Money and Power

by William D. Cohan

  Indeed, there wasn’t much investment banking business to be done in those days. Underwriting an equity offering was a rare event. As a result, writing the prospectus for an underwriting was “an arduous task,” since “you didn’t start by marking up the last prospectus. You started from scratch with a yellow pad” figuring out how best to describe the company whose securities were being sold. “Nobody quite knew what the SEC was looking for” in those days, Whitehead said. But Goldman had a rule: the firm would not underwrite any public offering unless the company was able to include a ten-year record of sales and earnings in the prospectus. “That was absolutely required …,” he said. “For many years, we wouldn’t underwrite an offering unless there had been profits in each of the last three years, and particularly in the most recent year. We would never think of underwriting any offering for any company that didn’t meet those standards.”

  A few months into his job, he picked up the Times one morning and saw that the Justice Department had sued much of Wall Street for alleged antitrust violations, claiming that they had colluded together. Whitehead read the story with interest, of course, but was among those at Goldman who were secretly pleased Goldman had been included in the lawsuit. “I thought it would have been a terrible embarrassment for the firm if Goldman Sachs had not been included in such a highly publicized list of Wall Street’s leading firms,” he said.

  Increasingly, Whitehead came into the orbit of Sidney Weinberg. He is not certain how this happened exactly but suspected it had something to do with a combination of his Harvard Business School diploma—a pedigree of which Weinberg was secretly envious—and of his ability to use a slide rule with ease. Whitehead recalled how Weinberg would be meeting with “some important CEO” and making an observation about how much debt versus equity his company should have and what percentage the debt would be if the company issued it instead of equity. Whitehead would do the calculation on his slide rule during the meeting, and then whisper the percentage into Weinberg’s ear. “Fifty-six percent, as a matter of fact,” Weinberg would say, “and that’s too damn much.”

  Duly impressed, Weinberg would ask Whitehead to come to his office and show him, once and for all, how to use the slide rule. Whitehead would explain how the scales worked and how to use them, along with the middle piece, to multiply numbers. One day, Whitehead showed Weinberg how to use the slide rule to show that two times two equaled four. “Get outta here,” the senior partner told him. “I already know what two times two are. That’s the damnedest stupidest thing.” Back the slide rule would go into the desk, rarely to be heard from again.

  Eventually, after one call after another on a variety of subjects became a flurry of regular calls, Weinberg asked Whitehead to move into his office with him—as his assistant—so that he would be more knowledgeable about whatever deal Weinberg needed his help with. Whitehead was a bit leery of the request, and of actually taking the job. “I was working on a variety of other matters,” he observed, “and I didn’t want to be just his assistant. Of course, if I had to be anyone’s assistant, it would be best to be Sidney Weinberg’s.” He ended up taking the job but worried about the politics of aligning himself too closely with the senior partner—surely one of the oddest concerns a young banker could have.

  Weinberg had a small table put in his office, across the room from his desk. This was where Whitehead sat. Then things got awkward. “There would be some telephone conversations that he didn’t want me to overhear,” he explained. Weinberg would then whisper into the phone, making it difficult for the person with whom he was talking to hear. “Sidney would have to repeat himself, louder, obviously to his annoyance,” Whitehead observed. When clients would come to Weinberg’s office, they never knew whether Whitehead was to be included in the conversation. If they did include him, Whitehead noticed that Weinberg would get nervous, as if somehow Whitehead was going to slip him a Mickey Finn and steal his clients and make them his own. “That’s one quality I’ve noticed about the many powerful people I’ve known,” Whitehead said. “They are often surprisingly insecure—afraid that someone is going to take away their position at any moment.” Not surprisingly, after a few months, Whitehead went back to the squash court. “I think we were both relieved,” he explained.

