Op-Ed in the New York Times (15th March, 2012)
TODAY is my last day at Goldman Sachs. After almost 12 years at the firm — first as a summer intern while at Stanford, then in New York for 10 years, and now in London — I believe I have worked here long enough to understand the trajectory of its culture, its people and its identity. And I can honestly say that the environment now is as toxic and destructive as I have ever seen it.
To put the problem in the simplest terms, the interests of the client continue to be sidelined in the way the firm operates and thinks about making money. Goldman Sachs is one of the world’s largest and most important investment banks and it is too integral to global finance to continue to act this way. The firm has veered so far from the place I joined right out of college that I can no longer in good conscience say that I identify with what it stands for.
It might sound surprising to a skeptical public, but culture was always a vital part of Goldman Sachs’s success. It revolved around teamwork, integrity, a spirit of humility, and always doing right by our clients. The culture was the secret sauce that made this place great and allowed us to earn our clients’ trust for 143 years. It wasn’t just about making money; this alone will not sustain a firm for so long. It had something to do with pride and belief in the organization. I am sad to say that I look around today and see virtually no trace of the culture that made me love working for this firm for many years. I no longer have the pride, or the belief.
But this was not always the case. For more than a decade I recruited and mentored candidates through our grueling interview process. I was selected as one of 10 people (out of a firm of more than 30,000) to appear on our recruiting video, which is played on every college campus we visit around the world. In 2006 I managed the summer intern program in sales and trading in New York for the 80 college students who made the cut, out of the thousands who applied.
I knew it was time to leave when I realized I could no longer look students in the eye and tell them what a great place this was to work.
When the history books are written about Goldman Sachs, they may reflect that the current chief executive officer, Lloyd C. Blankfein, and the president, Gary D. Cohn, lost hold of the firm’s culture on their watch. I truly believe that this decline in the firm’s moral fiber represents the single most serious threat to its long-run survival.
Over the course of my career I have had the privilege of advising two of the largest hedge funds on the planet, five of the largest asset managers in the United States, and three of the most prominent sovereign wealth funds in the Middle East and Asia. My clients have a total asset base of more than a trillion dollars. I have always taken a lot of pride in advising my clients to do what I believe is right for them, even if it means less money for the firm. This view is becoming increasingly unpopular at Goldman Sachs. Another sign that it was time to leave.
How did we get here? The firm changed the way it thought about leadership. Leadership used to be about ideas, setting an example and doing the right thing. Today, if you make enough money for the firm (and are not currently an ax murderer) you will be promoted into a position of influence.
What are three quick ways to become a leader? a) Execute on the firm’s “axes,” which is Goldman-speak for persuading your clients to invest in the stocks or other products that we are trying to get rid of because they are not seen as having a lot of potential profit. b) “Hunt Elephants.” In English: get your clients — some of whom are sophisticated, and some of whom aren’t — to trade whatever will bring the biggest profit to Goldman. Call me old-fashioned, but I don’t like selling my clients a product that is wrong for them. c) Find yourself sitting in a seat where your job is to trade any illiquid, opaque product with a three-letter acronym.
Today, many of these leaders display a Goldman Sachs culture quotient of exactly zero percent. I attend derivatives sales meetings where not one single minute is spent asking questions about how we can help clients. It’s purely about how we can make the most possible money off of them. If you were an alien from Mars and sat in on one of these meetings, you would believe that a client’s success or progress was not part of the thought process at all.
It makes me ill how callously people talk about ripping their clients off. Over the last 12 months I have seen five different managing directors refer to their own clients as “muppets,” sometimes over internal e-mail. Even after the S.E.C., Fabulous Fab, Abacus, God’s work, Carl Levin, Vampire Squids? No humility? I mean, come on. Integrity? It is eroding. I don’t know of any illegal behavior, but will people push the envelope and pitch lucrative and complicated products to clients even if they are not the simplest investments or the ones most directly aligned with the client’s goals? Absolutely. Every day, in fact.
It astounds me how little senior management gets a basic truth: If clients don’t trust you they will eventually stop doing business with you. It doesn’t matter how smart you are.
