“God’s Work”
CEO Lloyd Blankfein has spent a lot of time explaining Goldman’s actions since the credit crisis. On one occasion, he defended Goldman’s profits and bonuses with a nod to the firm’s fiduciary responsibility to its shareholders and a further claim that “preserving the franchise” for them is “also for the good of America … I think a strong Goldman Sachs is good for America.”7 More notoriously, he was quoted in London’s Sunday Times as saying, “We have a social purpose” in referring to the banking industry and further explained, “I’m doing God’s work.” The media response was overwhelmingly derisive. Jon Stewart joked that when Blankfein said he was doing God’s work, he most likely meant “earthquakes and hurricanes.”8 Stephen Colbert pointed out that Blankfein never specified which God, and speculated that it perhaps was “Shiva, Lord of Destruction.”9 Blankfein quickly apologized for his remarks. In fact, he later remarked that he had learned his lesson about joking around with reporters and no longer even says “God bless you” when someone sneezes.10
It is not the first time Goldman and religion have been associated. For example, when discussing the management committee in an interview, then senior partner Steve Friedman said, “Our management committee is like a college of cardinals. They’re very talented people, and in the College of Cardinals, a substantial number of them have a reasonable, legitimate belief that they should be elevated.”11 What’s more, at Goldman a mentor, or someone who was supportive of your career, was often referred to as a “rabbi.” According to my interviews, without a rabbi it would be difficult to be elected a partner.
In a discussion about morality and markets at St. Paul’s Cathedral in London in 2009, Goldman international vice chairman Brian Griffiths, a former adviser to Margaret Thatcher, described giant paychecks for bankers as an economic necessity: “We have to tolerate the inequality as a way to achieve greater prosperity and opportunity for all.”12 Again, there is an allusion to individual sacrifice for a higher purpose—in this case, the common good. Dedication to a higher purpose can also account for what William Cohan describes as “the mystery of Goldman’s steadfast, zealous belief in its ability to manage its multitude of internal and external conflicts.”13
One of the problems with zeal, religious or otherwise, is that it can blind zealots to considerations not directly associated with their higher purpose, and that blindness might be, at least in part, behind Blankfein’s subconscious choice of words in referring to the firm doing “God’s work,” as well as Goldman’s failure to see the larger picture (including believing that its network in public service is a disadvantage), and its inability to immediately grasp the public outrage at its conduct during the financial crisis. The belief in serving a higher purpose is implicit in the way Goldman defines itself, not only as an elite firm, smarter and better than the others, but as something more. This is not a new phenomenon, because “there has always been a whiff of sanctimony about the firm. It not only wants to make money; it wants to be seen as a force for good.”14
The need to endure years of grueling work to be elected partner was offset not only by money but also, more importantly, by the “psychic rewards” found in a sense of affiliation, of “belonging to a select group with a hallowed history and a common purpose.”15 Rob Kaplan, who spent his entire career at Goldman and ultimately rose to vice chairman, attributes this sense to the need of humans, as social animals, to “be part of an organization that has meaning … [which] helps give their lives meaning,” noting that the reason people are willing to work hard for relatively low compensation is that they “aspire to something that is bigger and more meaningful than financial reward. People want to be proud of what they do. Yes, they want to be rewarded, but they typically need other reasons to ‘join up’ and stay with an organization. Otherwise, they’ll treat it as a convenient stopping point on the way to something more meaningful.”16
“Government Sachs”
The sense of higher purpose is reinforced by the relationship between Goldman and the government. The White House has often looked to Wall Street experts for advice, and Goldman partners have advised several presidents and cabinet members, leading to an incestuous web between government and Goldman—hence the nickname Government Sachs. Goldman also realized the wisdom of hiring former senior government officials. At the highest levels within Goldman, there was, and is, a conscious effort to build and maintain relationships with important people. The emphasis on this network accelerated when Goldman began to expand. The firm benefited greatly and was able to increase its network when John Rogers, former Undersecretary of State for Management, and Gerald Corrigan, former president of the Federal Reserve Bank of New York, both joined Goldman in 1994. Today, they serve very senior and important roles at the firm. The web of connections between Goldman and government adds to the firm’s mystique and promotes the sense of higher purpose felt by many Goldman employees. However, internally the sense of higher purpose obscures the dual purpose of public service. To many at Goldman, the only reason Blankfein visits government officials so often is that he is performing a civic duty as an expert. Many do not concede any possible truth in the accusations of undue influence or advantageous access.
