There was also an ethic that talking about compensation was taboo, although no one ever actually said so. Almost all of us had our sights set on partnership, and we were certainly curious about how our compensation stacked up against that of others, but no one ever directly asked.
One class of vice presidents had an interesting approach. Each year, all the members of that class got together and anonymously wrote their compensation figures on a slip of paper and dropped the paper into a bowl. The slips were then extracted randomly and read aloud to the group. In that way, no one knew exactly how much each person was making, but they knew the range and could figure out where they fell within it. I learned the range was less than 5 percent to 10 percent from the highest to the lowest (a remarkably narrow range by today’s standards), and this represented that the firm equally valued each person’s contribution and the equally high level of talent and hard work. I remember thinking the firm’s policy on compensation range was almost “socialist.”
Family Values
The firm also instilled a feeling of “family.” Goldman inculcated its values in other ways as well. When I started, I was assigned a “big buddy” who had graduated from business school and worked at Goldman for a few years to work with me on my first few projects. Big buddy relationships could be traced like a family tree: my big buddy had a big buddy, and so on. He also had little buddies like me. We were “related,” and one could essentially trace his “ancestors.” It was an informal network, and people had a sense of pride in their lineage of buddies.
Fortunately, my big buddy was great (as were my several little buddies). He had been an athlete at a small college, worked as an accountant, and pushed his way through to an Ivy League business school and into Goldman. Someone told me that when my big buddy had been a summer associate, he essentially slept under the desk in his cubicle because he wanted to make sure he would get a full-time offer. When I sheepishly asked another associate whether the story was true, he scoffed and said, “Of course not.”
I was relieved.
Then he walked me to the other side of the floor, to the office of Peter Sachs (a descendent of the original Sachs). He pointed, smiling, to a worn leather couch and advised me to take short naps there when pulling all-nighters, adding, “It’s a lot more comfortable than a cubicle.”
In addition to teaching me financial analysis, my big buddy gave me hints about what to wear and how to act. His general advice was don’t do or wear anything to draw attention to myself.
I also was assigned a mentor—a vice president—who was supposed to speak to me about my career and give me a senior connection to the firm. If my big buddy was like an older brother figure, my mentor was like a father figure. He took me to lunch or dinner periodically and told me which projects I should work on and with whom. He also spoke to other senior people to get me assignments that would help me improve. In addition, I sat in a cubicle right outside a partner’s office, and we shared the same assistant.
My mentor told me that everyone was expected to accept any social invitation from another Goldman employee (not to mention attending every department or firm meeting or function). He told me there was no excuse for missing a wedding, funeral, bar or bat mitzvah, or christening. My London wedding in 1998, when I was an associate, was attended by the head of my department, one of the co-heads of banking, and a member of the management committee.
After seeing how my mentor and the partners worked, I certainly didn’t need codified business principles to understand the ethic. One partner literally had holes in the soles of his shoes. My mentor had holes in the elbows of his shirt. Both worked twelve- to fourteen-hour days and on the weekends. I once had to call a partner at his home on Christmas Day to ask him a question and got no complaints. My mentor had an L.L.Bean canvas briefcase, and one of the partners carried his things and paperwork in a large brown paper bag. I was afraid to carry the new leather briefcase my parents had given me for college graduation. And I made sure I was in the office before my mentor and the partners, and I left after they did.
When I started at Goldman, I was handed a two-hundred-page, green-covered directory with every employee’s and partner’s home address and work and home phone numbers (cell phones were not widespread, and e-mail was years away from being used at Goldman) as well as summer or weekend contact information. Obviously, having readily available contact information increased efficiency, but the other message was that you were expected to be reachable at all times—no matter who you were. The directory seemed like a club book, and it reinforced the feeling of being in a family, adding to the flatness of the organization.
One implication of the value of keeping a low profile was that there were to be no superstars.35 The implicit proscription of displays of ego extended beyond office walls. Unlike other investment banks, which allowed their bankers to be quoted by the media, Goldman preferred its M&A bankers to be “anonymous executers of transactions.” The unspoken message was clear to all: “No one is more important than the firm.”36
Goldman also invested serious time and effort in training. Most analysts and associates joining Goldman from school are trained over weeks to learn the firm’s history, expectations, processes and procedures, and organizational structure. The primary intent is the socialization of new members. During my training, various Goldman executives came and spoke about the Goldman history and their departments. Junior people gave talks about their jobs and explained how to be successful at Goldman. There were group dinners and cocktail parties. We learned specifics that would help us in our day-to-day jobs, such as Excel spreadsheet-modeling skills, but it was also a way for new people to gain exposure to various people and departments that would help trainees think about problems or provide information to help clients. The people we were in training with were our “class,” and we developed a strong identity as members of our class. You would also be evaluated by comparison to those in your class. Even with the implicit competition, we felt a great camaraderie. My twenty-year class reunion party in 2012, sponsored by Goldman, drew people from all over the world. Retired senior partners also attended.