These days, the most common question I get from junior analysts about derivatives is, “How much money did we make off the client?” It bothers me every time I hear it, because it is a clear reflection of what they are observing from their leaders about the way they should behave. Now project 10 years into the future: You don’t have to be a rocket scientist to figure out that the junior analyst sitting quietly in the corner of the room hearing about “muppets,” “ripping eyeballs out” and “getting paid” doesn’t exactly turn into a model citizen.
When I was a first-year analyst I didn’t know where the bathroom was, or how to tie my shoelaces. I was taught to be concerned with learning the ropes, finding out what a derivative was, understanding finance, getting to know our clients and what motivated them, learning how they defined success and what we could do to help them get there.
My proudest moments in life — getting a full scholarship to go from South Africa to Stanford University, being selected as a Rhodes Scholar national finalist, winning a bronze medal for table tennis at the Maccabiah Games in Israel, known as the Jewish Olympics — have all come through hard work, with no shortcuts. Goldman Sachs today has become too much about shortcuts and not enough about achievement. It just doesn’t feel right to me anymore.
I hope this can be a wake-up call to the board of directors. Make the client the focal point of your business again. Without clients you will not make money. In fact, you will not exist. Weed out the morally bankrupt people, no matter how much money they make for the firm. And get the culture right again, so people want to work here for the right reasons. People who care only about making money will not sustain this firm — or the trust of its clients — for very much longer.
Greg Smith is resigning today as a Goldman Sachs executive director and head of the firm’s United States equity derivatives business in Europe, the Middle East and Africa.
A version of this op-ed appeared in print on March 14, 2012, on page A27 of the New York edition with the headline: Why I Am Leaving Goldman Sachs.
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hd
New York
What ever happened to fiduciary duty???
March 16, 2012 at 2:50 a.m.
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Jorge
Stamford, CT
I beg to differ about the so called “culture”. The game has always been about swindling clients, duping shareholders and making leveraged bets with “other people’s money”– with the implicit backstop of the taxpayer. The difference, now, is that the public has grown wise to the scam and governments, fed up with footing the bill when the music stops. Stricter capital requirements and more intense regulatory scrutiny spells game over for Wall st– at a minimum, in its most profitable business as principal risk taker. Whence the present spectacle of parricide among the inner ranks. Its borne of despair…
March 16, 2012 at 2:30 a.m.
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Jones
New York
A man confesses. But why and what is its purpose? Now, maybe the why might have to do with the importance of the sense of self, if so, perhaps then the game of it, for the ego of the confessor, is for him to do what he needs to do to maintain the idea he has of himself and then the hoped for result, for a man who wants to confess to misdeeds, is to maybe see a new day and confront and win new victories if that is possible.
But a confession, if it is to meet the expectations of the confessor, should not inflict too much damage on the man who is after cleansing his conscience or soul, and it is important to take care when making a moral stand, because if real harm or having to make sacrifices, is the result, well, that kills the noble intent of an individual’s hoped for self-renewal.
But it is pointless really, as confessing is taken seriously only by others who don’t know any better than not to take it seriously.
And in this particular case what would have been interesting would have been a telling of what Mr. Smith had done to push back against what he saw as wrong, what he did to correct the situation, an account of what he had been doing, a description of the obstacles he had confronted, and an explanation as to why admitting defeat was the only option. But instead the man Smith ended up speaking about the proudest moments of his life, that in some way has contributed in doing harm to so many. So there it is, another narcissist who believes in self-absolution.
March 16, 2012 at 2:30 a.m.
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Will
St Paul, MN
It’s interesting seeing someone burn bridges like this, but I’m finding the tortured altruism and loss of innocence hard to swallow. The whole enterprise of Goldman and other power brokers is based on gambling, insiderdom, and perpetuating the long-standing lie that Wall Street sustainability comes from something more noble than P.T. Barnum’s axiom.
March 16, 2012 at 2:30 a.m.
