GREG SMITH has recently come out with the his reasons for leaving Goldman Sachs. Following is his open letter.
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 resigned from the position of executive director and head of the Goldman Sachs' United States equity derivatives business in Europe, the Middle East and Africa.
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The NYTimes readers said the following:
GT LaBordeBirmingham, AL
Thank you, Greg for speaking out. I have been a Goldman client since 2006, and have been trying to get my money out for several years now, to no avail. My money was placed in proprietary funds that have under-performed other similar investments and were clearly designed to maximize Goldman's profit at my expense. I am not allowed to get money out of these investments, in some cases for up to 8-10 years, without a significant "haircut" (hmmm, I wonder if Goldman partners profit from the haircut??).
In one of these investments (which has lost 35% of its value since 2008), Goldman even refuses to provide basic information, like estimates of income or expenses for tax planning purposes. I literally have to guess the income my K-1 will show when I file my taxes in April, because Goldman won't even give me an estimate (much less quarterly or annual commentary or disclosure by the fund managers). In many years, the fund shows substantial interest income (on which I have to pay taxes), but none of that income is ever distributed to me and the NAV of the fund simultaneously goes down. Where did the income go? When asked, Goldman refuses to provide specifics (even though I am a limited partner of the investment partnership and have a right to this information).
It is amazing how little Goldman cares about its customers. Goldman exists for the sole purpose of enriching its partners.
amcCincinnati
Congratulations, Greg!
I resigned from more than one company where integrity was seriously lacking. In my first position, I was ordered to help clients lie on financial statements and change invoices - the partner actually handed me a bottle of white out! I was ordered to be a part of hiding a pension shortfall that I discovered and was walked out for refusing to go along.
I have paid a price for walking away from these 'great opportunities', but I sleep well at night. You are brave to take a stand for your clients and for your own integrity. I applaud you for walking away and for speaking out.
JimNew York
Congratulations Greg. I hope your coworkers read the NYT. I'm sure they will have a good chuckle and maybe a nanosecond of self-reflection. If the financial catastrophe of the last few years did not affect them, I doubt your farewell letter will. They need tighter regulation and oversight, and less gullible clients. Does anyone really question why the Occupy Wall Street movement started?
dprCalifornia
I believe the change in culture you've seen at Goldman Sachs is just a reflection of the change that has taken place in our national culture over the last few decades. When I was growing up, no one considered a person's wealth to be an absolute measure of his or her worth to society. Now, for a large part of our culture, that has changed; the acquisition of wealth is seen as good, no matter how it is achieved.
Money-grubbing behavior is rewarded, and victims of such behavior are considered fair game, not just at Goldman Sachs, but everywhere. My cable company charges huge fees out of proportion to what it delivers, but fails to adequately staff customer service to field complaints. My bank has added ridiculous fees for just about everything except were expressly prohibited by law. I am put on hold for large swaths of time to get just about anything fixed. There is a fervor for ever more tax cuts for the wealthy, paid for on the backs of the middle class.
Our whole attitude about what is important has changed, and in my opinion, not for the better.
payaegerVienna
A moral decision is to be commended regardless of circumstance; coming of age in a culture that prizes the making of money to the exclusion of everything else makes reaching such a decision doubly difficult. Mr Smith is to be congratulated for his personal revelation.
However, the survival of the company pales next to the slow-motion chaos into which this behavior - by no means confined to GS - plunges the real world on a regular basis. Of course it's very clear that those responsible are not the least bit interested, for reasons mentioned in the article.
If Mr Smith is interested in clearing his conscience, he might consider working to advance real regulation of the industry - at the very least.
James StrangeCanton, Connecticut
Unfortunately my factory-working friends who took such a big hit in this latest recession don't read the NY Times. If they saw Smith's article they might then begin to see that it wasn't big government deficits that brought down the economy but this Wall Street "take the money and run" mentality. It's the way American CEOs run our corporations and it is this mentality that destroys morale all the way down to the factory floor.
Paul Cohen, Hartford CT
Mr. Smith,
What took you so long to have this epiphany? Why do you think Goldman Sachs and the rest of Wall Street bankrolls legions of high-priced lobbyists in Washington? To protect its clients and consumers? And show me one large financial services firm that places the interests of the client ahead of its profit motives? Do you plan on returning any of your large bonuses (gratis your fellow con artists) back to your clients as an apology? If not, how about the taxpayers? Forgive me for being so cynical, but gag me.
John Riley, Atlanta, GA, In reply to Paul Cohen
I don't think you attack on Mr. Smith is called for.
