What Happened to Goldman Sachs: An Insider's Story of Organizational Drift and Its Unintended Consequences

by Steven G. Mandis

  TABLE B-1

  Analytical framework of Goldman Sachs

  1979 1990 1996 1999 2012

  Head of firm (background)/#2* Weinberg (banker) Friedman (banker) Corzine (trader) Paulson (banker) Blankfein (trader)

  Whitehead (banker) Rubin (trader) Paulson (banker)* Thain/Thornton (banker/multi)* Cohn (trader)*

  Organizational characteristics

  Private/public structure Private partnership Private partnership Private LLC Public corporation Public corporation

  Investment bank (IB)/Bank IB IB IB IB Bank

  Liability Personal Personal Limited Limited Limited

  Ownership 100% partners 87.5% partners, 12.5% Sumitomo 82.5% partners, 12.5% Sumitomo, 5% Bishops 48% partners, 12% public, 40% other 11.5% partners, 8% Berkshire, 80% public/other

  Compensation

  Partners/Nonpartners

  Fixed %

  cash

  Fixed %

  cash

  Fixed %

  cash

  Fixed % plus discretionary

  Cash and stock

  Discretionary plus fixed %

  Cash and stock

  Partner liquidity Starting at retirement Starting at retirement Starting at retirement Public market with vesting Public market with vesting

  Partner election Every 2 years Every 2 years Every 2 years Every 2 years Every 2 years

  Partner titles Partner Partner MD MD MD

  Departnering process Public Public Public Not public Not public

  Partner compensation philosophy % based on tenure % based on tenure and performance % based on tenure and performance % based on tenure/performance and comparables Discretionary and % based on tenure/performance and comparables

  Employee compensation average Below peers Below peers Below peers At peers Above peers

  Regulation

  Number of business principles 12 12 12 14 14

  Clients’ interests first Yes Yes Yes Yes Yes

  Shareholder returns No No No Yes Yes

  Board 100% partners 100% partners 100% partners Majority “insiders” Majority “outsiders”

  Banking activities Glass–Steagall Glass–Steagall Glass–Steagall Glass–Steagall repealed Dodd–Frank

  Competition

  Employees US IBs US IBs US IBs US IBs, banks, foreign banks, tech firms, hedge funds, private-equity firms US IBs, banks, foreign banks, tech firms, hedge funds, private-equity firms

  Turnover ~5% ~5%–10% ~20%–25% ~20%–25% ~20%–25%

  Capital GS private GS private GS private GS private GS private

  (competitors public) (competitors public) (competitors public) (competitors public) (competitors public)

  Clients

  No-hostile policy Yes

  Limited

  Yes

  ~20%

  No

  ~30%

  No

  ~40%

  No

  40%–50%

  International

  HF dedicated group No No No No Yes

  PE dedicated group No No No Yes Yes

  GSAM No Yes Yes Yes Yes

  Average tenure of CEO ~8 years ~7 years ~6 years ~6 years ~5 years

  Returns

  IB % revenues >50% ~50% ~30%–35% ~30%–35% ~10%–15%

  Prop % revenues <10% <10%–20% ~20%–30% ~60%–70% ~50%

  Technology

  Voice mail No Limited Yes Yes Yes

  e-mail No No Limited Yes Yes

  Credit derivatives No No Limited Yes Yes

  Note: This table is based on publicly filed information and general consensus of estimates from interviews. Much of the information has not been reported by Goldman, especially prior to Goldman, is subjective, and requires varoius assumptions and interpretation.

  Appendix C

  Selected Goldman Employees and Lobbyists with Government Positions (Before or After Goldman)

  JOSHUA BOLTEN

  Government: President George W. Bush’s chief of staff, 2006–2009; director of Office of Management and Budget, 2003–2006; White House deputy chief of staff, January 20, 2001–June 2003

  Goldman: Executive director of legal affairs for Goldman based in London (the bank’s chief lobbyist to the EU), 1994–1999

  KENNETH D. BRODY

  Government: President and chairman of the Export-Import Bank of the United States, 1993–1996

  Goldman: Former adviser and board member of the management committee at Goldman, where he worked from 1971 to 1991