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Robert
Atlanta
This really hits home with me. I could have written the very same article about Delta but I was afraid they would take everything away from me. When I left in 2008 I knew that some disease had spread through the company like wildfire destroying every ounce of integrity the corporation had and it had a lot. I started watching Glenn Beck after the election and he was saying everything I had been trying to say for years. There are social progressives and for lack of a better word financial progressives and they play good cop bad cop to continue their destructive assault.
March 16, 2012 at 2:30 a.m.
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Rhodes
New York, NY
I say bravo to Greg Smith… and what I’ve learned is this is not solely relegated to Wall Street. This attitude is prevalent in charity, media and business across the board. There must be a consciousness change and it looks like the 2008 financial crisis wasn’t enough of a catalyst for an existential shift. It’s time for people to do the right thing, to speak out against the institutions – We must all support Greg Smith… because I promise you the threats coming his way from Goldman and their cronies are reaching far and wide…. he is brave… and now we must help him weather the storm with our support…
March 16, 2012 at 2:30 a.m.
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Paul
Merrick, NY
I’m happy to see a Goldman Sachs insider finally admit what’s been obvious to many observers for years. What I find hard to believe is Mr. Smith’s claim that the culture at Goldman Sachs was much different when he joined a dozen years ago.
March 16, 2012 at 2:30 a.m.
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kallikak
nj
Sorry, Greg, I’m not buying it.
As someone who brushed up against Goldman on the client side in the 70s and 80s, I marveled at the firm’s unique blend of self-serving integrity: always seemingly do right by the client, but in ways that do even better for Goldman.
Where do practitioners of this warped sensibility cross the line? Sub-prime MBS? Toxic derivatives? “Helping” Greece circumvent EU guidelines?
I guess it’s finally gotten so bad that the facade can’t even be maintained internally.
Have we learned nothing from the recent debacle? The regulation and control of the financial system must rely upon something greater than the supposed integrity of the players.
March 15, 2012 at 6:20 a.m.
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Hank Van den Berg
Lincoln, NE
Smith’s contention that Goldman Sach used to care about its clients but has now stopped doing so is naive at best. It is more likely that Smith was too impressed by the phony mission statements and hype to notice the long-standing singular pursuit of profit by all Wall Street firms. Thankfully, Smith woke up to reality. But it is Smith who woke up, not reality that changed.
The financial industry in particular and the rich in general have never cared. Read F. Scott Fitzgerald, for example. Hopefully smith will use his new-found conscience to dedicate himself to building a new economic/social system. He could begin by walking over (yes, get out of the luxury car) to visit his local Occupy movement.
March 15, 2012 at 6:20 a.m.
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CCC
Naptown
Okay, the Occupy Wall Street crowd was ridiculed and minimized, but here’s a senior director from the biggest WS firm validating everything OWS was protesting.
So will the public take the OWS concerns a little more seriously now? Will congress?
There has to be a way to regulate these firms without hamstringing them from honest work, and without allowing them to fleece us all.
March 15, 2012 at 6:20 a.m.
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Adam Caper
Boston, MA
I would like to say that Greg Smith’s piece is a revelation, but, sadly, this is something anybody who’s paid attention has known for years.
I founded my venture capital firm based on the principle that our job is to do well by doing right by our stakeholders – partners, portfolio company management, clients. I chose this particular line of work because of my firm belief that much of what makes the world a better place comes from smart people applying brain power and resources to build great things. Notice that making money doesn’t enter that foundational principle; I’ve always believed that if you concentrate on building value, the money will follow. And, at the risk of appearing self-congratulatory, it has: I’m doing quite well, thank you very much.
As a bona fide innovator in our field – see http://www.synchronyvm.com – I have long been deeply troubled when members of the general public conflate what I do with the likes of the GS’s and Bain Capitals of the world. They see “investor” and think “greedy plutocrat.”
Although I can’t speak for everyone in our little piece of finance, I can say that most of the VCs I know are drawn to the field because of a genuine passion for innovation, a respect for entrepreneurs and the entrepreneurial process, and a burning desire to be involved with building great companies. In my opinion, that is the proper economic role of the finance sector up and down the stack. Sadly, as Greg points out, that ethic left Wall St. long ago.