After the initial sessions, Goldman provided constant formal training: tools to do the job better, updates on product innovations or trends, information about how to be a better interviewer or mentor, training on how to better provide clients with full solutions and not only a product solution, and updates on compliance and legal issues as well as best practices. Not a month went by without some sort of formal training. We also had outside guest speakers to talk about specific topics. As we progressed in our careers, we received specialized training for any promotions—usually followed by a cocktail party in which partners congratulated us, perhaps followed by handwritten notes of congratulations from various partners. In addition to training, we attended many department functions, including holiday parties, strategy sessions, outdoor bonding exercises, and picnics—even group trips to the beach or skiing (often, spouses were invited).
Goldman also strongly encouraged participation in community and public service. Most people looked up to and admired Goldman employees who went on to public service, and those who were hired from government. You were expected to participate in Goldman’s Community Teamworks program, an initiative that allows employees to take a day out of the office and spend it volunteering with local nonprofit organizations. The firm also matched the charitable contributions of employees, and partners generously gave to their alma maters and other nonprofit organizations. In some interviews, partners explained that citizenship had multiple purposes: to do good, to make people feel good about where they worked, and, admittedly, to extend Goldman’s network.
Long-Term Greedy
Goldman’s foremost principle—of “clients’ interests first”—entails doing what is best for the client, regardless of the size of the fee (whether it will be received now or later) and never suggesting deals to clients specifically to generate fees. Putting clients first requires a commitment to the
honesty and diplomatic candor that enable clients to trust Goldman to honor confidentiality of information, provide reliable advice, and not pull any punches. This honesty was a hallmark of Goldman’s earlier days, and the firm’s reputation for ethical behavior distinguished it among Wall Street firms.37
When I was a financial analyst, we were asked to review the strategic alternatives for a division of an industrial company. Internally, we informally gathered about a dozen M&A bankers and debated the best courses of action for the client. During the discussion, a young associate revealed something the CFO had said: that the client CEO thought the division in question should be sold, and pointed to the data and analysis that would substantiate this point of view. Goldman would collect a fee if the division sold.
The vice president who was assigned to advise the company patiently listened and then snapped, “The CEO hired us for our unbiased advice, and not to justify what he thinks.”
We incorporated the group’s suggestions and then spent days going from one partner’s office to another, discussing the merits of various courses of action. I was impressed that all these partners would take the time to listen to discussions about a situation in which they were not involved—to help us get to the best advice and teach us how to think about the issues.
In the meeting with the client CEO, the Goldman vice president presented the various alternatives. He concluded by recommending that the CEO not sell the division at that time, because there was a good probability it would be worth more in the future. Then there was an awkward silence. The client CEO complimented the team for the quality of its work and then said Goldman was the only bank that did not recommend a sale. Unexpectedly, he called a few days later. He decided to wait and continue executing the business plan.
A few years later, that same division had doubled its profits, and Goldman was hired to sell the entire company.
The Goldman approach in this case was consistent with Steve Friedman’s description of Jimmy Weinberg: “He just had a great demeanor, and people would develop confidence in him because he wasn’t pandering to them, he would tell them what he thought.”38 I interviewed several Goldman clients from the 1980s, and there was a general consensus that typically Goldman did emphasize unbiased advice.
Devotion to Client Service
The values of integrity and honesty are codified in the last of Goldman’s business principles as being “at the heart” of the business. In the eyes of the partners during the Weinberg and Whitehead days, the firm’s reputation for ethical behavior was a competitive asset and crucial to the firm’s success. It was the right thing to do, and it made good long-term business sense. They recognized the value of their reputational capital.39
Integrity was the favorite word of longtime Goldman head Sidney Weinberg, and he defined it as a combination of being honest and putting the interests of clients first. As one partner observed, “Mistakes were quite forgivable, but dishonesty was unpardonable.”40 John Whitehead explains: “Our industry is one in which the services of the leading investment bankers are all pretty much the same. So, I’ve always believed that one’s reputation is extremely important and that decisions are often made according to the general reputation a firm has, not so much by the fact that they will perform a service a little cheaper and a little faster. Reputation is what matters.”41
When describing Jimmy Weinberg, Tom Murphy, former chairman and CEO of Capital Cities/ABC, said, “His clients were his friends … His whole reputation in the business world was as a person of honesty and integrity.”42
Whitehead expressed the strategy behind the philosophy this way: “We thought that if our clients did well, we would do well.”43 Together with the emphasis on maintaining a “steadfast” focus on the long term, this almost religious devotion to clients’ interests and service was largely responsible for Goldman’s success.
