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Chapter 2

Shared Principles and Values

IN 1979, GOLDMAN CO-SENIOR PARTNER JOHN WHITEHEAD wrote down the firm’s principles “one Sunday afternoon.” Whitehead explained, “In the first draft, there were ten principles, and somebody told me that it looked too much like the Ten Commandments, so I made it into twelve. I believe it’s up to fourteen now, because the lawyers got hold of it and they’ve changed a few words and added to it a little bit.”¹ Although he helped bring in deal after deal and helped make strategic decisions for Goldman, Whitehead said that committing the firm’s values to words on paper was his greatest contribution.² More than anything else, it was a statement about the perceived power of the codified values to nourish and support the partnership culture.³

From my interviews with those who were partners in the 1980s, it is apparent that all of them thought the principles reflected the culture and agreed with and relied upon them, which they believed allowed the firm to be less hierarchical than its peers.⁴ Although many firms now have codified principles of ethical behavior (some more revered than others), Whitehead’s commandments were revolutionary for the Wall Street at the time.⁵ The principles promoted cohesiveness in a firm with decentralized management, among Goldman partners who were owners and managers of businesses.

The list of twelve principles was approved by the management committee—which is responsible for policy, strategy, and management of the business and is chaired by the head of the firm—and was then distributed to every Goldman employee. A copy was sent to each employee’s home as well to help family members understand and cope with the long hours and extensive travel demanded of their loved ones.⁶ Whitehead’s hope was that family members would be proud of their association with an ethical firm that espoused high standards, and that employees—especially new partners with heavy travel schedules—would feel less guilty about spending so much time away from home.⁷ Goldman managers were expected to hold quarterly group meetings for the sole purpose of discussing the firm’s values and principles as they applied to the group’s own business.⁸ When I started at Goldman in 1992, it was typical, when introducing ourselves and the firm in initial meetings with clients, to include the “Firm Principles” on the first page of the presentation (essentially a sales pitch), letting the clients know what differentiated Goldman from its competitors.⁹

By the time of the tech boom in the late 1990s, the practice of managers holding regular meetings to specifically discuss the principles seems to have been discontinued, although they were certainly discussed in general meetings and in training sessions. One current Goldman partner told me that the principles are still talked about and discussed.¹⁰ They have not been abandoned, but he believes they are not as revered as they once were. He told me he could not recall seeing the principles hanging on the walls like they used to, although they can be found in annual reports and on Goldman’s website. However, the partner explained that with the recent regulatory and legal scrutiny, along with media attention, there is a renewed focus and more training sessions on the business principles.

Goldman’s principles were modified slightly over the years when, as Whitehead put it, the lawyers got hold of them. I also remember when a fellow analyst wrote a memo in 1992 pointing out grammar and punctuation errors in the principles and sent it to a member of the management committee. I believe a few of his recommended changes were made. As mentioned earlier, the most significant modification to the list of principles, made just before Goldman went public, was the addition of the principle related to returns to shareholders, which was given prominence by being listed third.

Here are the principles (as updated, now including fourteen):

1 Our clients’ interests always come first. Our experience shows that if we serve our clients well, our own success will follow.

2 Our assets are our people, capital and reputation. If any of these is ever diminished, the last is the most difficult to restore. We are dedicated to complying fully with the letter and spirit of the laws, rules and ethical principles that govern us. Our continued success depends upon unswerving adherence to this standard.

3 Our goal is to provide superior returns to our shareholders. Profitability is critical to achieving superior returns, building our capital, and attracting and keeping our best people. Significant employee stock ownership aligns the interests of our employees and our shareholders.

4 We take great pride in the professional quality of our work. We have an uncompromising determination to achieve excellence in everything we undertake. Though we may be involved in a wide variety and heavy volume of activity, we would, if it came to a choice, rather be best than biggest.

5 We stress creativity and imagination in everything we do. While recognizing that the old way may still be the best way, we constantly strive to find a better solution to a client’s problems. We pride ourselves on having pioneered many of the practices and techniques that have become standard in the industry.

6 We make an unusual effort to identify and recruit the very best person for every job. Although our activities are measured in billions of dollars, we select our people one by one. In a service business, we know that without the best people, we cannot be the best firm.