March 15, 2012 at 6:20 a.m.
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cc spruce
philadelphia
While I appreciate the author’s bravery to speak out on Goldman Sechs’ deviant money making tactics, I would be more interested in his plans to do to correct the culture of wall street. Let’s face it, most people (some of them very smart) who chose career in wall street was in it for the money. They know that they personally don’t create anything. In the real world, people trade properties of value, including physical and intellectural properties. Money is just a medium of exchange. On wall street, people trade other people’s money. They have an entirely different perspective on money. It is really easy for young people, just out of college, to get confused when they first enter the wall street. They have to abandon their ideals of creating things for mankind. Instead, they need to come up with creative ways to grab as big chunk of the money pie on the wall streat as possible. That is their mission. The moral compass of the real world don’t apply there.
So, pointing out the greed on wall street is nothing new. I wish the author, as smart as he is, would discuss ideas of wall street reform.
March 15, 2012 at 6:20 a.m.
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<a href=”mailto:[email protected]”>[email protected]</a>
CT, USA
Take this job and shove it, I ain’t workin’ here no more. I wish I had enough cash to walk away and tell the CEO and our board what they’re doing wrong!
This is fantastic. Even though we have been able to smell the rotten culture of Goldman and others from far, far away for many years. Greg Smith pretty much says it all here in one page.
March 15, 2012 at 6:20 a.m.
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whiteyward
Cave junction OR.
This capitalist just wants the customer to tag along. His disappointment with the casino life seems a little soft. When they step forward to announce the obvious it is always a PR effort. When they become whistle blowers we have Heroes.
March 15, 2012 at 6:20 a.m.
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Theodore Koenig
Pasadena, California
Reading this article reminded me of another recent article reflecting on Bell Labs and the trajectory of development in the US.
http://www.nytimes.com/2012/02/26/opinion/sunday/innovation-and-the-bell… Labs&st=Search
While it is comforting to point the finger at Wall Street and say they are the only ones trying to make money repackaging old ideas, many others if not all of us participate in this. The other article makes an argument the gist of which is that the US now longer produces true innovations as it once did. Tech companies, another high profit industry like finance, it contends repackage and slowly advance essentially the the same products. At the same time the popularity of reality tv, while an overcited anecdote, may point to a strong desire among the general populace to hit it rich at all cost (as happens in the shows).
I am not certain how much I myself buy into all of this, nor whether it is necessarily bad. However, I believe many of the commenters whether praising Mr. Smith or skeptical of his intent should examine the US and possibly themselves, before attacking the financial industry full on.
The saving grace I see for those that cry class warfare when such attacks are made, is that perhaps we do go too far in assigning blame rather than in self reflection.
March 15, 2012 at 6:20 a.m.
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Miketcha
Higganum CT
While we all debate what has happened to America, lament the eroding of values and our society, Mr Smith exposes one of the underlying culprits, American Capitalism. Instead of being a model for building a strong and healthy society, it has become a winner take all, survival of the fittest (re: corrupt), I got mine, good luck getting yours economic model.
American corporations and financial institutions have placed profits above all other values.
We disparage the poor and middle-class for the erosion of American values, yet exalt those who can squeeze the greatest profit out of our country with no consideration for the damage to society or the environment.
Yes, “corporations are people”, unfortunately most of them are bad people
March 15, 2012 at 6:20 a.m.
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Debra
formerly from NYC
I’m glad that you were able to quit — you could do that because you probably have enough money and influence to do so. After all, you were able to contact the NY Times and tell them that you wanted to write an Op-Ed piece.
What I would love is for you to open up a new business and employ some of the downsized. I bet they would have loved to have had the opportunity to quit instead of being dumped.
March 15, 2012 at 6:20 a.m.
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Jim Macdonald
Philadelphia, PA
Great, courageous article, Mr. Smith!
