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No more GS, please

Scott Jagow Jul 30, 2009

If you’re tired of reading about Goldman Sachs, well, I don’t blame you. But I have to recommend one more article. So, here are some excerpts from “Will Everyone Please Shut Up About Goldman Sachs?”

It’s by business writer Heidi Moore at Slate’s Big Money Blog:

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, quit in a huff over bonuses?

Moore says when she was covering Wall Street, other bankers would tell her how disappointed they were when they hired former GS employees. “The allegation goes, their work was done when they dazzled a client with a Goldman Sachs business card.” So, Moore talked to several current and former Goldman employees to better understand the bank’s culture. Let’s start with this finding:

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…

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.

Moore says Goldmanites communicate well and pat each other on the back, rare in the world of Wall Street:

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.

Uh, does anyone remember what happened at AIG?

And the reason Goldman rewards its people so well?

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.

No doubt there’s some Goldman spin in here, but Moore’s explanations are reasonable and insightful in a sea of columns about vampire squids or Goldman gods.

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