7 We offer our people the opportunity to move ahead more rapidly than is possible at most other places. Advancement depends on merit and we have yet to find the limits to the responsibility our best people are able to assume. For us to be successful, our men and women must reflect the diversity of the communities and cultures in which we operate. That means we must attract, retain and motivate people from many backgrounds and perspectives. Being diverse is not optional; it is what we must be.

8 We stress teamwork in everything we do. While individual creativity is always encouraged, we have found that team effort often produces the best results. We have no room for those who put their personal interests ahead of the interests of the firm and its clients.

9 The dedication of our people to the firm and the intense effort they give their jobs are greater than one finds in most other organizations. We think that this is an important part of our success.

10 We consider our size as an asset that we try hard to preserve. We want to be big enough to undertake the largest project that any of our clients could contemplate, yet small enough to maintain the loyalty, the intimacy and the esprit de corps that we all treasure and that contribute greatly to our success.

11 We constantly strive to anticipate the rapidly changing needs of our clients and to develop new services to meet those needs. We know that the world of finance will not stand still and that complacency can lead to extinction.

12 We regularly receive confidential information as part of our normal client relationships. To breach a confidence or to use confidential information improperly or carelessly would be unthinkable.

13 Our business is highly competitive, and we aggressively seek to expand our client relationships. However, we must always be fair competitors and must never denigrate other firms.

14 Integrity and honesty are at the heart of our business. We expect our people to maintain high ethical standards in everything they do, both in their work for the firm and in their personal lives.

The emphasis on the principles helped distinguish the firm, and over the years, most successful interview candidates were very familiar with them. The principles guided thousands of interactions each day—interactions that put the firm’s reputation and partners’ capital at risk.¹¹ One senior partner said, “As a small firm, we passed on our shared ideals and culture in an avuncular style. Everyone sat next to someone who was very experienced and had been there a long time. We were very small, concentrated in a few offices around the United States, so it was easy to do … Every boss I ever had worked harder than I did … This is a really good business and it’s also a pleasant place to work, if you select the right people on the way in.”¹² Goldman’s principles also provided a way to substantiate the firm’s trustworthiness in the eyes of clients and potential candidates.

The principles, combined with actual strategic business practice and policy decisions (such as not representing hostile raiders, as I discuss later), created for Goldman a powerful “good guy” image—both internally and externally. In 1984, a Morgan Stanley banker even publicly conceded that the principles and resulting practices made clients perceive Goldman as “less mercenary and more trustworthy than Morgan Stanley.”¹³

The ultimate fate of the Water Street Corporate Recovery Fund provides a good example of Goldman’s sensitivity to the potential impact of its strategic business decisions on the firm’s reputation after the principles were written. In 1989, two Goldman partners convinced the management committee to commit as much as $100 million of the firm’s money toward starting Water Street, a fund that bought controlling blocks of distressed high-yield junk bonds. The fund began soliciting outside investors in April 1990, with the goal of raising $400 million. Within a few months, Goldman had raised almost $700 million and stopped accepting investments. The partners were willing to give Water Street four years to see whether it could produce an annual return of 25 percent to 35 percent.¹⁴ However, several corporate executives and large money-management firms complained to Goldman that the fund was a “vulture” investing business, claiming it was in direct conflict with the firm’s reputation for acting at all times in the best interests of clients. The executives were particularly concerned that the fund was also being run by someone who was actively involved in Goldman’s corporate finance advisory business. The dual roles would potentially allow the Water Street Fund to access confidential information from investment banking clients that it could use to benefit its investing. Nine of the twenty-one Water Street investments were in current or former clients. Even though the fund was making a lot of money for Goldman, the management committee, advised by John L. Weinberg, shut it down. At the time, investing clients who bought stocks and bonds also were threatening to boycott Goldman’s trading desks because of their concern about potential conflicts (although many discounted that would actually happen). John L. was concerned that clients thought the fund violated Goldman’s number one principle. According to partners I interviewed, the firm’s decision to shut the fund down sent a powerful message, internally, especially considering how profitable the fund was. Many clients at the time also felt it sent a powerful message differentiating the firm from the principles of its competitors.