  Whitehead’s big break at Goldman came working with Weinberg on the Ford IPO. During the early 1950s, Whitehead stumbled upon the information that companies doing business in Massachusetts—even private ones, like Ford—were required to file a corporate balance sheet annually with the state. Whitehead took the train to Boston and rooted around in the state’s files until he found the prized piece of paper showing Ford’s 1952 net worth: it was in the billions of dollars, making Ford “the largest privately held company in the United States, and probably in the world,” he thought. Weinberg was impressed, both “with the balance sheet” and, Whitehead thought, “my ability to get it,” although the Goldman senior partner was “never particularly lavish with praise.”

  For two years, Whitehead worked with Weinberg—and various members of the Ford family and the Ford Foundation—on the Ford IPO. Not only was the IPO unusually complex—given the way Henry Ford had structured the voting rights of the various constituents—but it also had to be conducted in complete secrecy. The Ford IPO was a huge success, of course, raising millions for the Ford Foundation. “Getting Ford was a big, big event for Goldman Sachs,” Whitehead wrote. “It put us on the map in a way that we weren’t on the map before.” The New York Times put the story on its front page, above the fold. “Goldman Sachs had arrived,” Whitehead claimed. In the aftermath of the successful Ford IPO, Whitehead abandoned the idea of working for a big American corporation. “That seemed like small potatoes,” he said. But he started getting inquiries from other firms. One that “intrigued” him particularly was the opportunity to become a partner at the elite venture-capital firm set up—with an initial stake of $10 million—by John Hay “Jock” Whitney, one of America’s richest men. Whitehead had been at Goldman for nine years by that point—it was 1956—and had not been named a partner. “I was restless, and maybe a little resentful,” he confided. He also worried he had become too closely associated with Sidney Weinberg in an era at the firm increasingly dominated by Gus Levy and his traders. He was invited to lunch in a regal dining room at the firm with Whitney, and despite Whitehead spooning his strawberries into a water bowl instead of his dessert bowl, by the end of the lunch Whitney offered Whitehead a partnership at his firm.

  When he got back downtown, he marched right into Weinberg’s office and told him he would be leaving Goldman for Whitney. “Are you kidding me?” Weinberg responded, incredulous. He then “barked” at Mary Burgess, “his long-suffering secretary,” and asked her to get him Whitney on the phone. Sitting in Weinberg’s office, Whitehead remembered being “appalled” that Weinberg would have the nerve to do such a thing “but it was never possible to restrain Sidney once he’d gotten it in his mind to do something.”

  When Whitney got on the phone, Weinberg started barking at him: “Jock, I hear you’ve just offered my young assistant a job at J. H. Whitney. You can’t do that, Jock. He’s too important to me here, and I’m sorry, but I just can’t spare him, and that’s that.” Whitehead was “astounded that even Sidney could be so brazen with such a man as Jock Whitney.” But it worked. Whitney withdrew the offer. Goldman agreed to match the compensation Whitney had offered him and agreed to make him a partner at the end of 1956. Whitehead stayed. As promised, the firm promoted him to partner at the end of the year. He was paid a salary of $25,000 and one-quarter of 1 percent of the firm’s profits. “It was the happiest day of my life, and a huge relief to me,” he explained. “Being a partner at Goldman Sachs wasn’t exactly lifetime tenure, but close. Now I figured that the only thing that would endanger my continued employment was the demise of the firm itself.”

  ——

  WHITEHEAD’S MAIN CONCERN, as Weinberg aged into his seventies, was the prospect of the firm’s
investment banking business withering away when Weinberg left the stage. Whitehead figured Weinberg’s business-getting prowess could not be easily replaced, and he—alone, apparently—was increasingly worried about how the firm would carry on without its “ultimate rainmaker.” Ironically, Whitehead reasoned, “it was apparent that our greatest strength was our greatest weakness.”

