Money and Power

by William D. Cohan

  After filing her complaint, though, Abraham went to see Rubin, and according to Rabinowitz, “told him everything.” Then, shortly thereafter, Eisenberg went to see Rubin and confessed to him the relationship he was having with Abraham. A day or so later, according to Abraham, Rubin told her Goldman was prepared to offer her a generous settlement. But she said she told Rubin she didn’t want the settlement; she wanted the job she had been angling for as a trader-in-training at Goldman that Eisenberg had arranged for her to have.

  But just as she was to start her training as a trader, the Wall Street Letter, an industry newsletter, got a tip about the police visit to see Eisenberg at Goldman and wrote a story. The next day, the New York Post’s Page Six gossip column picked up the Wall Street Letter story. “Cops have come calling at the grand old Wall Street investment house of Goldman Sachs,” Page Six reported. “Office workers at the firm—which saw one of its partners arrested for insider trading in 1987—swiveled their heads recently when uniformed police notified partner Lewis Eisenberg that his former assistant was charging him with sexual harassment.” Moskowitz told the paper, “This guy is a sick man. He has an obsession for this girl. I just want him to stay away from Kathy. I don’t want him to show up at either of our houses any more or I’m going to have him locked up. He did horrible things. I want him off the streets so he can’t hurt anyone else.” As to Eisenberg filing a report with the internal affairs department, Moskowitz said, “He’s run a vicious campaign to ruin me. He has a lot of money to do what he wants. I’m not going to stand for it. Just because I’m a cop, I’m not a second-class citizen.”

  The following Monday after the stories appeared, instead of starting her new job, Abraham was given administrative leave and told to work out her differences with Eisenberg. On October 31, she was fired. Goldman wrote in her dismissal letter that her actions had been “hostile” to the firm. Then Eisenberg was gone, too. Moskowitz also became collateral damage: he lost his job with the police department. A Goldman spokesman said, “The firm had no reason to suspect there was anything other than a business relationship between Kathy Abraham and Lewis Eisenberg. Ms. Abraham never made any complaint regarding Mr. Eisenberg or any request for a change in her job. In fact, her administrative supervisors from time to time offered her a transfer of assignment so as to increase her responsibilities and advance her career, and on each occasion she declined to consider it. We are satisfied that whatever personal relationship she may have had with Mr. Eisenberg had no effect on the terms and conditions of her employment.” Novotny tried to dismiss the contretemps with one persistent reporter by explaining, with some obvious condescension, “Lew Eisenberg is a friend of mine.”

  Of the three people caught up in the scandal, Eisenberg—not surprisingly—fared the best. Rabinowitz reported that Eisenberg left Goldman with around $30 million in Goldman stock and investments. He served as chairman of the Port Authority of New York and New Jersey—the same board Gus Levy was on when he suffered his fatal stroke—from 1995 to 2001. In 2001, New York governor George Pataki named Eisenberg to the Lower Manhattan Development Corporation, the chairman of which was John Whitehead. Eisenberg has always been a force in Republican politics and was considered briefly for the job as head of the Republican National Committee. Professionally, after Goldman, Eisenberg co-founded Granite Capital International Group, a hedge fund, and Granum Communications, an owner of radio stations, eventually bought by KKR. In February 2009, he joined forces with his friend Henry Kravis, at KKR, as a senior adviser to the firm. (Abraham still lives in Queens but could not be reached for a comment. She later recanted her accusations against Eisenberg and said he never harassed her or hurt her in any way. Moskowitz, who would like to return to the New York City police force, teaches martial arts, mostly in Queens. His two-year-long legal effort against Goldman and Eisenberg ended in January 1992, and a police hearing officer said his actions against Eisenberg “bordered on criminal extortions.”)

  After the Eisenberg scandal made headlines, Weinberg instructed Jonathan Cohen, a longtime “human capital” partner at Goldman, to find out within twenty-four hours if any other partners at the firm were carrying on in ways similar to Eisenberg. Cohen sent around a voice mail. “If I hear about it now, you’ll get amnesty, but there will be no mercy if I hear about it after today,” was the gist of the message. “The phone was ringing off the hook for the next twenty-four hours,” said someone familiar with what happened.

