the continuity he provided at the firm with the Weinberg legacy, including the fact that John Weinberg took over his father’s seat on nine corporate boards, including General Electric and B. F. Goodrich. Despite the controversy starting to percolate about the potential conflicts that emerge when investment bankers sit on corporate boards, the article made clear that Goldman Sachs and John Weinberg were outspoken believers that such conflicts could be managed. (At that time, Goldman partners sat on the boards of some seventy-five companies.)
Along with Levy, both Whitehead and Weinberg served on Goldman’s six-man Management Committee, which ran the firm. The committee met at 9:00 a.m. every Monday morning for around an hour. The creation of the Management Committee was one of the prices that Sidney Weinberg extracted from Gus Levy when Levy moved Weinberg out of 55 Broad Street. The other members of the powerful committee were Howard “Ray” Young, head of Securities Sales; George Doty, a former senior partner at Coopers & Lybrand and head of the Administrative Department; Edward Schrader, head of the Buying Department. Levy described Whitehead as being the head of the New Business Group and John Weinberg as “free-lancing” with no specific departmental responsibility. This group was ably assisted, according to the article, by Tenenbaum and Robert Mnuchin, the block trader.
At the very end, Allan mentioned the problems in Goldman’s commercial paper business and that Robert Wilson reported to his boss John Weinberg. “Unlike the founder of the firm,” the Times observed, “Mr. Wilson does not scurry about the financial district stuffing notes in a stove-pipe hat, but instead he supervises a 46-man staff that raises as much as $40 billion a year in short-term funds for industry.” As for the Penn Central lawsuits, Wilson said there was “absolutely no merit to the claims” and that the commercial paper business had picked up considerably since the credit freeze brought on by the collapse of Penn Central. While Allan noted that ongoing write-offs of commercial paper losses by big banks was the “chief potential trouble spot” at Goldman, he concluded by pointing out that Goldman had settled the claims against the firm in the Mill Factors matter by paying $50,000, a tiny fraction of the losses suffered by the buyers of the paper.
Unmentioned in the Times article was the fact that in March 1971, Goldman had decided to limit the liability of its partners to the amount of cash they had tied up in the company; formerly they had each been liable for their entire net worth. Although the Wall Street Journal reported that the move was “in line with a growing trend among many leading securities firms,” which was true, one could not help thinking the move was also prompted by the severity of the Penn Central litigation against the firm. Also left out of the Times paean was the February 1971 news of yet another lawsuit—for $125 million—brought against Goldman and Sidney Weinberg Jr., known as “Jimmy,” by American Cyanamid Corporation, the chemical manufacturer and consumer products company. American Cyanamid accused Goldman and Jimmy Weinberg of arranging to scuttle its deal to purchase Elizabeth Arden—which Goldman had been hired to sell—for $35 million by turning around and then encouraging Eli Lilly, a Cyanamid rival, to b
uy Elizabeth Arden for $38.5 million.
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FAR LESS OF a coup for Novotny was a June 1972 Wall Street Journal article describing a racial discrimination lawsuit brought against Goldman by James E. Cofield Jr., a black Stanford University MBA, one of only two black students in his class. Two years earlier, according to Cofield’s lawsuit, while Cofield was an MBA student at Stanford, he applied for a job at Goldman. Cofield had previously worked at the First National City Bank and Blair & Co., a regional brokerage. He was a graduate of the University of North Carolina and had attended Howard University’s school of law. He first applied for a summer job at Goldman in March 1969, hoping to work in corporate finance. His résumé was sent to John Jamison, a partner in the firm’s Corporate Finance Department, and who had been recruiting students at Stanford. Cofield wrote a follow-up letter to Jamison on March 18 and offered to meet with him when he was in New York on March 25. On April 11, Jamison wrote to Cofield that Goldman could not “work you into our operations this summer” and added, “[f]rankly, we have been so bust we haven’t been able to spare the people over the last several years to develop or supervise a program that would be meaningful to any summer employee or useful to us.” Jamison encouraged Cofield to “drop by to visit with us again if you get the chance.” Cofield ended up working at Blair & Co. that summer.
The next year, Cofield tried again to get hired at Goldman. The dearth of blacks and Hispanics in white-collar jobs—and specifically on Wall Street—had been the subject of a series of hearings held by the Equal Employment Opportunity Commission between January 15 and January 18, 1968, in New York City. On January 15, partner George Doty testified before the commission on behalf of Goldman. In his opening statement, Doty explained that with the large increase in stock exchange trading volume, Wall Street firms, including Goldman, had been looking to hire more people, including by putting ads in the newspapers, talking to headhunters, and interviewing MBAs on college campuses. Nevertheless, he testified, “in the face of a very strong demand for qualified workers by ourselves and our competitors, the supply of Negroes or Spanish-Americans motivated to seek employment in our industry seems very small.” He said Goldman had not had much success hiring blacks at the firm, despite interviewing at seventy-five schools and being willing to consider the applications of people who wrote to the firm unsolicited. Doty said Goldman saw “only one Negro student” in seventy-five schools and that he had not been aware of a “single write-in from a Negro.”