It takes a long time for people to come to the painful realization that the place you have dedicated your career to is morally bankrupt, and not worthy of your time or energy. Mr. Smith realized this, and left in a way where he would expose much of the misaligned culture, and hopefully bring about resolution. That takes courage.
In my view, if he, regardless of the company as a whole, worked in the interests of his clients, then he should be entitled to his bonuses. I would agree that the company as a whole is too money-focused, and that many of the wrong people are getting lavish bonuses, but he just committed career suicide. I would say Mr. Smith can keep his. Additionally, Goldman Sachs has also repaid their entire TARP loan, so there is no need for him to "repay the taxpayers".
James WattAtlanta, Ga
I am impressed not only with your honesty but your courage to give others insight and to remind them 'honesty' is a gift you give yourself so it's easy to lose forever. And of course your intelligence to leave. It is sad today our financial and political leaders lost sight of the prime directive. "Do NO Harm". and replaced it with "Make A Buck." regardless of the method. But then again in a society where dishonesty is not only tolerated but also toasted at the finest restaurants, clubs and churches of the Western World surprise is not the reaction but has been replaced by desire.
timcornbarrington il
It's more than ten years old , but I've read the very same story before: 'Liar's Poker,' by Michael Lewis. Or look around. As an economic culture, we've stopped being stewards of the land and started being cannibals.
TonyLx
I find that these testimonials are important to help change the corrupt and rotten financial culture that surrounds our society. The sad part is that a company like Goldman Sachs has far too much power and controls not only the wealth of the wealthier, but also the wealth of independent countries. After the 2008 collapse, independent States all over the world have injected huge amounts of tax payers' money to cover for the blatant mistakes and greed of Goldman Sachs (and others). Now the people of the more vulnerable States, which little industrial and productive power, are being sacrificed so that this spiral of lunacy can continue. As a citizen of one of these countries that is being sacrificed - Portugal - I demand that my elected leaders stop pampering for these lunatic companies like Goldman Sachs and stop imposing harsh austerity measures that will lead us nowhere and will only destroy the social fabric of our country. However, I fear that this will not happen, because as we saw in Italy and Greece, when elected leaders stop cooperating with these powers they are simply replaced by former Goldman Sachs executives...sad world we are living in.
John W.Philadelphia
Brave man -- its one of the hardest things to do to rebel against culture like this at a company. Sometimes you have to publicly resign in order to make a point, and its good to hear the truth about what is really happening now at these firms. I am not sure many are going to exist soon (we've already lost many, like Bear Stearns), and I am not sure thats a bad thing. Power without any ethics or morality is always a dangerous thing, and these companies wield enormous influence over our banking system.
THMN
I don't think things have changed that much at GS in the last 12 years. He must have joined right after the internet bubble collapsed, which GS was a big part of, hyping companies that had no real business plan. And then they moved right on to double-dealing toxic mortgage products. So the only thing that might have changed in the last 12 years isn't GS' culture but Mr. Smith's assessment of that culture.
The thing that really changed GS is the change from a partnership to a public company in 1999, just before Mr. Smith joined. Suddenly, the risks are off-loaded from leadership to shareholders, quarterly earnings become the focus, and management is free to wheel & deal any way they want to with little consequence to them. That has created a huge moral hazard and nothing is being done to control that.
Katherine in PAPhiladelphia, PA
This is what happens when traders (many of whom would step on their grandmother for a profit) take over a firm that is basically a relationship business. Bravo to Mr. Smith for pulling back to curtain on this toxic enterprise that absolutely used to be one of the most respected firms on the planet. No more. Matt Taibbi had it exactly right with his "vampire squid" description. Washington: Are you listening? Isn't it high time to put some of these hot shots away?
KatileighSkaneateles
There was a time when I aspired to be a client of Goldman Sachs. As the 2008 story unfolded, it became clear that your former company had taken a turn away from serving customers and, more importantly, from being a good corporate citizen. This "disease," as many have reported, continues to infect our economy and to shake our trust in financial institutions. We have a a fear of what you have confirmed: that we can't trust our money to them. Once on deposit, it ceases to be our money and becomes theirs for the taking. In most industries, leaders know that once the customers become secondary, the business compact is broken. Thank you for speaking out.