  KATHLEEN BROWN

  Government: Former California state treasurer

  Goldman: Senior adviser responsible for public finance, western region

  MARK CARNEY

  Government: Governor of the Bank of Canada since 2008

  Goldman: Thirteen-year career with Goldman; left in 1995

  ROBERT COGORNO

  Government: Former aide to Richard Gephardt (D.-Mo.) and one-time floor director for Steny Hoyer (D-Md.), the number two House Democrat

  Goldman: Works for [Steve] Elmendorf Strategies, which lobbies for Goldman

  KENNETH CONNOLLY

  Government: Staff director of the Senate Environment and Public Works Committee, 2001–2006

  Goldman: Vice president at Goldman from June 2008 to present

  E. GERALD CORRIGAN

  Government: President of the New York Fed, 1985–1993

  Goldman: Joined Goldman in 1994, currently a partner and managing director; also appointed chairman of GS Bank USA, the firm’s holding company, in September 2008

  JON CORZINE

  Government: Governor of New Jersey, 2006–2010; US Senator, 2001–2006, where he served on the Banking and Budget committees

  Goldman: Former Goldman CEO; worked at Goldman from 1975 to 1998

  GREGORY CRAIG

  Government: White House Counsel in Obama administration

  Goldman: Took position as Goldman’s chief lawyer to defend against an SEC suit

  GAVYN DAVIES

  Government: Former chairman of the BBC, 2001–2004

  Goldman: Chief economist at Goldman, where he worked from 1986 to 2001

  PAUL DIGHTON

  Government: Chief executive of the London Operating Committee of the Olympic Games (LOCOG)

  Goldman: Worked at Goldman for twenty-two years beginning in 1983

  MARIO DRAGHI

  Government: Governor of the Bank of Italy since January 2006; since 2011, President of the European Central Bank

  Goldman: Vice chairman and managing director of Goldman Sachs International; member of the firmwide management committee, 2002–2005

  WILLIAM DUDLEY

  Government: President, Federal Reserve Bank of New York, 2009 to present

  Goldman: Partner and managing director; worked at Goldman from 1986 to 2007

  STEVEN ELMENDORF

  Government: Senior adviser to then–House minority leader Richard Gephardt

  Goldman: Runs his own lobbying firm; Goldman is a client

  DINA FARRELL

  Government: Deputy director, National Economic Council, Obama administration, since January 2009

  Goldman: Financial analyst at Goldman, 1987–1989

  EDWARD C. FORST

  Government: Adviser to Treasury Secretary Henry Paulson in 2008

  Goldman: Former global head, investment management division at Goldman, where he worked from 1994 to 2008

  RANDALL M. FORT

  Government: Assistant secretary of state for intelligence and research, November 2006–January 2009

  Goldman: Director of global security, 1996–2006

  HENRY H. FOWLER

  Government: Secretary of the Treasury, 1965–1968

  Goldman: After leaving the Treasury Department, joined Goldman in New York as a partner

  STEPHEN FRIEDMAN

  Government: Chairman, President’s Foreign Intelligence Advisory Board and of the Intelligence Oversight Board; chairman, Federal Reserve Bank of New York, 2008–2009; former director of Na
tional Economic Council under George W. Bush; economic adviser to Bush, 2002–2004

  Goldman: Joined Goldman in 1966; former cochairman; left in 1994; was board member until April 2013

  GARY GENSLER

  Government: Chairman of the US Commodity Futures Trading Commission since 2009; undersecretary of the Treasury, 1999–2001; assistant secretary of the Treasury, 1997–1999

  Goldman: Former co-head of finance worldwide; worked at Goldman from 1979 to 1997

  RICHARD GEPHARDT

  Government: US Representative, 1977–2005

  Goldman: President and CEO, Gephardt Government Affairs (since 2007); represents Goldman interests on issues related to TARP

  JUDD GREGG

  Government: Three-term New Hampshire senator; ranking Republican on the Appropriations, Banking, Housing and Urban Affairs Committee and on the Health Education Labor and Pensions Committee

  Goldman: International adviser

  LORD BRIAN GRIFFITHS

  Government: Head of the prime minister’s policy unit, 1985–1990

  Goldman: International adviser since 1991

  THOMAS HEALEY

  Government: Assistant Secretary of Treasury for Domestic Finance in Reagan administration