On February 20, 1970, Cofield interviewed at Stanford with Jamison, who, according to Cofield, told him during the interview that his application for employment could not move forward because “of the negative view held by a senior partner regarding blacks.” (In an interview, Cofield identified the partner as Richard Menschel.) “Jamison said that this particular partner … did not want any Blacks in the corporate finance department,” according to a memo Cofield wrote on March 4 to a professor of finance at Stanford. “Thus he did not see how they could make me an offer.” When Cofield asked Jamison who was responsible for hiring, Jamison told him “they would like to have a consensus of the key people in the department favoring the hiring of an individual before an offer was made” and that Jamison had “indicated” during the February 20 interview that Menschel “had refused to talk to me” and “of course, Jamison indicated that he was very sorry—his day was spoiled because he had to tell me this—that this was a very bad situation, and hopefully things would change over time. He felt that since the people at City Bank were pleased with me, I had beautiful opportunities there.”
Cofield recalled “being stunned, really stunned when he dropped the bomb pretty early in our talk. I’d spoken to [Goldman] prior to that and I really thought I would be hired” because Jamison, without saying so, “sort of let on like I’d be hired. Like it sounds good and I’m really impressed by you.” After making the statement about the “senior partner,” Cofield said Jamison tried “to lessen the blow” by suggesting Goldman wasn’t the right place for him anyway and that he “had some good opportunities” at First National City Bank. When Goldman denied Cofield a job in the firm’s Corporate Finance Department, he asked for a job in another area of the firm but was also denied a chance to pursue that opportunity.
A day later, Jamison sent Cofield an Express Mail, handwritten, somewhat opaque note that he had written the day of the interview: “Your quiet reaction to our conversation this morning, I believe, belied your concern regarding it. I very honestly, but foolishly, allowed my frustrations to become yours. In fairness to the confidence of our conversation and what I have considered a valued personal relationship, I would hope that you would get in touch with me directly if your concern continues as mine does.” Jamison gave Cofield his home and work telephone numbers and said he could call collect “anytime.”
Cofield said that after the incident with Jamison, Goldman tried several times to offer him a job—doing what he was never sure—but he never thought the firm was serious about him or his career. “I really wanted to work in corporate finance,” he said. “And I thought I was close to a job with Goldman. Then Jamison shared that point of view with me and it was all over.” Cofield had grown up in Raleigh, North Carolina, and his mother was one of the first blacks to serve on both the Wake County Board of Education and the Wake County Board of Commissioners. He said he knew what to expect when it came to discrimination. “But this really surprised me,” he said.
Cofield reported to his Stanford finance professor that he “place[d] no trust or confidence whatsoever in Jamison” and “if the situation were as Jamison described it on Friday he could override the bigot’s decision and offer me a position anyway. It appears as though the main hiring responsibility for the department lays [sic] with Jamison.”
The incident led to much consternation amond Cofield, Stanford, and Goldman. On February 27, Levy wrote to his friend Arjay Miller, the dean of the business school and a former president of Ford Motor Company. “I deeply regret that a misunderstanding has arisen regarding the employment practices at Goldman, Sachs & Co.,” he wrote. “As a director of the New York Urban Coalition and one who has urged the employment of minorities both within my firm and the Stock Exchange community, it is embarrassing to feel the necessity of explaining our policies and outlining our performance in this regard.” Levy attached a chart showing that of the firm’s 1,505 employees as of May 1969, 201, or 13.4 percent, were blacks, women, “Oriental,” “American Indian”—one man—or “Spanish Sur-Named Employees.” He neglected to point out to Miller that there was only one black professional at Goldman and the other 94 blacks were clerical or janitorial employees.
On March 6, Robert Rosenzweig, Stanford’s associate provost, met with Jamison—he referred to him as John “Jameson”—and H. Fred Krimendahl II, another Goldman partner and the head of the Buying Department, in New York, where he had been on other business. “I learned little that we did not already know,” he wrote in a March 9 memo but then summarized that “Jameson and company would like very much to deny that anything happened. All that stands in the way are the facts.” He said Goldman’s “chief worry” was that Cofield “will bring an action against them, presumably for violation of one or another of the fair employment statu[t]es. Because of this fear, no one from Goldman, Sachs will speak directly to Cofield on the grounds—no doubt sound in the view of what they have already said—that more words mean more trouble.” But this strategy “leaves them in a bind,” Rosenzweig wrote, of being “solely at the mercy of Mr. Cofield’s decision.” Goldman wanted Stanford to mediate. “More specifically,” Rosenzweig wrote, “they would like us to read Mr. Cofield’s mind and advise them as to the best among the following courses: 1. Do nothing, if Cofield plans to do nothing; 2. Offer to bring Cofield to New York for an interview—their normal course for an applicant in whom they are interested, though they recognize that in this case it would be tantamount to offering him a job; 3. Just offer him a job.”
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osenzweig would have none of it. “I said we would not mediate, but that we would, of course, report to Cofield on our discussions with Goldman, Sachs, including this one, so that he would have all the evidence before him to aid him in deciding on a course of action,” he wrote. In his memo to the file, Rosenzweig wrote that Stanford did not “want a fight with Goldman, Sachs or anyone else” and that if Cofield decided to “press the issue,” the university would “stand with him based on the facts as we know them, since we want least of all to be in a position of aiding or being blind to discrimination.” Rosenzweig sent a copy of the memo to Cofield, who later said in an affidavit that at this point Goldman “realized that they had blundered in rejecting me for racial reasons.”
Money and Power Page 23