The image of Goldman Sachs (GS) as a Borg-like hive mind that breeds a bald master-race of capitalists has picked up speed during the last month. Rabble-rouser Matt Taibbi in Rolling Stone memorably called Goldman "a vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money." Joe Hagan in New York magazine devoted several pages to "Goldman's current public tarring." The controversy has even attracted the genius of Michael Lewis, who wrote a searingly funny column in the wounded voice of the firm, arguing that Goldman owns only one of the three branches of government outright and that the firm habitually rounds down any number under $50 billion directly to zero.
Needless to say, there is much to make Goldman's rivals suspicious. Super-powered trading programs? Politically prominent alums? Orcs and vampire squid? No wonder rivals can't imitate returns like the firm's $3.4 billion second-quarter profit. These guys are clearly running on a supernatural level, right?
Mission accomplished: The House of Representatives now wants to call Goldman—a firm that no longer owes anything to the government—on the carpet in what are sure to be disastrously populist hearings.
Enough already. After years of full-on Goldman Sachs conspiracy theories—implying that the firm runs the world—we all know that Goldman Sachs alums get pretty good jobs when they leave the firm. But the real question to ask is why they don't do better. If you believe that Goldman Sachs has designed the kind of devastating hive mind that can control any institution it touches, including the U.S. government, you also have to explain why Goldman Sachs alums have a history of not functioning terribly well outside of Goldman. Why, for instance, did Henry Paulson, by all accounts a brilliant man, flounder about in the politics of the Treasury so desperately that he was forced at one point to plead with Nancy Pelosi on bended knee? Why did the first TARP overseer, Neel Kashkari, get yelled at by Congress while performing the thankless job of managing the $700 billion kitty of the government? Why did Edward Liddy, former Goldman board member who served as the new CEO of AIG (AIG), quit in a huff over bonuses?
And it's not just the TARP boys. Look at Goldman Sachs alumnus Jon Corzine, enmeshed in scandals as governor of New Jersey, or John Thain, the Goldman Sachs alum who, whatever his capabilities, will always be remembered as the guy who charged a $35,000 commode to Merrill Lynch. Or consider Robert Rubin, the former treasury secretary and Goldman alum who flamed out at Citigroup after collecting tens of millions of dollars in compensation for many years. Or Stephen Friedman, who stepped down from the Federal Reserve Bank of New York under sketchy circumstances.
On Wall Street, I often heard from several bankers who had hired former Goldman bankers and were disappointed at the lack of magic or voodoo. These bankers theorized that Goldman bankers lacked the scrappiness or hustle of their colleagues; in previous lives, the allegation goes, their work was done when they dazzled a client with a Goldman Sachs business card. As Hagan points out, the difference is the Goldman culture. In fact, the highest compliment one Goldman banker can give to another is to call him or her "a culture carrier." But what is the Goldman culture, and why does it make such a difference? I talked with current and former Goldman bankers and officials to find out. Obviously, their views on it were mostly positive—but isn't that what you want to know: why Goldman bankers are so fervent about their culture?
So let's proceed. The basic rule of Goldman culture is that the company manages its people exactly the opposite of how every other Wall Street firm does. It's not that Goldman doesn't have its egos—it surely does—but as a matter of management, the firm also has several safeguards in place to keep rampant egos from destroying decision-making. Another thing that makes Goldman different from other firms is not that all Goldman bankers agree but that they are free—and, in fact, encouraged—to disagree. Anyone who has read accounts of Goldman's knockdown, drag-out fights over going public will understand this, as will anyone who has read two great books about Goldman: The Partnership and The Culture of Success. The firm's management committee meetings are, by all accounts, rambunctious affairs full of disagreement. John Thain once presented a case for Goldman's IPO to the management committee, and several of his fellow partners disagreed. Thain's reply to his vehement colleagues, according to Bloomberg: "Would it hurt you to suck up to me once in a while?" CFO David Viniar is a dragonlike protector of the firm's balance sheet, known to shoot down trading ideas and expansion plans day in and day out. Viniar's default answer, according to Goldman bankers, is "No," and he is known for his even-handed rejection of expensive schemes.
The difference is that Goldman Sachs bankers can disagree only before decisions are made; once all opinions are solicited, consensus is reached, and decisions are made, the decision is one made by the firm, on behalf of everyone, and it's final. Mostly, other Wall Street firms—from partnerships to giant investment banks—are hotbeds of infighting, and you need only talk to a few bankers before you find evidence that they undermine management decisions, subvert prominent colleagues, or openly ignore one another. Even worse, at many firms, bankers or traders will attempt to hide information about bad deals or trades until they can "fix" them and preserve year-end bonuses, as Brian Hunter was alleged to have done at Amaranth. At Goldman, management is like the Godfather: They want the bad news first. And daily. On a Wall Street where bankers are known to be terrible managers, Goldman also starts training its bankers to be managers early. Every Goldman banker has to do at least a year as chief of staff for one group or another. The firm usually shifts successful people among several areas to make sure they get a well-rounded view of the firm's businesses. At one point, Henry Paulson ran not only investment banking but also corporate and real estate banking.