  Goldman: Started at Goldman in 1985; founded the Pension Services Group in 1990

  JIM HIMES

  Government: Congressman from Connecticut (on Committee on Financial Services) since 2009

  Goldman: Began working at Goldman in 1995, eventually promoted to vice president

  ROBERT D. HORMATS

  Government: Under secretary of state for economic, energy and agricultural affairs-designate since July 2009; assistant secretary of state for economic and business affairs, 1981–1982

  Goldman: Vice chairman of Goldman Sachs International; worked at Goldman from 1982 to 2009

  OTTMAR ISSING

  Government: Bundesbank board member and ex-chief economist of the European Central Bank

  Goldman: Senior adviser

  CHRIS JAVENS

  Government: Ex-tax policy adviser to Senator Chuck Grassley (R.-Iowa)

  Goldman: Lobbies for Goldman

  REUBEN JEFFERY III

  Government: Under secretary of state for economic, business, and agricultural affairs, 2007–2009; chairman of the Commodity Futures Trading Commission, 2005–2007

  Goldman: Former head of the Goldman Paris office; worked at Goldman from 1983 to 2001

  DAN JESTER

  Government: Former Treasury adviser

  Goldman: Former Goldman vice president and deputy chief financial officer

  JAMES JOHNSON

  Government: Selected to serve on Obama’s vice presidential section committee but stepped down

  Goldman: On board of directors since May 1999

  NEEL KASHKARI

  Government: Interim head, Treasury’s Office of Financial Stability, October 2008–May 2009; assistant secretary for international economics (confirmed 2008); special assistant to Treasury Secretary Henry Paulson, 2006–2008

  Goldman: Vice president, 2002–2006

  LORI E. LAUDIEN

  Government: Former counsel for the Senate Finance Committee, 1996–1997

  Goldman: Lobbyist since 2005

  ARTHUR LEVITT

  Government: Chairman, SEC, 1993–2001

  Goldman: Adviser, June 2009 to present

  MARIO MONTI

  Government: Prime minister of Italy

  Goldman: International adviser, 2005 until his nomination to lead the Italian government; also worked closely with Goldman to reduce the apparent size of Italian government debt

  PHILIP MURPHY

  Government: US ambassador to Germany since 2009

  Goldman: Former partner of Goldman, where he worked from 1983 to 2006

  MICHAEL PAESE

  Government: Top staffer to House Financial Services Committee Chairman Barney Frank

  Goldman: Director of government affairs/lobbyist, 2009

  MARK PATTERSON

  Government: Treasury Department chief of staff since February 2009

  Goldman: Lobbyist, 2003–2008

  HENRY “HANK” PAULSON

  Government: Secretary of the Treasury, March 2006–January 2009; White House Domestic Council, serving as staff assistant to the president, 1972–1973; staff assistant to the assistant secretary of defense at the Pentagon, 1970–1972

  Goldman: Former CEO; worked at Goldman from 1974 to 2006

  ROMANO PRODI

  Government: Two-time prime minister of Italy

  Goldman: From March 1990 to May 1993 and when not in public office, acted as a consultant to Goldman Sachs

  RICHARD Y. ROBERTS

  Government: Former SEC commissioner, 1990–1995

  Goldman: Principal at RR&G LLC; retained by Goldman to lobby on TARP

  JOHN F. W. ROGERS

  Government: Served as undersecretary of state for management at the US Department of State, 1991–1993

  Goldman: Executive vice president since April 2011; chief of staff and secretary to board of directors since November 2001; joined in 1994 in the fixed income division and served in various positions, 1994–2001

  ROBERT RUBIN

  Government: Treasury secretary, 1995–1999; chairman, National Economic Council, 1993–1995

  Goldman: Former co-senior partner at Goldman, where he worked from 1966 to 1992

  STEVE SHAFRAN

  Government: Adviser to Treasury Secretary Henry Paulson

  Goldman: Worked at Goldman from 1993 to 2000

  SONAL SHAH

  Government: Director, Office of Social Innovation and Civic Participation (April 2009); advisory board member, Obama-Biden Transition Project; variety of positions in the Treasury Department, 1995–2002

  Goldman: Vice president, 2004–2007

  FARYAR SHIRZAD

  Government: Served on the staff of the National Security Council at the White House, March 2003–August 2006; assistant secretary for import administration at US Department of Commerce in the Bush administration

