Although the process was shrouded in secrecy outside Goldman and discussed in hushed voices or behind closed doors, some people knew what was going on from off-the-record conversations with partners with whom they were close. The conversations were supposed to be confidential, but rumors were quietly passed on. People knew who was a “lay-up” (a basketball term for an easy score), who was “on the bubble” (not sure to be elected), and who did not have “a prayer.”
Written nominations were solicited from Goldman’s partners, and from those nominations the partnership committee created a preliminary list of potential candidates, kicking off a paper chase. Endorsement letters were filed, and internal former FBI and CIA employees conducted background checks on all serious contenders. An internal investigation (called “cross-ruffing,” a term borrowed from the card game bridge) took place, led by a partner not in the candidate’s division. Then the list was narrowed during the meetings to discuss the would-be partners, a photo of the candidate was displayed on a screen, and from this list, a committee selected names to be placed before the partnership for a vote. The partners generally wanted to keep the percentage of partners to total employees about the same, so the number elected would be carefully chosen depending on retirements and growth.
The process might seem coldhearted, but it was viewed as essential to maintaining the culture, and everyone knew it.9
The behavior you needed to exhibit to make partner was clear: make money for the firm while embodying its principles. Everyone knew that becoming a partner required the support of people outside your division and region. Someone in banking needed support from asset management or trading. Someone in North America needed support from people in Asia. This was a key tenet of teamwork; to make partner, you had better help people across the firm. This meant that if you were asked to be on a 4:00 a.m. call with a Japanese client, even if it had nothing to do with your clients, you would set the alarm and do it without question, knowing that if you did not rise to the occasion, it could hurt your chances of becoming a partner (or staying a partner). If you were asked to bring someone from another area into a project because it could help improve the firm’s advice, then of course he or she was invited. And the new person participated even though the revenues of the project might not be attributed to you or your group. Candidates’ behavior was being vetted as much as their ability to contribute financially to the partnership.10
I was surprised when very senior partners asked—in a roundabout, casual way—my opinion of vice presidents who were widely known as being considered for partnership, and as I got more senior they privately told me why someone had or had not been elected—with the implied messages such information carried. Once a partner showed me the standard form used to evaluate candidates. The blank form included numerical rankings of listed qualities related to the Goldman principles.
Former Goldman vice chairman Rob Kaplan says that many of his most stressful and difficult moments at Goldman occurred during partner promotions, particularly when he had to deliver the news to a highly qualified person that he or she would have to wait another two years for reconsideration. It was little wonder that Kaplan writes in What to Ask the Person in the Mirror that this message of failure to make partner was often met with “expressions of betrayal.”11
One person I interviewed—a managing director (now at another firm) who was passed over for partnership at Goldman in the 1990s before the IPO—said that of course he was furious. He had done everything he could—he had given up weekends, birthdays, anniversaries, and vacation time with his family—and then had not been elected in spite of what he thought were positive indications (assurances that he felt were essentially promises) that he would be. Not making partner was devastating to him, he said. He told me that, for people at Goldman, who you are, and what you think about yourself, was ultimately decided at that moment. The thing he feared most was the public embarrassment and humiliation, even more so than the loss of potential riches. When he failed to receive the customary, congratulatory expected call from the senior partner of the firm on the appointed morning, he explained, he felt betrayed. He did not want to hear that he might very well become a partner the next time, in two years. He felt that people wanted him to stick around so that they could get two more years of relatively cheap labor from him and that they would say anything, just as they had assured him before, to keep him. But he was determined not to stick around while his peers from business school were called managing directors at other firms and he was called a vice president for another two years. His staying would be “a cheap option” for Goldman, so he swallowed his pride and successfully cashed in his pedigree by leaping to another firm.
In a 1993 interview, Steve Friedman, then a senior partner, explained that the partnership election process was used as a way to convey that people would be rewarded for doing what was best for Goldman and would be denied the ultimate reward—partnership—if they paid more attention to their own agenda than to the firm’s. Friedman described delivering that message to one disappointed banker: “I have looked people in the eyes and said, ‘You did not become a partner this time despite your basic abilities, your candle power, your energy. You had all the goods to have achieved it, but you did not become a partner because you were perceived as having too damned much of your own agenda, and you were ignoring what we were telling you was in the broader interests of the firm.’”12
The flip side of the partner election was that, to add partners, Goldman had to discreetly ask others to retire, for the simple reason that maintaining a greater number of partners would mean each would own a smaller percentage of the firm.13 If someone was departnered, it was only after careful deliberation by the most senior partners and usually resulted from making too small a contribution relative to ownership (Goldman could get someone else to do it for less) or from doing something that jeopardized the firm’s reputation and put the partners at financial risk. Thus, the pressure was on for performance and proper behavior, even for partners, and the pressure was intense.