  It was this fear of failure that led Whitehead to devise his plan for a New Business Group—a group of ten or more senior bankers who would fan out across the country and touch base with one large company after another to see what, if anything, Goldman Sachs could do for them. Whitehead’s thinking—Marketing 101, really—was highly Cartesian, logical, and totally radical for Wall Street at the time. “No one solicited business,” he recalled. “That was undignified. The way to attract business was to act prestigious and important—and somehow that would lure the better sort of customer the investment banker was trying to attract. That was, in fact, the way Sidney did it. He established himself as the man to see for a corporation’s financial needs. He rarely traveled, in fact, because everybody came to see him.” What’s more, Weinberg’s most successful peers—André Meyer, Felix Rohatyn, and Bobbie Lehman, among them—did the exact same thing. Whitehead’s organized calling effort was simply undignified.

  Weinberg ignored Whitehead’s “Blue Book,” as his confidential report was dubbed (its cover was blue). Once he became a partner, though, he tried again and sent around the Blue Book to his fifteen other partners. Again, he heard nothing. A month later, he asked Weinberg if he had read the report. “Haven’t read it,” he told Whitehead. This prompted Whitehead to start lobbying his partners about the idea and to realize, albeit slowly, that while none of them was wildly enthusiastic, none of them wanted to thwart him either.

  Whitehead took their silence as permission. He recruited three men from inside Goldman to be part of his team, and a hired a fourth, Dick Mayfield, from the outside. Mayfield had previously been a jazz pianist. They were all outgoing and gregarious, qualities Whitehead knew would be essential in selling the firm’s services to new and existing customers. As innovative as this approach was to generating new investment banking business for the firm, Whitehead also insisted that if and when these men brought in a piece of business, they should waste no time executing it themselves but rather they should turn the assignment over to the firm’s internal technicians to be executed. On so many levels, this was an even more radical idea, because few Wall Streeters were (or are) secure enough about their own standing at any given moment to remove themselves from a piece of business they brought in, let alone turn it over to a colleague (read: rival) who had no role in generating the business.

  In his own quiet way, Whitehead was seeking to upset the entire investment banking gestalt. But his logic was impeccable. “I noted that at Procter & Gamble and other market-driven companies, the sales department and manufacturing plants were separate entities,” he observed. “After making a sale, a Procter & Gamble salesman continued on his rounds to make another. He’d keep an eye on all his customers, to make sure they were happy, but not to the point of involving himself with actually making the soap. So we did the same thing at Goldman Sachs.” The firm rolled out an aggressive new-business calling effort, the likes of which Wall Street had never before seen. Every large company in the country—and then the world, as the program expanded—heard from a Goldman banker. “Many had never been called on by an investment banker from a Wall Street firm before,” he discovered.

  In daylong seminars, Whitehead’s team heard talks on “How to Get an Appointment with the CEO,” “How to Treat the CEO’s Secretary,” “What to Talk About When You Do Get an Appointment,” and how to answer such burning questions as, Should the new-business man give the CEO’s secretary flowers to ingratiate himself? (It turned out the answer to this one was to let each man decide on his own.) But getting in the door to see the top executives of companies who had never heard of Goldman Sachs—a small, private partnership based in New York and only the fifteenth-largest Wall Street firm—was a daunting challenge. “[F]ew people outside of New York had even heard of us,” Whitehead recalled.

  To try to orient the bankers in the direction of profitable, repeat business, Whitehead penned a memo for them. It contained such gems as “When there’s business to be done, get it!” and “Important people like to deal with other important people. Are you one?” He also threw in a few phrases akin to those that might appear in a Chinese fortune cookie, including “The respect of one man is worth more than acquaintance with 100” and “You can never learn anything when you’re talking.” As Whitehead and his gang of four kept showing up at companies, new-business assignments began to trickle Goldman’s way. Of his baby, Whitehead later wrote, “It just showed the value of an organized, highly structured sales effort and a sensible delegation of responsibility for carrying out the project.”