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  WHETHER THESE ONGOING public scandals began to take their toll on John Weinberg—in the way that the litigation surrounding Penn Central affected Gus Levy—is hard to know for sure. On the other hand, how could they not? The culture carriers at Goldman prefer to speak about Weinberg’s grit and determination, attributes he honed as a marine in combat in Japan during World War II, of his moral rectitude and his unflappability.

  But on August 15, 1990, Weinberg announced he was stepping down as Goldman’s senior partner, to be replaced by Rubin and Friedman as co-chairmen of the firm beginning in December. He was sixty-five years old and had been running the firm for fourteen years, the last few of which were especially trying. Rubin and Friedman followed the Weinberg-Whitehead model and did not divvy up responsibility by business lines. They made clear that one of them could speak for both of them. “This worked because we shared the same fundamental views about the firm, trusted each other totally, kept in close touch, and were both analytical in our approach to problems,” Rubin wrote in his memoir. “When this structure does work—and that is a rarity—the advantages are substantial: there are two senior partners to call on clients and two people who can work together on issues with no hierarchical baggage, and who can reinforce each other in discussions with the rest of the organization. Also, when difficulties arise, having a partner reduces the feeling of loneliness at the top.”

  On the rare occasions when they did not agree on important matters, their rule was to defer to whichever one of them felt more passionately about the topic at hand. For instance, it turned out that Friedman believed that it was important to differentiate partner compensation by giving more profit points to those partners who had distinguished themselves over the years. Rubin was more of the view that the internal strife caused by the slight favoring of one partner over another would add immeasurably to the social unrest at the firm. He had seen firsthand one partner’s fury at another being given one-eighth of a point more of the firm’s profits, and he figured life was too short for those kinds of blowups. “Over the years,” Rubin wrote, “I had seen partners who earned millions of dollars a year become deeply unhappy over tiny distinctions in partnership shares.” Friedman referred to Rubin’s preference for relative peace as “solving for maximum social harmony.” Since Friedman believed more deeply about the importance of making the distinction between partners, that’s what the two men decided to do, although the differences were often more tempered than Friedman would have preferred.

  Goldman wasted little time establishing its new leaders’ bona fides and authority. In a lengthy December 1990 cover story about them in Institutional Investor—“The Steve and Bob Show”—less than a month into their tenure, they let no light between them. “Our minds work in similar ways, and we will tend to see things in relatively similar ways,” Friedman said. “[I have] a kind of recipe for co-managements to be successful: If there’s no demarcation [of responsibilities], then you’d better agree on things 90 percent of the time. And second, you’d better have a chemistry that enables you to resolve the other 10 percent of the time pretty well. We just found we had that mix.” The article made no mention of Freeman or Eisenberg by name—the closest it came to a whiff of the recent scandals was an innocuous reference to “the way” Goldman “handled” the Eisenberg “sexual harassment suit,” and that it did “little to dispel Goldman’s reputation for insensitivity”—and instead focused on the usual Goldman tropes about ethics and teamwork. “If you say ‘I,’ you are being abrasive,” the articl
e quoted partner Robert Mnuchin, who had just retired after thirty-three years. The article claimed that “[n]owhere else on Wall Street has a firm attempted to institutionalize something as intangible as a corporate ethic. When Whitehead drew up a list of the business principles by which the employees of the firm would abide, he came up with four more than God gave Moses to codify all earthly morality. These principles are still read aloud at Goldman gatherings, and tyros have been known to tack them above their desks, perhaps to inspire them to greater glory.” No mention was made of how the business principles dovetailed with the reality of human nature and Goldman’s ongoing scandals.

  The thrust of the message that the Goldman brass was trying to convey was that much-needed change was coming to the firm. There would soon be a Goldman Frankfurt office—after six months of study—even though John Weinberg would have continued to wait before opening one. When other banks decided to leave Latin America after trouble there, Goldman had moved in, “smell[ing] opportunity.” In six months, Goldman had created from scratch a structured-equity-products division. In most un-Goldman-like fashion, Goldman had also gone outside the firm to hire the three Salomon Brothers traders and made them partners in order to “jump-start” Goldman’s mortgage-backed securities and junk-bond businesses.