Goldman forces communication, as well. The firm has a voice-mail cult that ensures constant communication; everyone communicates by voice mail (sometimes left at 3 a.m.), and the rule is that every voice mail, whether it comes from the CFO, a client, or a lowly analyst, has to be responded to within 24 hours. Jonathan Knee, a former Goldman Sachs banker who joined Morgan Stanley and then Evercore Partners, tells a funny story in his book The Accidental Investment Banker. He was used to Goldman's rules that everyone had to respond to one another and communicate about clients. When he got to Morgan Stanley, he says, not only was he surprised that his colleagues hoarded clients and refused to speak to him, he received so few callbacks from his fellow bankers that for weeks he thought Morgan Stanley's voice-mail system was broken.
Also, Goldman bankers and traders use the voice-mail system to give colleagues frequent snaps for a job well done. I was once in the office of a Goldman partner when he left a voice mail for a junior banker thanking her for introducing him to her client. Goldman won the piece of business. The implication, as well, was that it would be remembered at her year-end review. At most other firms, that's a rare gesture. I've heard numerous stories of senior bankers at other firms who gain their reputations by "bigfooting" on the deals of their junior bankers, sweeping in at the last minute and taking credit (which makes their case for collecting rich bonuses). At Goldman, you have to feel sorry for anyone who tries to steal another person's credit. Too many people are watching. The firm has 360-degree reviews, which means that everyone is evaluated not only by their managers but also their underlings and peers.
In one sense, this contributes to the homogenization of Goldman culture: After a few reviews, a reasonably intelligent person will know what he needs to be doing to fall into line with Goldman's values and thus be promoted. But the 360-degree reviews also act as good checks for authoritarian tendencies often evinced on Wall Street, the guys who suck up to their bosses and abuse their underlings when no one's watching. At many Wall Street firms, bosses look the other way when sharp elbows and credit stealing goes on; in fact, they may even engage in it. At Goldman, when those underlings get a voice in year-end reviews that help determine compensation, not surprisingly they get better treatment and respect from their bosses. Goldman also maintains a relatively "flat" structure, in which partners are expected to speak even to lowly first-year analysts. When Thain first joined Merrill, he explained the Goldman system to Bloomberg: "At Goldman, there was an equal balance between the traders and the risk managers, and there was actually a very good dialogue. And when you add into that the involvement of senior management, it works."
That alone is untrue of many Wall Street firms, which are highly hierarchical and often closed at the top. At Merrill Lynch under Stan O'Neal, the cloistered, ivory tower CEO was rarely, if ever, seen on the trading floor or palling around with bankers and brokers. At Citigroup, Charles Prince and Vikram Pandit rarely communicate with underlings except through companywide internal memos; a year into Pandit's reign, I was still hearing from senior bankers complaining that they had never met Pandit or senior members of his team or never even been properly introduced to their thinking. Phil Purcell, at Morgan Stanley, showed open disdain for his firm's investment bankers and rarely ventured outside his close circle of advisers.
Goldman bankers also don't look like other bankers on Wall Street. (And I don't mean that they're all bald and went to Dartmouth.) The firm has a reputation for producing menschy, nebbishy types who physically betray none of the intellectual magic ascribed to them; frayed cuffs, baggy suits, and lost buttons regularly adorn even the firm's highest-earning millionaires and are worn as a source of pride. Goldman Sachs is suspicious of flashiness in an industry in which the most prominent bankers are beautifully dressed in snowy collars and suits so precisely tailored and finely woven that the wool fabric reflects light.
At a financial conference at the New York Stock Exchange in 2006, I saw Lloyd Blankfein waiting his turn to go onstage while standing in a crowded room of reporters. Journalists, standing three-deep, surrounded bank executives at the conference. But not one reporter in the room seemed to recognize or approach the unassuming Blankfein, who was in shirtsleeves and wearing a baggyish suit—and also, at the time, was the chief executive of one of the largest investment banks. Byron Trott, the Goldman Warren Buffett, lacks flash; he looks more like a prosperous Midwestern architect than a millionaire Master of the Universe.
The key to the Goldman culture, its acolytes say, seems to be reciprocity. That's unusual in an industry in which power, or "hand," can sometimes be defined by the ability to take advantage of as many people—colleagues and clients—for as long as possible without getting caught. At many other Wall Street firms, bankers often perceive themselves to be at war with their firms; every bonus season brings negotiations about whether profitability comes from the banker's own work or "the platform," meaning the brand name of the bank. "Ripping someone's face off," or screwing them on a trade, is a common phenomenon on Wall Street. But Goldman, these people say, is refreshingly simple: "If you take care of us, we'll take care of you." And then they deliver. It may sound like the mafia, but you can see why many would rather buy into that idea than risk having their work taken advantage of. It's amazing, these Goldmanites say, what a little incentive can do.
So you can see why Goldman alums sometimes don't do very impressively once they leave Goldman. They find themselves in positions where no one questions their premises and it's hard to get good feedback and pushback. (This is why Paulson employed telephone banks of analysts to call Wall Street to solicit opinions.) Outside of the Goldman womb of debate and ideas, bankers and traders lack perspective. You might say that no Goldman is an island.
Heidi N. Moore is a business writer in New York City.
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