And I trust you “cleaned out your locker” before this was issued! My only regret is that your piece does not mention the “elephant” in the room that no one wants to discuss, i.e., that the problems you relate are not specific to GS and, I would argue, are directly the result on the transition of investment banking from private partnerships where investments were made more prudently to publicly traded companies where a casino mentality prevails. Simply stated, there is little chance the problems you describe would have occurred had GS never gone public. We need to take a fresh look at the rules of governance for publicly traded companies, the ineffectiveness of regulations (including SOX), and the fiasco called the SEC, or the problems you site will never cease.
March 15, 2012 at 6:20 a.m.
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pandrews
Davidson, NC
Yes, the broker is supposed to put the client first but it is also up to the client to educate herself or himself about the various products and what will help achieve client’s goals. I am fortunate to have a financial advisor who helps me do this, and I went through several who did not before I found him.
March 15, 2012 at 6:20 a.m.
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Steve
NY
Wow, you mean Goldman’s goal isn’t to help their clients, or society?? (And it took you 12 years to figure this out?) Shocking.
Caveat emptor — no truer words have ever been spoken.
March 15, 2012 at 6:20 a.m.
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SonjaS.
Norway
Impressive and respectable.
I’ve been fearing the investment institution that you’ve resigned from for a long time, since my country owns a large sovereign fond, and our authorities appear naïve, and GS goes where the money is. Some of us fear that our country’s savings will disappear in the insecure world of the complex ‘products’.
My second thought was, ‘welcome to the age of new fascism’. When respectable institutions are overtaken by the morally corrupt individuals or worse, morally corrupt leaderships, there has arise resistance. More and more individuals will have to take a stand against such moral corruption. I’d expect more people like you to stand up and proclaim that they won’t partake in immoral activities. I know fascism is a strong word, but the conditions you describe are extraordinary, pointing to criminal mindedness combined with huge power. We live in quite scary times, it seems.
March 15, 2012 at 6:20 a.m.
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Juris B.
Marlton, N.J.
Hey Greg…look under the hood of your BMW before you turn on the ignition. Blankfein wants you “swimming” in the East River. Get a bodyguard!!
March 15, 2012 at 6:20 a.m.
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Ken Hines
Athens, Alabama
This behavior is more than a predatory relationship between GS and its clients. You and I accumulate money to meet our needs, then to secure our future, and finally to enrich our lives. Those who navigate in millions or even billions of dollars accumulate money to amass power. The huge redistribution of wealth benefiting the very few in America actually is a huge redistribution of power undermining the democracy we hold dear. The lack of oversight in this arena begets an accumulation of power that leads to less oversight that leads to more power that leads . . .
Government is the institution that provides the common man a mechanism to act in concert against such a scenario. Tax laws that inhibit such a feedback loop, and regulations that ensure a proper consideration of investors’ interests are not demons. They are the stuff of equality.
March 15, 2012 at 6:20 a.m.
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Jen
Indiana
I wish more people were able to speak up. It would be great if they felt comfortable enough to do it while they were working, but even after you resign, it’s still pretty brave to do it in such a public forum.
I worked for a Fortune 500 company for over 10 years. I found that people rarely speak up in any meaningful way. We were asked our “opinions” on many initiatives but it was clear the bosses were only looking for positive feedback. If you even had constructive criticism it was clear you were “not on board” and had a negative attitude. Very often, the managers say they want feedback but they really don’t. This is why I left. I liked my work but didn’t like having to be phony all the time and act like I was jazzed up about some bake sale or financial book club when I had 50 hours of real work to be doing!
March 15, 2012 at 6:20 a.m.
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Dan
Buffalo
Flag
I find this essay naive.
The reason why the culture changed is because the world’s surpluses are no longer being funneled through Wall Street. The system of capitalism and finance that coursed through Wall Street was undone in 2008. It’s no surprise then that the biggest firm (though more profitable than ever as a result of the stock rebound) finds itself groping for optimism. There should be no optimism. The scam of financialization will never be the same again, and the rest of the world will not trust these shysters with the massive amounts of surplus they used to funnel through these institutions. Mr. Smith benefited for 8 of his 12 years at the firm from the kind of tribute the rest of the world paid to the Wall Street masters of finance. Those days are done, no wonder the spirit and camraderie at Goldman is less than it used to be.
