Goldman Sachs has been accused — by critics as well as the federal government — of being a greedy, rapacious Wall Street predator that puts its own interests ahead of its clients. Now, the firm faces startlingly similar claims from an unlikely place: its own ranks. In one of the most devastating resignation letters in the history of Wall Street, Greg Smith, an executive director for Goldman’s equity derivatives business, absolutely unloads on the firm, accusing it of betraying its clients in the single-minded pursuit of profits.
The charges, in other words, are familiar, and will only fan the flames of popular anger at Goldman, which has already become a symbol for the excesses that helped produce the global financial meltdown and resulting recession.
Smith, who had been at Goldman for 12 years, writes in an Op-Ed for The New York Times published Wednesday, that the culture at the firm is as “toxic and destructive as I have ever seen it.” He laments the loss of the firm’s traditional culture, which placed the interests of the client above all else. Now, he says, the interests of clients have been pushed to the side as Goldman’s bankers and traders seek to maximize profit for the firm — and for themselves. As a result, Smith says, he can see “virtually no trace of the culture that made me love working for this firm for many years.”
Smith writes that over the course of his time at Goldman he was deeply involved in the firm’s recruiting activities, mentoring candidates through the interview process and managing the summer internship program. But he knew he had to leave the firm, he writes, when he “could no longer look students in the eye and tell them what a great place this was to work.” Smith lays the blame squarely at the feet of the firm’s leadership, writing that history books may ultimately judge that CEO Lloyd C. Blankfein, and president, Gary D. Cohn, “lost hold of the firm’s culture on their watch.”
Goldman Sachs responded to the Op-Ed with the following statement: “We disagree with the views expressed, which we don’t think reflect the way we run our business. In our view, we will only be successful if our clients are successful. This fundamental truth lies at the heart of how we conduct ourselves.”
But that’s not the Goldman that Smith describes: Whereas the bank’s culture traditionally valued leadership by example and “doing the right thing,” today, success at the firm comes “if you make enough money for the firm (and are not currently an ax murderer).”
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.
Smith writes that he attends sales meetings where the interests of clients are barely discussed. Rather, the goal is to see how much money can be made off them. Reading Smith’s scathing description of the low regard that Goldman apparently has for its clients, it’s not hard to imagine that many of those clients — which include some of the richest and most powerful people and institutions in the world — are re-evaluating their relationship with the firm.
“It makes me ill how callously people talk about ripping their clients off,” Smith writes. “Over the last 12 months I have seen five different managing directors refer to their own clients as ‘muppets,’ sometimes over internal e-mail.”
Ultimately, Smith warns ominously that Goldman’s toxic culture may cause its own undoing. “People who care only about making money will not sustain this firm — or the trust of its clients — for very much longer,” he writes. Time will tell whether the bank heeds Smith’s warning. Changing the culture at Goldman Sachs will take time — and requires an internal recognition that something is deeply wrong at the firm, as Smith suggests.
In the meantime, Goldman has more pressing concerns: Preventing a client exodus in the wake of Smith’s devastating charges.