Best and Brightest

Goldman’s corporate ethos, its common value system, John L. called “the glue that holds the firm together.”¹⁵ Goldman executives were conscious of sustaining this culture when recruiting and tried to hire the best of the best, but not just for their intelligence, drive, or experience. The partners looked for people who fit a certain profile: people who had all the requisite skills and knowledge, were hardworking and driven, and also espoused a value system consistent with Goldman’s.¹⁶ New hires were immersed in the Goldman culture and encouraged to apply their preexisting values and principles in a business context.

Goldman was not known as the highest payer on Wall Street for entry-level positions, and yet talented people often prioritized working for Goldman. Interviews revealed that they were attracted by the allure of partnership and the feeling that the firm’s culture of putting clients’ interests first and being long-term greedy was different from the other firms on Wall Street. They pointed to the principles and the firm’s actions and policies, along with stories and lore that reinforced this differentiation.

Although many firms had high hiring standards, they did not as regularly send senior executives to college campuses to interview potential recruits. In the 1980s and 1990s, this was a critical part of a Goldman executive’s job, an outward expression of the company’s passion and culture. It was one of the roles of a culture carrier—someone who always put the firm and clients first, had the right priorities, cared about the firm’s reputation, and put the firm’s principles and long-term goals before short-term profits.¹⁷

Whitehead described Jimmy Weinberg, brother of John L. Weinberg, as “one of the most important culture carriers … He was an advocate of team play, no internal ugly competition, service to customers, putting the customers’ interests before the firm’s interests and all of those good things that make a partnership.”¹⁸ In a speech to the partnership, a partner stated, “Hiring the right people is the most important contribution you can make. Hire people better than yourself.”¹⁹

Partners wanted people smarter even than they were, but they also wanted recruits who shared their values. The relatively low wages paid during employees’ early years, partners thought, fostered an appropriately long-term perspective.²⁰ To this end, sometimes twenty or more employees, including several partners, often interviewed successful candidates. Whitehead told me that during his time, a potential candidate also had to be interviewed and approved by at least one secretarial assistant, because how one treated assistants was considered important. It showed one’s values. Sometimes the interview process itself weeded out candidates better suited to a firm where “individual performance was applauded and assimilation was less important.”²¹ Author Charles Ellis notes that “extensive interviewing was becoming a firm tradition … It gave the firm multiple opportunities to assess a recruit’s capabilities, interests, and personal fit with the firm … ‘You could say that our commitment to interviewing was carried through to a fault.’”²²

Whitehead was clear that, as a service business, Goldman needed to select the best people if it was to be the best firm: “Recruiting is the most important thing we can ever do. And if we ever stop recruiting very well, within just five years, we will be on that slippery down slope, doomed to mediocrity.”²³ Active participation by the most senior partners underscored Goldman’s emphasis on hiring the best people.²⁴

Goldman also made sure that the future leaders devoted a “material” amount of time to recruiting. Rob Kaplan—who joined Goldman in 1983, went on to run investment banking, and retired as a vice chairman—credits Goldman’s recruiting process with helping build a “powerhouse operation.” He describes his impressions of the process: “I grew up [at Goldman]. We identified attracting, retaining, and developing superb talent as a critical priority. As a junior person, I was enormously impressed that the very senior leaders of the firm were willing to interview candidates and attend recruiting events on a regular basis. I learned from their example that there wasn’t anything more important than recruiting and developing talent.”²⁵

As evidence of his commitment to recruiting, Whitehead personally conducted on-campus interviews. The qualities he looked for in potential recruits were “brains, leadership potential, and ambition in roughly equal parts.”²⁶

During a meeting I challenged him, saying that every firm claims to look for these qualities. “What about values?” I said.

Whitehead told me that he had overlooked the word values because it should have been obvious that Goldman would hire only people who exhibited values like the firm’s. To him, it was the first prerequisite for employment—and the firm dedicated senior people to the task. Most importantly, he wanted people who shared the Goldman values and were willing to act in concert with its ethical principles both within the firm and in interactions with clients. For example, the boasting and displays of ego common on Wall Street were not welcome at Goldman; offenders were quickly reminded that their accomplishments were possible only because of everyone’s hard work and contributions. Whitehead once admonished an associate for saying “I” rather than “we.”²⁷ When I interviewed him, Whitehead himself used “we” instead of “I.” To this day, my wife and non-Goldman friends tease me for the same subconscious substitution—it is that ingrained.

