[Vision2020] Public Rebuke of Culture at Goldman Opens Debate

[Art Deco]

[image: DealBook - A Financial News Service of The New York
Times]<http://dealbook.nytimes.com/>
March 14, 2012, 8:00 pmPublic Rebuke of Culture at Goldman Opens
DebateBy SUSANNE
CRAIG <http://dealbook.nytimes.com/author/susanne-craig/> and LANDON THOMAS
JR. <http://dealbook.nytimes.com/author/landon-thomas-jr/>
Daniel Acker/Bloomberg NewsLloyd C. Blankfein, front, chief executive of
Goldman Sachs, and Gary D. Cohn, its president.

Until early Wednesday morning, Greg Smith was a largely anonymous
33-year-old midlevel executive at Goldman
Sachs<http://dealbook.on.nytimes.com/public/overview?symbol=GS&inline=nyt-org>in
London.

Now everyone at the firm — and on Wall Street — knows his name.

Mr. Smith resigned in an e-mail message to his bosses at 6:40 a.m. London
time, laying out concerns that Goldman’s culture had gone haywire, putting
its own interests ahead of its clients.

What the e-mail didn’t say was that about 15 minutes later, an Op-Ed
article<http://www.nytimes.com/2012/03/14/opinion/why-i-am-leaving-goldman-sachs.html?ref=business>he
had written detailing his criticisms was to be published in The New
York
Times. “It makes me ill how callously people still talk about ripping off
clients,” he wrote in the Op-Ed article.

The Op-Ed landed “like a bomb,” inside Goldman, said one executive who
spoke on the condition of anonymity.

The article reignited a debate on the Internet and on cable television over
whether Wall Street was corrupted by greed and excess. By noon, television
crews crowded outside Goldman’s headquarters in Lower Manhattan. More than
three years after the financial crisis, the perception that little has
changed on Wall Street — and that no one has been held accountable for the
risk-taking that led to the crisis — looms large in the public
consciousness. While it was an unusual cry from the heart of a Wall Street
insider, many questioned whether it would prompt any change.


Greg Smith, an executive at Goldman Sachs, resigned on March 14 and
criticized the company’s culture.

Goldman disagreed with the assertions in the Op-Ed article, saying that
they did not reflect how the firm treated its clients. Top executives have
previously said that despite some rough times of late, clients have stuck
with the firm.

Friends of Mr. Smith, who had a list of Goldman’s business principles taped
on a wall by his computers in London, say they were not surprised by his
public farewell. “He has a really high moral fiber and really cared about
the culture of the firm,” said Daniel Lipkin, a Miami lawyer who went to
Stanford with Mr. Smith. Mr. Lipkin learned about the Op-Ed on Wednesday
from Mr. Smith. “He sounded confident and felt good about his decision to
go public,” he said.

Although he isn’t highly paid by Wall Street standards — earning about
$500,000 last year, according to people briefed on the matter — Mr. Smith
is part of what some Goldman staff members and alumni refer to as a
sizable, yet silent contingent within the investment bank. These people are
increasingly frustrated with what they see as a shift in recent years to a
profit-above-all mentality.

Evidence of this shift, they say, can be seen in the accusations brought by
the Securities and Exchange
Commission<http://topics.nytimes.com/top/reference/timestopics/organizations/s/securities_and_exchange_commission/index.html?inline=nyt-org>in
2010 that the firm intentionally duped certain clients by selling a
mortgage-security product that was designed by another Goldman client
betting that the housing market would crash. More recently, a Delaware
judge criticized Goldman over the multiple, and potentially conflicting,
roles it played in brokering an energy deal. (In both cases, Goldman has
denied any wrongdoing.)

The reaction on Wall Street to Mr. Smith’s resignation ranged from those
cheering him to others criticizing him for resigning in such a public way.
Some within Goldman sought to portray Mr. Smith as a lone wolf — he did not
manage anyone — who had failed to become a managing director. (There are
about 12,000 executive directors, the equivalent of being a vice president
in the United States, but only about 2,500 managing directors among
Goldman’s 33,300 employees.)

Still, the ripple effects were felt beyond Wall Street. Shares of Goldman
fell 3.4 percent. And media coverage was worldwide. “Goldman Boss: We Call
Our Clients Muppets,” screamed the front page of The London Evening
Standard.

Others were less surprised. One Goldman client who spoke on the condition
of anonymity called the letter “naïve,” saying that the firm had been
trading against its clients for years. “Come on, that is what they do and
they are good traders, so I do business with them.”