Generally, there have consistently been more partner additions than departures, but the ratio of partners to the total number of employees has stayed relatively constant because of continued growth. For example, the total number of partners noticeably increased from 1984 to 2011, which corresponded to the increase of total employees: both nearly doubled from 1998 to 2011. However, the percentage of partners to employees (the partner ratio) remained steady at 1.5 percent to 2.0 percent. Growth was important to provide more opportunities for partnership and for the partnership to be financially attractive.
A retired partner I interviewed said that he never worked harder at Goldman than when he was a partner. He had partner responsibilities and obligations on top of his regular job. He explained that he had done everything by the book and was relieved when he made partner.
“Why were you relieved—was it the money?” I asked.
He explained, when he got to that point, it was less about the money than it was because everyone knew he was being considered for partnership—his wife, his clients, his business school classmates, everyone at the firm. He retired after the IPO, despite having been a partner for only a short time, because he was burned out, even though he knew that each year he could “hold on” represented millions of dollars. The pressure was taking a toll on his health and his family, he told me. Today he still values the social status of having been a partner, and that is how he is usually introduced in social contexts: “a retired pre-IPO partner of Goldman Sachs.”
No one was exempt from performing or from upholding the firm’s values. The departnering conversations were held discreetly and privately with the senior partner of the firm, but when the internal memo came out, there were almost always rumors, typically related to performance. The former partner hadn’t pulled his weight or wasn’t doing the expected culture-carrying tasks, such as recruiting. Or the outcast had done something harmful to the Goldman image, such as having an extramarital affair with
someone at the firm or saying something inappropriate, or had subjected the partnership to unnecessary financial risk. Even if a partner left voluntarily for primarily personal reasons, there was almost always speculation about the “real” reasons.
A current partner told me that the organization looks for an explanation beyond the desire to leave because he or she may simply feel he or she has made enough money. That’s not acceptable, because it might send a message that money is the primary driver. If the reason for leaving is that the partner no longer enjoys the work, then people would wonder what there is about Goldman not to like, this partner told me. The firm convinces people that being a Goldman partner is something one would never want to surrender; it gives one social identification, prestige, money, and access, and it is perceived as serving a higher good. That is what is sold to potential and current employees. So if a partner leaves, something has to be wrong with him, and the firm perpetuates that belief through whispers. The partner explained that the only acceptable answer is that the partner is retiring to serve a higher purpose, which is to go into community and public service—and many do. He said it wasn’t the money, it was that their work ultimately needed a higher meaning.
Historically, Goldman’s process of partner election and departnering are exemplary of what sociologists term closure, the tight coordination within a group, which ensures that people comply with the organization’s norms.14 According to sociologist Ronald Burt, “closure increases the odds of a person being caught and punished for displaying belief or behavior inconsistent with the preferences in the closed network.”15 In his view, closure strengthens organizations by ensuring that people not adhering to expected norms can be removed.16 Making partner was so lucrative and the identity meant so much to people that they modified their behavior to enhance their chances of being elected, and, once they were partners, it became an integral part of their social identity.17 Rewarded behavior helped the firm as a whole. Partners worked hard to make more money but also were pressured to promote teamwork, the culture and the principles, and to stay within the firm’s rules and values.
Meanwhile, the close scrutiny of each partner’s contributions and adherence to the mandate during the partnership election provided closure by removing partners whose continued tenure was not to the advantage of the firm, thus ensuring trust among those who remained. In this way, partnership election and departnering reinforced the distinction between insiders and outsiders. The effectiveness of this practice is best seen, according to Charles Ellis, the author of The Partnership—The Making of Goldman Sachs, in the “speed and clarity with which long-serving partners who left went from being insiders to outsiders and were soon forgotten.”18
A Social Network of Trust
While the partnership election at Goldman was grueling, partnership offered camaraderie to those who made it.19 A retired partner explained to me that there were regularly heated disagreements among partners over business decisions. He felt the partners were in fact like a family or club. As in many families, the partnership was “dysfunctional” and had “black sheep”; there might be questions of motives or agenda; and sometimes there were even sharp elbows or personality mismatches, but there was a good deal of trust and familiarity among the members.