Goldman’s practice was to hire directly from top business schools rather than from other firms because recent MBAs were more malleable; the “plasticity” of a young MBA’s character made it easier to inculcate the Goldman ethos.²⁸ The firm’s recruiting focused on merit rather than pedigree.²⁹ A privileged background was often a strike against a candidate: it was thought that perhaps he or she might not work as hard or be as careful with money as someone who had not come from wealth.

My own experience in interviewing for my job at Goldman in 1992 told me, in no uncertain terms, exactly what Goldman valued in an employee. A partner who interviewed me explained that I would regularly have to work one hundred hours a week—until two or three o’clock in the morning, Saturdays and Sundays included, and most holidays.³⁰ I was then asked what I had done that demonstrated my ability to maintain that pace and still excel, so I explained that I had done well academically while playing two sports in college and performing community service.

Playing team sports in college, serving in the military, performing public service, or being involved with the Boy Scouts or Girl Scouts were seen as big advantages at Goldman, because they demonstrated teamwork, discipline, and a sense of community and obligation to society. Teamwork is codified in Goldman’s principle 8 (“We stress teamwork in everything we do”), and discipline is implicit in principle 9 (regarding the “dedication of our people to the firm and the intense effort they give their jobs”). Interestingly, a sense of community and obligation to society is not written as a business principle, but it is so ingrained that almost every internal and external communication about the firm prominently describes and displays its “citizenship.” (For examples, see appendix E.)

At the close of the interview, the partner asked me whether I had any questions as he filled out a form for human resources. “If I work until two or three o’clock in the morning, how will I get home?” I asked. “Are the subways open at that hour?”

He chuckled. “There are always Lincoln Town Cars lined up outside the building. You can take one of them home.”

Coming from a middle-class Midwestern background, I had never heard of such a thing (I couldn’t contemplate someone else driving a car with me in the backseat), so I asked what I thought was a practical question: “So do I drive the car back when I come back in the morning?”

He burst out laughing. While having trouble to stop laughing, he then explained that I would be “chauffeured” and dropped off at home. There he sat, with his sleeves rolled up on his white shirt, top button undone and back of his shirt slightly untucked, Brooks Brothers striped tie loosened a little. It was the standard look in M&A. You looked as if you were working hard. He leaned over and said, “Let me read what I wrote on your review form: ‘Lunch pail kind of guy—knows nothing but will kill himself for us—and smart enough so we can teach him.’” That was me in a nutshell—and just the kind of person Goldman wanted.

I was surprised that other candidates and I were interviewed by the people they would work with, not human resources people.

After completing ten or fifteen interviews, I got an offer the next day.

Soon after I was hired, I was asked to review résumés from Midwestern schools for candidates to interview. When I was given hundreds of them bound in three-ring folders, I asked the vice president who had given me the assignment, “How should I go about choosing?”

He shrugged and told me to take anyone who didn’t have a certain grade point average and SAT score and throw them out, and then get back to him.

I did that, but I was still left with what still seemed like hundreds of résumés. So I asked, “Now what do I do?”

“Take out anyone who doesn’t play a varsity sport or do something really exceptional or substantive in public service,” he told me, waving me out of his office.

Once again I culled the folders, but still I had too many. So I went back again.

“Now throw out any that don’t have both sports and public service, and raise your grade and SAT requirements.”

After this round, I came up with the thirty people we would interview to select the one or two who would get an offer.