Over the years, the extent of Goldman’s network of government connections has been viewed externally as a great competitive asset or as a way to gain an unfair advantage, depending on the viewer’s perspective, the prevailing economic scenarios, and the competitive environment.17 One admirer is impressed by the “phenomenal number of people rotating out of the firm at an early age, looking to do something good for their country.”18 Another, speculating about “what [it is] about Goldman that makes it such a popular feeding ground for Democratic and Republican administrations alike,” says that “many insiders attribute the firm’s stature in Washington largely to a Goldman culture that values teamwork over individual self-gratification.”19
Others have taken a more cynical view, implying a self-serving motivation behind Goldman’s predilection for public service and for hiring former government officials. James Grant, years before the credit crisis, commented, “It is probably no accident, as the Marxists used to say, that the ex-president of the Federal Reserve Bank of New York, Gerald Corrigan, is today a managing director of Goldman. Mr. Corrigan would be just the right man to have on the premises in case the firm should trade itself into the kind of financial crisis from which only the Federal Reserve could help to extricate it.”20 Also, there has been criticism that public officials give Goldman better treatment because they are hoping that when they finish their political careers, they can return to or work at or lobby for Goldman. Stephen Colbert joked, “Why are government employees filing a civil suit against Goldman Sachs? That’s just going to be embarrassing in a few years when they all go back to work at Goldman Sachs.”
Many non-Goldman people I interviewed said that Goldman exploits its good works and sense of higher purpose to help rationalize or explain why it is uniquely able to manage potential client conflicts (“because we are Goldman”). From my interviews of non-Goldman employees, the consensus is that Goldman shrewdly uses its government contacts and its good guy image to benefit the firm in increasing its opportunities. As long ago as 1992, for example, Goldman’s successful bids for deals with the Russian government were attributed in large part to the firm’s Washington connections.21 Such concerns led CBS News to analyze the “revolving door between Goldman and government.”22 Good press or bad, by being associated with the most important people, Goldman spun the image to its advantage, prior to being questioned about it during the crisis.
The fact that Goldman partners did so much good for humanity did serve for many years to help distinguish the firm in the eyes of the public and added to the Goldman mystique. It still helps the firm attract and retain employees, as well as motivate them.
Whitehead, Rubin, and Friedman were seen as having used government positions to apply their skills to do good for the nation, as well as satisfy any pe
rsonal ambition. As role models, they inspired Goldman employees to think about public service, and the firm leveraged that sense of social responsibility to further the perception of Goldman’s sense of higher purpose as well as for other purposes that help differentiate the firm.
Public Service Rationalizing Behavior
Of course, the sense that one is doing God’s work or serving a higher purpose can easily transmute into a holier-than-thou attitude and an excuse for any behavior, until the ends begin to justify the means. Believing that Goldman was different—doing good for others, better than any other firm at managing conflicts, viewed as a source of important expertise by the government—became an excuse for questionable behavior, as though Goldman’s good guy status exempted individual behavior from close scrutiny. The consequence was the development of the sort of arrogance that comes with believing one’s actions are beyond question because of the rarefied atmosphere within which one operates. On the flip side, it must also be said that there have been some positive organizational consequences of the sense of higher purpose. In addition to the public good done, it has also encouraged employees to work harder than one might think possible, at least in part because it imparted a sense of greater meaning to that work. It also makes it more difficult for employees to leave once they are socialized into the beliefs.
Concerns are increasingly raised about Goldman’s influence, its connections to government, and the potential for impropriety. Bloomberg News columnist Matthew Lynn put it this way: “While no one would dispute that New York-based Goldman Sachs is a money-making machine full of alpha-brains, it isn’t healthy for so many decision-makers to be drawn from one source … It is hard to ignore the trend for appointing Goldman employees to big government-appointed jobs. In the information technology business, they used to say, ‘No one ever got fired for buying IBM.’ In politics right now, the motto seems to be, ‘No one ever got fired for hiring Goldman Sachs.’”23
There is certainly a long list of Goldman alumni in government and government alumni at Goldman (see appendix C for a summary). At the time of the financial crisis, Hank Paulson, former Goldman CEO, was secretary of the Treasury and had many Goldman alumni working for or advising him.24 Meanwhile, the chairman of the New York Fed at the time was Steve Friedman, who was on the Goldman board of directors.
Undoubtedly Goldman, its employees, and its alumni have made many valuable contributions in their public service. Obviously this should be commended and appreciated. The danger, though, for Goldman and for the public, is that this strong commitment to public service is a contributing factor in the firm’s cultural change, not seeing the change and justification of behavior that increasingly pushes up against—some have argued crosses—the line of legality.
Conclusion
Lessons
CERTAIN RESIDUAL ELEMENTS OF GOLDMAN’S CULTURE WILL continue to fight organizational drift. But the drift will likely continue, and possibly will accelerate, given the continuing competitive, organizational, technological, and regulatory pressures the firm faces. Goldman’s response to these pressures will most likely continue to be the pursuit of growth. In that pursuit, Goldman will be challenged by the law of large numbers. It most likely will continue to occasionally cross regulatory or legal lines as it negotiates what its principles mean and what is legal. As the firm gets closer to this line, at the very least its ethics will continually be questioned in part because of how the firm portrays itself and its principles. It will most likely continue to be blinded by both social normalization as well as by rationalization, reinforced by the strength of its conviction that the firm has a higher purpose and its many successes.1 And therefore, we should expect that Goldman’s organizational response to any criticism will be defensive and aggressive.