Most partners had spent their entire careers at the firm, and many senior partners had mentored the newer partners over years. They had gone through the same election process and knew how tough it was to make partner and how demanding the job was. Partners had outings together as well as annual dinners. Many lived in the same suburbs. Generally, they knew each other well. Some ties were stronger than others because of business school friendships, experience in working in the same department or the same part of the world, or location in the same neighborhoods. However, all of them were financially interdependent and needed to trust one another. Several partners agreed when I interviewed them that the phrase “social network of trust” was a fitting description.20 In 1994, a partner, addressing a gathering of new partners, highlighted the relationship between the partnership structure and the cultural view it promoted: “We own this business … We are partners—emotionally, psychologically, and financially. There can be no borders between us, no secrets.”21
Partners also created stronger networks because of the trust. Building a network involves connecting the dots, or rather connecting Goldman people to each other and to important people outside the firm. Almost a decade before he crafted the firm’s business principles, John Whitehead wrote a set of guidelines for the investment banking services area, one of which was, “Important people like to deal with important people. Are you one?”22 Gaining access to important people requires introductions from people willing to make the call. Partners were more willing to do that for the partners who were in their social network of trust and with whom they had financial interdependency.
For example, an investment banking partner explained to me that he was at ease connecting fellow partners to his contacts outside the firm, more so than connecting a vice president or regular managing director. Partners, he said, wouldn’t leave the company and take the relationship to a competitor. He trusted his partners in private banking to use good judgment and not to put his investment banking relationship at risk. This kind of trust made it easy to offer multiple perspectives to help a client. It also aided the firm in cross-selling: providing a full solution to clients. For example, Goldman might provide the merger advice to sell a company, and then the M&A partner would introduce a Goldman private banking partner to help the client manage the proceeds from the sale.23 “Cross-selling” significantly improves a firm’s financial performance, maximizing revenue opportunities.
A virtuous reinforcement loop was erected; partnership was enhanced by the trust fostered by the social network and financial interdependence, and the social network was enhanced by the trust.24
Productive Dissonance
The emphasis on shared values in the Goldman partnership model might lead to the impression that the Goldman culture was rigid, monolithic, and intolerant of diverse opinions. Generally this was not the case. Although the partners held common values and many of them came from similar backgrounds, Goldman recognized that different people had different ideas and perspectives and that a diversity of people and ideas was important to the firm’s vitality and productivity.25 Diversity was also important in its making the right decisions and giving clients the best service and judgment. Such diversity of experiences and expertise gave Goldman the flexibility to deal with constant change.
Goldman promoted cross-function communication and organizational cohesion through rotational programs for employees into other departments and regions and firmwide committees consisting of people from different departments.26 This “small-world network” of people who built ties, had financial interdependence, and trusted one another led to innovation and high performance. Committees drew together partners or potential partners from different areas to work together on partnership election, capital commitments, risk, culture, lifestyle, brand, and more. These committees, together with partnership meetings, served as places of exchange like those Ronald Burt describes as essential for optimizing the number of brokerage opportunities for networks.27 This practice created valuable networks, as well as a systematic, structured way to bring people together to discuss ideas, challenge each other, and seek solutions.28 Goldman’s flat organizational structure also encouraged people to interact, bringing their diverse opinions to the table.29 The biennial change in partnership, with a balance of new partners joining and old partners leaving, kept the ideas fresh, but generally it did not introduce so many differences that cohesion was lost.30
Goldman’s partnership culture allowed for disagreement in part because the partners have a stake in more than only their own areas of responsibility. They were financially interdependent. Banking partners had nothing to do with trading and vice versa, but trading partners were affected if a banking partner hurt the reputation of the firm, and bank
ing partners were affected if trading partners didn’t properly manage risk, because they are risking the capital of all the partners. In a typical big bank, by contrast—one without a partnership ownership structure—compensation is based primarily on departmental and individual performance (and peer group compensation averages); what others do or think in another department or divison is typically of little concern to anyone else, because one’s own bonus is not materially threatened. The lack of financial interdependence typically limits the amount of productive disagreement you find at most Wall Street firms. Even with compensation in stock vesting over years, the attitude is much different because what one does typically has limited impact on the earnings or stock price of the entire firm.
The disagreement at Goldman was described by several Goldman partners as valuable.31 Rob Kaplan indicated that “irritating, distracting, and uncomfortable” discussions were “extremely good medicine for a healthy organization.”32 For example, one seemingly contentious relationship was that between senior executive John F. W. Rogers, considered by many to be one of the firm’s most powerful people, and Lucas van Praag, Goldman’s public relations spokesman from 2000 to 2012. Jack Martin, CEO of the PR firm Hill and Knowlton, said that he had seen the two “disagree aggressively, but that at the end of the day they [came] together as one.”33 Although others may see friction between Rogers and van Praag as unhealthy, Blankfein expressed confidence in them and asserted that “dissent and disagreement is healthy.”34
Whitehead described how he and his co-leader, John L. Weinberg, strove to maintain an environment conducive to productive disagreement within the management committee: “We met every Monday morning. We had an agenda, we went down the agenda, we made decisions as a group, and John and I tried not to dominate the committee because we wanted their input. It was very important to have the input of everybody on the management committee. There were seven of us, then nine of us, and then eleven. It got bigger as the firm’s diversity grew.”35
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