  Goldman: Global head of government affairs (lobbyist) since 2006

  GENE SPERLING

  Government: Director of the National Economic Council in Obama administration

  Goldman: Consultant to Goldman in 2008

  ROBERT K. STEEL

  Government: Under secretary for domestic finance, Treasury, 2006–2008

  Goldman: Former vice chairman of Goldman, where he worked from 1976 to 2004

  ADAM STORCH

  Government: Managing Executive of the SEC’s enforcement division, October 2009 to present

  Goldman: Former vice president at Goldman, where he worked from 2004 to 2009

  MARTI THOMAS

  Government: Assistant secretary in legal affairs and public policy, 2000; deputy assistant secretary for tax and budget, Treasury Department, 1998–1999; executive floor assistant to Richard Gephardt, 1989–1998

  Goldman: Joined Goldman as federal legislative affairs leader, 2007–2009

  MASSIMO TONONI

  Government: Italian deputy Treasury chief, 2006–2008

  Goldman: Former partner, 2004–2006

  MALCOLM TURNBULL

  Government: Member of the Australian House of Representatives since 2004

  Goldman: Chairman and managing director, Goldman Sachs Australia, 1997–2001

  SIDNEY WEINBERG

  Government: Vice-Chair, War Production Board, during World War II

  Goldman: Worked at Goldman from 1907 to 1969

  JOHN WHITEHEAD

  Government: Under secretary of state from 1985 to 1989; former Chairman of the Board of the Federal Reserve of New York

  Goldman: Worked at Goldman from 1947 to 1984. Was co-senior partner with John L. Weinberg

  KENDRICK WILSON

  Government: Adviser to Treasury Secretary Henry Paulson

  Goldman: Senior investment banker at Goldman, where he worked from 1998 to 2008

>   ROBERT ZOELLICK

  Government: President, World Bank, since 2007

  Goldman: Vice chairman, Goldman Sachs International; managing director and chairman, Board of International Advisors, 2006–2007

  A reminder: I am not judging the involvement of these individuals—good or bad. This is merely to present a selected group as data.1 A spokesman of Goldman stated: “We’re proud of our alumni, but frankly, when they work in the public sector, their presence is more of a negative than a positive for us in terms of winning business. There is no mileage for them in giving Goldman Sachs the corporate equivalent of most-favored-nation status.”2

  Appendix D

  Value of Partners’ Shares at IPO

  A list of Goldman partners at the time of the IPO is shown in table D-1. The names, percentages of shares, shares outstanding, values at IPO, and values at close are all provided. This analysis is based on reported percentages from the New York Times.

  TABLE D-1

  Percentages, shares, and value of partners’ shares at the IPO and first closing prices

  Name Percentage Implied shares outstanding Value at IPO price ($53) First closing price ($70.38)

  Henry M. Paulson Jr. 1.100% 2,915,210 $154,506,120 $205,172,466

  Jon S. Corzine 1.100% 2,915,210 154,506,120 205,172,466

  Robert J. Hurst 1.100% 2,915,210 154,506,120 205,172,466

  John A. Thain 1.050% 2,782,700 147,483,114 195,846,445

  John L. Thornton 1.050% 2,782,700 147,483,114 195,846,445

  Daniel M. Neidich 0.900% 2,385,172 126,414,098 167,868,381

  John P. McNulty 0.900% 2,385,172 126,414,098 167,868,381

  Lloyd C. Blankfein 0.900% 2,385,172 126,414,098 167,868,381

  Michael P. Mortara 0.900% 2,385,172 126,414,098 167,868,381

  Richard A. Friedman 0.900% 2,385,172 126,414,098 167,868,381

  Robert K. Steel 0.900% 2,385,172 126,414,098 167,868,381

  Jacob D. Goldfield 0.825% 2,186,407 115,879,590 153,879,349

  Jon Winkelried 0.825% 2,186,407 115,879,590 153,879,349

  Mark Schwartz 0.825% 2,186,407 115,879,590 153,879,349

  Patrick J. Ward 0.825% 2,186,407 115,879,590 153,879,349

  Peter A. Weinberg 0.825% 2,186,407 115,879,590 153,879,349

  Philip D. Murphy 0.825% 2,186,407 115,879,590 153,879,349