Greg Smith Op-Ed: Goldman Sachs Exec Resigns Over 'Toxic' Culture [FULL TEXT]
By Dave Smith | March 15, 2012 3:18 AM EST
Greg Smith, a.k.a. "the modern-day Jerry Maguire," quit his job on Wednesday. This wouldn't be news if Smith weren't the executive director and global head of equity derivatives for Goldman Sachs, one of the world's largest and most prominent investment banks in the United States, and nobody would have batted an eyelash if didn't publicly blast his company in a New York Times op-ed.
But he was. And he did.
"After almost 12 years at the firm -- first as a summer intern while at Stanford, then in New York for 10 years, now in London -- I believe I have worked here long enough to understand the trajectory of its culture, its people and its identity," Smith said. "And I can honestly say that the environment now is as toxic and destructive as I have ever seen it."
Before he resigned, Smith, who was a Rhodes Scholar national finalist while at Stanford University, handled "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." Smith says his 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," Smith said. "This view is becoming increasingly unpopular at Goldman Sachs. Another sign that it was time to leave."
Smith wrote that the reason he is leaving Goldman Sachs is because he no longer has pride or faith in his 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," he said. "I no longer have the pride, or the belief."
He said that since he arrived at Goldman, the company's values have shifted away from customer service and shifted towards the bottom line.
"Today, many of these leaders display a Goldman Sachs culture quotient of exactly zero percent," Smith said. "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."
Smith explained that Goldman Sachs awards individuals that persuade their clients to invest in stocks they're trying to dump, or who get their clients to trade away valuable assets to Goldman.
Smith added that he also abhors the way Goldman Sachs employees openly treat their customers like crap.
"It makes me ill how callously people talk about ripping their clients off," Smith said. "Over the last 12 months I have seen five different managing directors refer to their own clients as 'muppets,' sometimes over internal e-mail. I mean, come on. Integrity? It is eroding."
Because of the way current Goldman employees handle themselves, Smith worries for the company's future employees.
"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," Smith said. "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."
"We disagree with the views expressed, which we don't think reflect the way we run our business," said a spokeswoman for Goldman Sachs. "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."
Yet, an actual former intern from Goldman Sachs, Aveneesh Singh Saluja, tells a completely different story about Smith.
"I worked for GS both as an intern in 06 and as a full time analyst from July 07 to March 09... I interacted with Greg mainly during my 06 summer and from 07 to March 08, when I was physically in the NY office," Saluja said. "I hold him in very high regard -- he took care of us junior guys, gave us great pieces of advice, and in general came across as one of the more personable, friendly, and genuine guys on the floor."
Goldman Sachs will try to sweep this story under the rug, say that Smith was a bad employee and didn't know how to handle himself. But the issue is that Smith's op-ed wasn't angry, or punishing. It was open and honest, which is what Goldman Sachs doesn't want. It's not too difficult to see which side is right, but now, the company must deal with this PR disaster before it gets any worse. All Goldman needs is for a few large clients to leave for the rest of the dominoes to fall.
Head over to the New York Times to read the full story, but the full text from the Smith's original op-ed is also pasted below, courtesy of the Times. Give it a full read and tell us what you think in the comments section below.
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.
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