Goldman Sachs Resignation Letter

Goldman Sachs Resignation Letter

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Updated Oct 01, 2013 at 09:02PM EDT by Brad.  

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Overview

Goldman Sachs Resignation Letter is a New York Times op-ed post in which Goldman Sachs executive Greg Smith publicly quit in a scathing letter criticizing the multinational investment bank’s culture and business practices.

Background

On March 14th, 2012, the New York Times[1] published the op-ed “Why I Am Leaving Goldman Sachs” by Goldman Sachs executive Greg Smith. In the letter, Smith claims that the company culture shifted from being ethically sound and client-driven, to being so revenue obsessed that they would put their own interests above that of their client base.

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.

Notable Developments

Parodies

The same day the Smith letter was published, the satirical blog The Daily Mash[3] published a spoof op-ed titled “Why I am leaving the Empire”, which mirrored the structure of the Smith letter from the point of view of the Star Wars villain Darth Vader.



Several other parody letters followed later on the same day. Michael Comeau, an employee for the online business platform Minyanville, posted an article to the Minyanville blog[4] titled “Why I Am Applying for an Executive Director Position at Goldman Sachs”, in which he made the case that he should be hired by saying, “if you pay me enough money, I promise to keep my mouth shut.” Comedian Andy Borowitz posted[5] a satirical letter from Goldman Sachs CEO Lloyd Blankfein announcing that the new executive director of United States equity derivatives would be Ugandan guerrilla leader Joseph Kony. Vanity Fair[9] writer Sarah Ball published an piece titled “Why I’m Quitting Pinkberry”, which satirically lamented the change in the frozen yogurt chain’s treatment of its customers.

Goldman Sachs Response

Later that evening, the international business publication The Financial Times[8] published a response from Goldman Sachs executives Lloyd C. Blankfein and Gary D. Cohn who denied Smith’s allegations about the investment bank’s toxic culture. CNN broadcast a segment about Greg Smith’s resignation (shown below) featuring a clip of Blankfein from 2010, in which he acknowledged that the investment bank has a lot of work to do to overcome suspicions that something is “broken” within the company.

On March 15th, Fox Business[2] published an article titled “Goldman Sachs Hits Back” which included reaction statements from various Goldman Sachs managers and executives arguing that Smith’s statements were inaccurate. The same day, the business news site Bloomberg[10] reported that Goldman Sachs saw $2.15 billion of its market value wiped out the day the Smith op-ed was published.

Op-Ed Resignations

On March 14th, the news blog Slate[6] published a round-up of notable quotes from various public resignation letters including Walmart’s Sheryl Cromwell, McDonald’s Steve Parsons and Sea World’s Melody Stevens. The following day, the tech culture blog Motherboard posted an article titled “Why People Quit Via Op-Ed” which compared Smith’s Goldman Sachs letter to the Tech Crunch resignations[7] from the fall of 2011 and attempted to explain the behavior with evolutionary psychology.

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