  The truth was that Goldman needed to modernize. The firm relied too much on its reputation, but the financial world was evolving toward ever more complexity and speed. In his time, Whitehead had decided that Goldman could no longer be run as a Florentine guild. He had had to figure out how to extend the firm’s reach beyond Sidney Weinberg’s friends and to learn how to impart the firm’s collected wisdom and knowledge more broadly as the firm grew more rapidly. This led him to create the New Business Group and the firm’s fourteen principles. These innovations, however, took the firm only so far toward the modernization it desperately needed. To get the firm the rest of the way fell to the next generation of the firm’s leaders, Friedman and Rubin.

  According to Institutional Investor, the firm’s new leaders established an “Ad Hoc Profit Maximization Committee,” whose members were “intelligent men from Mars,” according to Friedman, and the purpose of which was “to bring new perspectives to the firm’s various businesses by questioning how things are run … without threatening the ethos.” Then there was the “bevy” of new consultants who showed up at the firm. Marketing consultant Anthony Buzan—a “creative provocateur,” Geoff Boisi said—had been hired to counter the perception that Goldman was a follower, not a leader, when it came to financial innovation. At an investment banking retreat in upstate New York, Buzan tagged along and got the Goldman bankers to engage in a little finger painting while also getting their creative juices flowing. Indeed, Boisi had implemented an annual award for financial creativity—$25,000 plus a slab of Baccarat crystal—that was won in 1989 by a woman banker whose name has been lost to history who created Goldman’s business in employee stock-ownership plans (then all the rage on Wall Street in facilitating employee buyouts of companies). In the wake of the Eisenberg debacle, Goldman hired Alterna-Track to devise and implement a system of part-time and flex-time positions for the firm’s women who also wanted to start families. “If we can keep high-powered women involved and active at Goldman Sachs, this will be a tremendous competitive advantage for us,” Rubin explained. “I think it’s terrific.” Alterna-Track was started by Karen Cook, who worked at Goldman for twelve years as an equity trader after bulldozing her way into the firm in 1975. By serendipity, Rubin had overheard her insistent—but unsuccessful—efforts to get an interview and decided to interview her on the spot. Two weeks later, she had a job.

  They brought in Booz-Allen to review the firm’s real estate and its infrastructure, much of which proved to be antiquated. “There was a lot that needed to be fixed there,” Friedman said, “and they told us how we could take out a lot of costs and be more efficient. We were just doing some things like some big, bureaucratic company. If someone needed something in terms of telecommunications, there was a book, and if you needed something new and the book said ‘Everyone will have the same thing at great expense,’ then either you couldn’t get it or we’d have to rip out everyone else’s and they’ll get the same thing. And metaphorically, if you were running an area and you said, ‘I need pizza for dinner for my people,’ the book in effect said we’re going to deliver this in a chauffeured Bentley.”

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  ONE EXAMPLE OF a Goldman practice that could have benefited from some cleaning up occurred on Memorial Day weekend in 1991. That Friday, at the start of the holiday weekend, at a time when most people who could would be thinking about heading out of town, forty investment banking newbies were told to report to a conference room on the twenty-ninth floor, at 5:00 p.m. “No mercy for the yuppies,” explained Anthony Scaramucci, one of the forty Goldman associates in the conference room that afternoon. Hour and after hour passed without the partner who had told them all to be there showing up. By 8:30, three of natives were getting restless. “What’s up?” one of them said. “Where is this jerk? I have plans in the Hamptons and want to get going.” After another half hour, the three rebels left. “They were MBAs from top grad schools,” Scaramucci observed. “They were the future Gordon Gekkos.”