TNCSC
Lay off the man, he has publicly done the right thing at great financial (and no doubt social) cost to himself. He has a conscience. What he says about the old Goldman culture is well known and I believe the shift speaks to a broader shift in loss of shame in our culture. We now are so collectively narcissistic that the individual pursuit of money at any cost has created a risk-taking environment that is unsustainable. See this in the orders-of-magnitude increase in compensation form the 1980's to now; a billion is the new million. There is no sense of shame in making $10-100 million a year just for skimming a large transaction, but worse, there is a new sense of entitlement and belief in one's greatness born of such money.
pjuNY
In 2008, I worked for JPMorgan Chase, albeit at a lower level than Mr. Smith. I spent a year trying to tell managers that there were all kinds of abuses going on with respect to disclosures about mortgages and home equity loans. All paid me nothing more than lip service. They couldn't have cared less about the client; it was all about their bottom line. Then the housing market crashed. Surprise.
I wrote a letter to Jamie Dimon, expressing my concerns. I got a call from one of his flacks in personnel. And instead of saying we'll look into this and fix it, her question was "Well, what do you want?": corporate speak for "What do we have to do to shut you up?"
Ultimately, I left of my own accord, and permanently said goodbye to any kind of "financial service" enterprise. It may sound quaint, but I'll take my personal ethics over the almighty buck any day; it beats feeling like you need a perennial shower.
John WoodsMadison, WI
I have long felt and written about the purpose of an organization: it is to create a mutually beneficial relationship between itself and those that it serves. Whenever an organization does not do this, it undermines its long-term survival. Another thing I am sure of is that profit is a way to measure the quality of service to others because you have created a lot of value for them. Losses measure the same thing. GS is very profitable, but apparently this is because it manipulates the system and exploits its customers for its short-term gain. This is a formula for its eventual demise.
I hope this article is a wake-up call for Goldman's clients and management. If I had money with this place, I'd get it out now. If management focuses on profit rather than service, it is doing exactly the things to bring about its downfall. I seriously doubt that the current management of this place can make the changes necessary to turn this firm around. Their heads are in the wrong place. They have created this toxic culture to which their employees are adapting. I hope the board throws them out and brings in those who understand the first sentence of this comment.
Organizations are part of the larger environment and society in which they operate. They look out for themselves by looking out for that of which they are a part. GS seems to be doing all it can to destroy that environment and take itself down at the same time. Thanks to Greg Smith for calling them out.
ErkaCambridge, MA
Well, as far as I understood, scamming Greece and defrauding European budget seems very in line with the "true" GS spirit, right, since it happened 11 years ago...
SteveNew York, NY
Reflective of our entire society. I know someone who went to a Chiropractor's conference and virtually all the classes were on dealing with Medicare, insurance companies, and marketing, in order to maximize profits. No classes on new techniques or research.
BantyUpstate New York
These problems proliferate due to ubiquity. If the clients know that the firm down the street has the same practices, there's no place to go. These firms routinely benchmark against each other (there is a whole industry devoted to that kind of report) to know what their latitude is, and make sure they aren't leaving a penny on the table.
Kevin RothsteinNew York
We should have broken up the big banks after the financial meltdown. I hope clients pull all their money from Goldman after reading this article. I have more respect for loan sharks than I do for any Wall Street banker who does not represent the best interests of his clients. At least a shark does not hide what he does.
RalphNorwich, NY
Unfortunately, with the decline of pensions in America, most workers are forced to invest in 401(k) and 403(b) structures that abuse the customer. Most of the funds that are available to workers within these 401 and 403 plans are high cost, low performing mutual funds. One of the plans that we were in, did not even list all of the companies in their mutual funds. They called it “proprietary information”. How is that for arrogance and distain for the customer?
My wife and I were in different pre-tax pension plans for decades and none of the funds provided account statements that made it easy to calculate capital gains. It would have been easy for them to do, but they didn't want us to know the numbers. Most of our growth in equity was from our contributions, rather than from capital gain.
When we finally changed to IRAs in order to gain control of our investments, the mutual funds fought our efforts to move money from their funds. They set up roadblocks and threatened us with tax consequences. It takes a lot of work, discipline and research to manage one's investments. Mr. Smith confirms some reasons why retail investors have left the stock market.
DanielStockholm, Sweden
Thanks for sharing Greg, incredibly interesting - and not a big surprise really! Capitalism at its best puts the best product or service in the hands of people at the best price, through fair competition. What Greg describes seems to be the fashionable version of capitalism at the moment; short term gains, how can I profit before it all goes up in flame? How can I trick people to buy whatever I'm selling, no matter the the consequences? It is ugly. It is the self-destructive impulse of capitalism at its worst. In ancient Greece the opposite to the vice pleonexia, greed, was the virtue of justice. In ancient Rome, the word 'idiotes', meaning private citizen, could be used as a dergatory term for someone who would look at their own gain ahead of that of the community. We all know the modern word etymologically related to it..