Another Wall Street executive said it was “unforgivable” for Mr. Smith to
make his opinions so public and he should have taken them privately to the
firm’s senior managers. While Mr. Smith may have tried to raise his
concerns with his superiors in meetings, as a fairly junior employee, he
did not have much of a voice.

Goldman’s top two executives, Lloyd C.
Blankfein<http://topics.nytimes.com/top/reference/timestopics/people/b/lloyd_c_blankfein/index.html?inline=nyt-per>and
Gary Cohn, said in a letter to employees: “We were disappointed to
read
the assertions made by this individual that do not reflect our values, our
culture and how the vast majority of people at Goldman Sachs think about
the firm and the work it does on behalf of our clients. Everyone is
entitled to his or her opinion. But it is unfortunate that an individual
opinion about Goldman Sachs is amplified in a newspaper and speaks louder
than the regular, detailed and intensive feedback you have provided the
firm and independent, public surveys of workplace environments.”

But questions about Goldman’s culture persist at a time when the firm — and
the rest of Wall Street — are undergoing a transition as the postfinancial
crisis framework of regulations known as Dodd-Frank takes hold and as some
profitable businesses show little sign of returning to their precrisis
highs. It is not a hospitable environment for trading, yet Goldman remains
very much a trading firm. Mr. Blankfein, a former gold salesman, comes from
the trading business, as does the man who is seen as the most likely to
succeed him as chief executive in the next year or two, Mr. Cohn.

Mr. Smith started at Goldman in sales. Born in Johannesburg, Mr. Smith is a
grandson of Lithuanian Jews who emigrated to South Africa. His father is a
pharmacist and his mother is pursuing a career in social work.

He won a full scholarship to Stanford and after graduating in 2001 landed a
spot at Goldman, where he quickly worked his way up in the organization. A
table tennis player, Mr. Smith won a bronze medal in the event at the
Maccabiah Games in Israel.

He was sent to London about a year ago to sell United States derivative
products to European and Middle Eastern investment funds.

What motivated Mr. Smith to come forward now? People close to him said he
had high hopes for an internal report that came out after the S.E.C. case,
which Goldman settled.

In 2010, Goldman embarked on an internal study that looked at the way it
did business. The report reaffirmed the firm’s principles and outlined
changes aimed largely at bolstering internal controls and disclosure.

But Mr. Smith thought it fell on deaf ears among senior managers, his
friends say.

“I think this was the ultimate act of loyalty,” said Lex Bayer, a friend of
Mr. Smith’s from high school in Johannesburg, who went to Stanford with
him. “He has always been an advocate for the firm, but he wanted Goldman to
do things the right way. In his mind, this was the only way that he could
change the culture of the firm.”

He may not be alone inside Goldman. At staff meetings, Goldman’s leadership
has been peppered with questions about the firm’s public reputation, say
people who have attended those meetings, but who spoke on the condition of
anonymity because they were not authorized to speak on the record.

Mr. Smith is making a considerable financial sacrifice in publicly
criticizing Goldman. Most Wall Street employees sign nondisparagement and
nondisclosure agreements before they join a firm. If Mr. Smith did, Goldman
may take legal action and refuse to release stock options he has
accumulated. Mr. Smith may also find it difficult to find work on Wall
Street after such a public resignation. A spokesman said that Goldman tried
to contact Mr. Smith on Wednesday. It is not known whether he responded.

Mr. Smith did not speak publicly about his decision to leave Goldman. On
Wednesday, Mr. Smith received messages of support from clients of Goldman.

“You do not know me, but I am a client of Goldman Sachs,” one of them said.
“We trade a lot with Goldman and we know that we have to be very careful
when we do so,” the person said. “We understand your message.”

People who have spoken to Mr. Smith said that he was flying back to New
York on Wednesday night to see his family and friends. These people say Mr.
Smith still has no concrete plan for what to do next. He tells friends that
he wants to effect change in Goldman’s business practices, although it is
unclear what that change would be.

Recruiters say it may be tough slogging for Mr. Smith to find work again on
Wall Street, at least in the near term.

“There is a rule of thumb when interviewing — you don’t bad-mouth your old
boss. No one wants to hear it,“ said Eric Fleming, the chief executive of
the Wall Street recruiting firm Exemplar Partners Technology. “You can
argue something like this needed to be said, but if you hire the guy who
said it you are taking the risk he will do it again.”
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Art Deco (Wayne A. Fox)
art.deco.studios at gmail.com
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