In the short to medium term, Goldman’s residual cultural elements will allow it to maintain its informational and teamwork advantage, which will continue to support its client franchise, market position, and superior financial returns. That will help its reputation and attract and retain the best people, giving it a relative advantage. But this can change quickly because it will face challenges from various pressures, such as new competitors utilizing new technologies and new regulations; the landscape is dynamic and continually changing.
Although this book focuses on the Goldman case, the story has much broader implications. The organizational drift Goldman has experienced—is experiencing—can affect any organization, regardless of its many successes. And leaders of the organization may not be able to see that it is happening until there is a public blowup or failure, or until an insider calls it out. The signs may indicate that there aren’t changes—signs such as leading market share, returns to shareholders, brand and attractiveness as an employer—but slowly the organization is losing touch with the original meaning of its principles and values as it responds to various pressures and its environment.
A Victim or a Perpetrator?
The leaders of Goldman have certainly wanted to make money for themselves and their shareholders throughout its history. The original Goldman business principles were written in 1979 to help regulate behavior and acted as a balance between short-term greedy and long-term greedy when dealing with clients as the firm grew. In addition, the organization had many elements besides the principles that impacted behavior, from financial interdependence, to the social network of trust, to constraints on capital and dissonance. The Goldman leaders knew the values and principles, but various pressures left them with the conviction that the firm needed to grow rapidly and often caused them to make incremental decisions that were not consistent with the original meaning of the principles and values, moving the firm increasingly further from the original meaning. With conflicting organizational goals and scarce resources, the interpretation of the principles had to change and the culture had to change. This process was enabled by social normalization and structural secrecy. Complicating this drift was the sense of higher purpose that employees felt Goldman, and they themselves, served (including public service contributions), which contributed to rationalization about the deviations.
Goldman most likely will continue to pursue and maximize opportunities and undergo organizational drift, until the business is severely negatively impacted or the fines and other consequences are too high, and then perhaps the firm will readjust. It did so in the aftermath of its near bankruptcy in the stock market crash in the late 1920s, for example, getting out of the asset management business. However, the public and regulators should be concerned—not only about Goldman but also about all of the systemically important financial institutions that pose a risk to the economic system. They may be doing what is in their own and their shareholders’ best interests as they respond to pressures, incentives, and environment, but it may not be in the public’s best interests. And when the public must pay for their failures (which, as we have seen, can be breakdowns on a massive scale), they should be focused on the consequences of the organizational drift that has, is, and mostly will continue happening.
A concerning issue about the organizational drift toward a legal definition of ethics is that Goldman and the other banks have a significant influence or role in determining the legal line. For example, Goldman has reportedly spent over $15 million in lobbying related to Dodd–Frank and less than two-thirds of the regulations have been implemented.2 Securities and investment firms spent more than $101 million lobbying regulators in 2011, according to the Center for Responsive Politics, a nonpartisan research group. That is on top of $103 million spent lobbying lawmakers and regulators in 2010.3 If the pressure is to maximize the opportunities, especially as banks get larger, then the legal line will be pressured to change accordingly, and not just by Goldman, but by all of the banks. And the larger the banks and the bigger the challenges of the law of large numbers, the more pressure there will be to impact the legal line.
In the 1990s I received a letter from senior executive asking me to donate money to Goldman’s political action committe
e (PAC). The letter explained that participation was completely discretionary and that non-participation wouldn’t negatively affect me, but many people I spoke to about it were skeptical that our bosses didn’t review the list. According to some, Goldman’s PAC and its employees have donated more than $20 million to federal political campaigns from 1999 to 2009.4
Can Organizational Drift Be Constrained or Managed?
Organizations must adapt to compete and be successful in achieving their organizational goals, which is what Goldman has done and will surely continue to do. At the same time the competitive, regulatory, technological, and organizational pressures that have affected the culture and the firm’s behavior will continue. Therefore, I believe ongoing drift is inevitable.
Are all organizations doomed to failure in the long run because of organizational drift combined with organizational and environmental complexity, and therefore, is Goldman also ultimately doomed? A very good question, for which I don’t have a good answer, except that, as John Maynard Keynes famously remarked, “In the long run, we are all dead.”5
Perhaps it is naive or idealistic or nostalgic to believe that organizations can implement ways to manage or constrain organizational drift. For an organization that is already drifting, there are many questions. What will be the catalyst for the self-evaluation? A massive failure, congressional investigation, public outcry, shareholder activism, stock price performance, or an independent chairman of the board? Why would a firm do a self-evaluation if it is widely viewed as successful by its shareholders? Who would even do the evaluation? Is such an investigation better done by an external party or internally? All are very good questions. And ones that deserve consideration and study, though unfortunately they do not seem to get as much attention as they deserve, not just for banking but organizations generally. However, some good ideas have been shared about addressing the banks specifically as a result of the financial crisis.
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