LucaCheltenham, England
I have found that epiphanies usually occur after the youngest sibling has successfully negotiated her/her expensive college and/or the appropriate share package has matured.
Christopher DeloguLyon France
John from Philadelphia praises you as a "brave man," ok maybe, but I can't help thinking of Olympia Snowe's recent decision to leave the Senate for similar reasons of conscience and disgust with the dominate culture and thinking that her and your departures from your organizations leave a hole that is likely to be filled by someone who is more extreme and has more conformist instincts and less conscience than you. You have become such a big cheese at GS and yet feel that you, you of all people in the organization -- not exactly the junior cog -- would rather quit 'em since you claim to not be able to beat 'em, is that it? This is a sad confirmation of Tocqueville's fears about the omnipotence of the majority and the tendency of whistleblowers to be either drowned out or, as in your case, to drown themselves (Democracy in America, vol 1, part 2, chapter 7). I hope some of your GS associates who share your views stay on the job, otherwise it's just more tyranny of the majority and group polarization full speed ahead. Yikes!
David DavidNYC
Oh it must sting to be sitting in the GS HQ and to read Mr. Smith's letter just now. I left a great position to join GS some years ago, mostly out of curiosity. The firm had interviewed ~28 people for the position and thought I'd give it a shot. I drank the Kool-Aid, but wondered if the firm lived up to its ideals. In the four years that I was there, I found that it did not. When commenting to management about having observed how my colleagues would accomplish important projects at far higher costs than necessary, I was advised of two things: 1) Be more humble as I was violating the firm's "corporate culture" by being seen as "bragging" about the commercial efficiency of my transactions and enumerating the value of the cost savings achieved when compared to the decisions made by my colleagues (sometimes in the $M's). My manager would refer to these funds as inconsequential, "a rounding error" on our balance sheet; 2) That I should not worry, because "GS isn't and will never be the low cost provider of services." In doing the best that was commercially possible, my behavior wasn't consistent with the developing Goldman culture, and after four years, I was laid off. Thank goodness!
FlorettaNY
Alas, Greg, you are a voice crying in the wilderness that is modern finance. You will be considered by the elite as about as out of touch as Judge Hardy in those old Mickey Rooney movies from the 1940s. Too bad. I shudder to think what Judge Hardy would have to say about modern financiers. The words scoundrels and unpatriotic come to mind. Their loyalty is to themselves alone. For now Goldman is still living on its past reputation, but for how long? When I am not happy with the way I'm treated, I take my custom elsewhere. I suggest investors with GS do the same.
GeorgePalo Alto, CA
Dear Greg,
Thank you for your honest, heartfelt column. I find it particularly distressing because I am a Stanford student, as you once were, about to embark on my summer analyst internship at Goldman.
Maybe things are different at the top, but during my interviews, I certainly did not talk about working only to make money off the client. I knew what I was supposed to say, and to be honest, I meant it. I do want to serve clients. That is what I have done at every job I have had up until now, and for me, there is no greater satisfaction than doing a good job for someone else. We can all work for ourselves, but working for others requires a belief in a cause and deep, selfless motivation. Unlike the trash-talkers in the comments here, I do believe there is an important purpose to investment banking and finance in general, and I accepted the internship for this summer so that I could see it for myself, learn the skills that Goldman teaches so well, and decide if it was for me.
Granted, I know how much obsessing goes on in finance about who gets paid what bonus, and where people get promoted, and who has the most swagger. Yet I do not think these attributes are unique to finance. It just happens to be a magnet for ambitious people. If they have been led so astray, as you say, then I can only hope someone more visionary and ambitious will lead them back.
Now I must return to my IR paper. It's 5:30am here, and I'm still getting ready for those ibanking hours.
Best,
George
Larryat24Plymouth MA
I surely trust that you will use the funds you have received to maintain a reasonable lifestyle. Poverty is good for literary status but prevents one from affecting the world. I see this as a great victory for the people. A person of substantial skill and insight has left the bad guys with knowledge that may be used more constructively. We have huge financial issues, like when 20% of the people can produce all we need, what do we do with the rest. Our politicians can’t even understand the issues, and here we have someone that may be able to assist. A Victory! Welcome Greg, and come on over any time!
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* Reference to another Apple Cart
N.B. The different background colors are meant to suggest few of the dimensions of this situation.
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