  The rest of the group waited around. At 10:00 p.m., the partner appeared, passed around a sheet of paper, and asked everyone there to sign his or her name on it. With that minor bit of bookkeeping completed—and taking a page from the nineteenth-century French writer, Stendhal, in Lucien Leuwen—he said, “So, today’s lesson is about waiting patiently for those who are more important than you. Someday you may be in the lobby of a billionaire, and he or she may make you wait. Your job as a representative of Goldman Sachs is to sit there. We are in the client service business. We wait patiently and graciously. Now you may have a fancy degree from a fancy place, but that will never replace having the right attitude. Have both and there is nothing you can’t do. Without the right attitude, you are not the right stuff for Goldman Sachs.” With that sermon completed, the partner dismissed the class.

  The following Tuesday, the three Masters of the Universe who had left early were fired. “It was a lesson I will never forget,” Scaramucci explained. “It communicated the culture of the firm without bluster, cheerleading, or empty rhetoric.”

  Other messages were communicated constantly to the young Goldman employees as well. One of them was how to make money from others’ misfortune, as when a Goldman trader boasted to MBAs at Columbia Business School how much money the firm had made from the January 1986 explosion of the Challenger space shuttle. Another of them was that Friday is “Goldman Sachs Day.” One Goldman trader remembered how strong his boss felt about this and conveyed it to the team on a regular basis. “His view was Friday is the day everybody’s been out boozing and kind of writes off as a nonevent and doesn’t do anything,” he said. “So, if you come in on Friday with your head down, intent on actually doing something, everyone has their guard down and is less competitive and that’s when you can make a big difference. So, at the end of every meeting, he’d say, ‘Yeah, it’s Friday. It’s Goldman Sachs Day.’ I can see the logic of it from a trading perspective. People are surfing the Internet. They’re kind of leaving early. They’re off to the Hamptons at two o’clock. Whatever it is, they get out and go on Friday.”

  Another message was how special they were and how fortunate they were to be working at Goldman. “It’s sort of like being around the Sun King kind of thing,” remembered one former Goldman senior banker. “It’s the center of everything that’s going on, the nexus of so much that’s going on on Wall Street.” What made the firm special, in his mind, and different from other firms on Wall Street was “[t]he people are so bright, so driven, and just unbelievably consistent. At a lot of places, you have ninety-nine-percentile people, but you also have eighty-two-percentile people and seventy-four-percentile people. At Goldman, the bell curve sort of centers around ninety-five and one tail go
es to ninety-nine and the other tail goes to ninety-one. The consistency of the people is extraordinary. The recruiting, the talent management and retention is probably one of the great strengths they have. Then, the information flows are extraordinary. The information that courses through that place is like nothing you’ve ever seen before. Then, thirdly, I think there are relationships that they have with boards, with governments, with key decision makers and what qualifies as being important there versus at other places is just a whole other level of discourse that they’re having with their clients. They are able to sort of turn their head away from the immediacy of a trade, or a piece of business that doesn’t have all of the things they’re looking for and really focus on the biggest, most important deals and stay really disciplined along those lines. They’re always whale hunting. They’re not out to catch fish every day. They go days without hitting or harpooning a whale while other guys are filling the boat with little bitty fish. But then when they start bringing in the whales, people’s heads turn. That’s an interesting metaphor. They are definitely whale hunters and they’re not really fishermen.”

  There was also something known around Goldman as “Le Concierge,” which can accomplish for Goldman’s employees (or clients) pretty much anything they want, including taking shirts to the cleaners or getting hard-to-get restaurant reservations. The service was less a reward per se than recognition by Goldman of how hard the firm expected people to work and that they probably wouldn’t have time to take care of basic chores. “You literally did work one hundred and ten hours a week,” explained one former banker. “You have to sort of try to do the math as to how that’s possible. There was a long period of time for me where if I got four hours of sleep a night, I actually felt well rested. Often, if you had a couple of hours of spare time during the day, people would go down to the nurse’s office downstairs and pass out in one of the beds down there for two hours to get some sleep. I met my wife actually at Goldman. I remember her first day at work. She actually did an all-nighter like right out of the gate. So, it was like that. You worked as hard as you sort of humanly could.… I’m sure you’re making less on an hourly basis as an analyst at Goldman than you would if you worked at McDonald’s.”