  Whitehead’s New Business Group at Goldman revolutionized the investment banking business on Wall Street. It took some other firms a generation to come to the realization that what Whitehead had unleashed on the rest of the industry gave Goldman a serious competitive advantage that would have to be emulated. The days of waiting for the phone to ring were largely over. To win new banking business on Wall Street in the wake of the Whitehead revolution meant calling on potential companies year after year with good ideas in the hope that when they decided to raise capital or do an M&A deal, they would call and hire your firm. Whitehead related the story of how J. Fred Weintz, one of his new-business partners, was so engrossed in a new-business call at a company in Cleveland—including staying on for lunch with the company’s president at his club—that he completely forgot about his wife, who had been waiting for him in the car since ten in the morning. “That’s the kind of new-business man we wanted,” Whitehead said.

  ——

  BUT WHITEHEAD did not consider this his most important contribution to the firm, or his greatest triumph. Rather, he appears to take greatest pride in having memorialized for future generations of Goldman employees and executives a code by which they should live and work. “I get too much credit,” he said, “more than I deserve for having invented somehow the ethical considerations at Goldman Sachs.” He took it upon himself to create the twelve commandments—which the firm’s lawyers have since increased by two, to fourteen—that had made the firm so successful and would continue to make the firm successful, if they were followed. Whitehead, in effect, institutionalized what was—and remains—the “Goldman Way” and spawned a new generation of highly paid Wall Street soldiers, who have been called everything from “cyborgs” to “Stepford wives” to the “Manchurian bankers.” But from their inception, the more cynical members of the Goldman army—not surprisingly—belittled Whitehead’s efforts. “As a practical matter 14 is a lot,” said one longtime Goldman partner. Around the water cooler, among those less willing to drink the Goldman Kool-Aid, bankers and traders had taken to quoting French leader Georges Clemenceau, who, after President Wilson showed up at Versailles at the end of World War I with his Fourteen Points, said, “Even Moses only had ten commandments.”

  But, again, Whitehead was ahead of the curve, and now nearly every Wall Street firm has principles by which it is supposed to live (although few actually succeed in adhering to them, of course). “I did it out of necessity,” Whitehead explained. He said he believed that as Goldman got bigger and bigger in the 1960s, more new employees were joining the firm than “we could fully assimilate,” and he fretted that they would not “get inculcated with the Goldman Sachs ethic” that “we old hands had learned over time by osmosis.” He did not want the firm’s “core values” to be lost to future generations. Nor did he want the principles to leak outside the firm. “It was not meant for external consumption,” he said.

  One Sunday afternoon at home, Whitehead sat down at his desk with a pen and yellow pad and created his list. He wanted to emphasize what made Goldman a “distinctive” and “unique pl
ace to work” without “sounding too schmaltzy.” Although the original document has disappeared, much of what Whitehead wrote that afternoon remains both crucial and central—for instance, on the firm’s website and in its public filings, despite his hope that the wisdom would not be disseminated to a wide audience—in propagating the timeless myths about the firm. And though many of Goldman’s employees believe in—and try to adhere to—the principles, as the firm continued to grow during the next thirty years and became increasingly global, the behavior of its employees became harder and harder to control, despite the existence of a list of principles by which they were expected to live.

  That Sunday afternoon, he originally wrote up ten principles. But when he showed them to one of his partners, he told Whitehead, “The Ten Commandments, John? Isn’t there, in your religion, something about Ten Commandments and do you really want this to sound like it’s the Ten Commandments?” Whitehead replied that he did not. “So I made it twelve,” he said.

  Whitehead’s commandments seem like banal pabulum today, especially for a service-oriented business. At the time he wrote them they were nearly revolutionary. What Wall Street firm thought of itself as important enough to lay down principles of behavior for its employees? “Our clients’ interests always come first,” Whitehead put at the top of his list, understandably. “Our experience shows that if we serve our clients well, our own success would follow.” He could have stopped there, of course, and, assuming he could get the troops to go along, be hailed a Wall Street hero.