Gus Levy, a senior partner at Goldman from 1969 until his death in 1976, originated the maxim, mentioned earlier, that expressed the proper attitude for Goldman partners: “greedy, but long-term greedy.”44 These words helped remind partners to focus on the future, as evidenced by the nearly 100 percent reinvestment of partners’ earnings. One author interprets Goldman’s long-term greedy mantra to mean that “while the firm worked in its own interest, it did so in a manner consistent with the long-term health of its industry, business, and clients.”45 This was not purely a matter of altruism. Goldman existed to make money for its partners, not only at the moment but also for years to come. Goldman cultivated an image of responsibility, trust, and restraint by intimating that the firm held itself to a higher standard than other firms.46
The emphasis on long-term greedy also explains in part why employees were willing to work grueling hours for relatively modest wages. In the long term, if they made partner they would more than make up for the sacrifice. Lower wages in one’s early years with the firm were part of Goldman’s strategy for success—part of the business model—because the less that was paid to nonpartners, the more the partners got paid.47 Goldman got its employees to buy into long-term greedy for themselves, and the Goldman culture was distinctive enough that people wanted to work there even if they worked harder and for less money than did competitors.
Many of the partners I interviewed cautioned me that Goldman was not always all about teamwork, collaboration, and shared values. Hiring mistakes were made. Indiscretions were dealt with. Politics did enter into the picture the further one moved up, and there were sharp elbows. But in the end, the principles generally won out. People came and went, but generally the culture and principles remained. Just as the policy of not advising hostile raiders (see chapter 5) and keeping the client first were good business decisions, so was getting people to buy into a culture and a purpose—it made the partners (who were certainly greedy) more money over time and helped sustain the money machine for the next generation.
Very few people left Goldman voluntarily. When I was an analyst, in the early 1990s, a respected associate decided to leave and join his father’s business, and we had a department meeting to discuss this shocking event. The purpose of the session was to make us feel that in this one instance, it was acceptable; he was going to work with his family, and that was just barely excusable. I would have thought that many people would leave because of the lower pay than peers and the slim chances of becoming a partner. But voluntary turnover was less than 5 percent, I was told—significantly below the industry average in the 20 percent range.
Generally, Goldman bankers obsessed more about making partner and their relative compensation than they did about their absolute compensation. Their social identity was so bound up, through their socialization at the firm, with what Goldman valued, that bankers routinely turned down multiyear guaranteed contracts for significantly more money at other firms, even when the possibility that they would make partner at Goldman was, according to my interviews, less than 5 percent to 10 percent.48 After their socialization into Goldman, working at any other firm, regardless of the title or compensation, would seem to them a step down, according to many of the people I interviewed.49
Goldman bankers were also generally convinced that they were the best—that they worked at the best firm, with the best people, and with the best brand. At the same time, they were convinced that teamwork and a team relationship with clients were so important that their own value as bankers outside Goldman would be diminished. The socialization process made well-educated, thoughtful, talented people believe that Goldman made them better bankers than they could be elsewhere. Blankfein summarized the culture as “an interesting blend of confidence and commitment to excellence, and an inbred insecurity that drives people to keep working.”50 Although it seems he was talking about an insecurity that motivated people to keep working harder and longer, this inbred insecurity is a paradox.
Nostalgia
I do not want to wax nostalgically about the good old days. I did on occasion observe vice presidents and partners acting in a way that might n
ot be considered in the best interests of clients, though those were exceptions to the rule. For example, I remember working with an associate on a project advising a company that was buying a small subsidiary of another company. The partner was extremely busy and traveling, and although we sent him our analysis and kept scheduling calls to speak to him, he always canceled our discussions. He showed up less than a few hours before our client meeting, and, based on his questions, it appeared as if he had not read anything we sent him and was not prepared. This surprised me, because usually partners were highly detail oriented and well prepared.
He asked us for our valuation analysis, the value of the synergies, and the price the seller wanted. The asking price was higher than our valuation analysis (a breakdown that is more art than science). Moreover, our estimates of the potential synergies (the cost savings and revenue enhancement resulting from the deal), which meaningfully impacted the value, were highly subjective. When we met with the client CEO, the Goldman partner claimed that he had “been poring over the numbers all day and night” and he thought that if the company could buy the business at X price (coincidentally, the asking price we’d told the partner), then it was a good deal for strategic reasons.
When he said this, the associate and I looked at each other and then looked down. I reasoned that he might have been poring over the numbers without my knowledge, or maybe he meant “the team” had been. The deal ultimately got done; Goldman was paid a fee; and the partner was right—it was a strategic success, and the synergies justified the price. But it was one of the few times when I was junior that I privately questioned the approach. As for the other junior associate, we never really discussed what the partner had said.51
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