It seemed to me that a large percentage of people hired by Goldman in the United States had roots in the Midwest or in Judaism, and when I discussed this with Whitehead and others, they said that there was no conscious effort to hire to a certain ethnic or regional profile; it was most likely only that people are attracted to people who have similar values and backgrounds. The similarities in backgrounds can be seen in this list of the past five CEOs or senior partners:

 Lloyd Blankfein: Jewish; raised in New York public housing in the Bronx

 Hank Paulson: Christian Scientist; raised in Barrington Hills, Illinois, on a farm; played football in college; Eagle Scout; worked in the government before joining Goldman

 Jon Corzine: Church of Christ; raised on a farm in Central Illinois; football quarterback and basketball captain in high school

 Stephen Friedman: Jewish; on his college wrestling team

 Robert Rubin: Jewish; Eagle Scout

Partners modeled and reinforced the desired behaviors and delivered “sermonettes of perceived wisdom” as deemed appropriate.³¹ French sociologist Pierre Bourdieu argued that in analyzing any society, as well as a firm’s culture, what matters “is not merely what is publicly discussed, but what is not mentioned in public … Areas of social silence, in other words, are crucial to supporting a story that a society is telling itself.”³² The written principles were important, but it is how they were interpreted and put into action—brought alive each day—that really mattered. The Goldman partners reinforced the importance of the values by their actions; they didn’t need to be specifically mentioned because they were understood by watching. The way these CEOs and partners acted, dressed, and behaved reinforced unwritten norms or uncodified principles. The men at the top wore Timex watches and not Rolexes (and this is before Ironman watches were fashionable). Partners did not wear expensive suits or drive fancy cars (most drove Fords because it was such a good client and many partners got a special discount). They lived relatively modestly, considering their wealth. It was simply not in the ethos to be flashy but rather to be understated, with Midwestern restraint.

The archetype for proper behavior was John L. Weinberg: “Revered by his partners and trusted by the firm’s blue-chip corporate clients, he was entirely without pretension, he spoke blunt common sense, [and] wore off-the-peg suits.”³³

The unwritten commandment to keep a low profile was not, until rather recently, violated casually. In the early 1990s, an analyst was riding in a taxi past the famous and pricey Le Cirque restaurant in New York when he spotted a low-key Goldman vice president standing outside. To tease the VP in a funny, friendly way, the analyst rolled down the cab window and yelled out several times, “VP at Goldman Sachs!” Clearly, the subtext was, “VP at Goldman Sachs dining extravagantly at an elite restaurant!” The VP took it so seriously that the next morning he called the analyst into his office, along with a few of the analyst’s friends (including me), who, he correctly assumed, had already heard the funny story. The VP explained that he had been invited to Le Cirque by his girlfriend’s parents and that he would never have gone there on his own. Then he asked us to please not tell anyone or discuss (or joke about) the matter further.

The low-key imperative extended even to the modest Goldman offices. Goldman did not want clients to view an ostentatious display of corporate wealth, fearing it would be seen as an indication that the fees for the firm’s services were too high or that the firm had the wrong priorities.³⁴

When I started at the firm, there was no sign bearing the name Goldman Sachs when one entered 85 Broad Street; behind the reception desk there just was a list of the partners’ names and floor numbers. There was even a floor for retired partners, but their names were not listed individually, the label for that floor just said, “Limited Partners” and a floor number. Even the twenty-second-floor offices of the senior partners were relatively modest, with the elevator doors opening to a gallery of senior partners’ portraits. It all served to reinforce the message: keep a low profile, respect the history, and remember whose money is at risk here. Such organizational humility, combined with the business principles and a drive for excellence, helped Goldman develop strong client relationships and allowed the firm’s culture to hold materialism at bay for a long time.

There was also an ethic that talking about compensation was taboo, although no one ever actually said so. Almost all of us had our sights set on partnership, and we were certainly curious about how our compensation stacked up against that of others, but no one ever directly asked.

One class of vice presidents had an interesting approach. Each year, all the members of that class got together and anonymously wrote their compensation figures on a slip of paper and dropped the paper into a bowl. The slips were then extracted randomly and read aloud to the group. In that way, no one knew exactly how much each person was making, but they knew the range and could figure out where they fell within it. I learned the range was less than 5 percent to 10 percent from the highest to the lowest (a remarkably narrow range by today’s standards), and this represented that the firm equally valued each person’s contribution and the equally high level of talent and hard work. I remember thinking the firm’s policy on compensation range was almost “socialist.”

Family Values

The firm also instilled a feeling of “family.” Goldman inculcated its values in other ways as well. When I started, I was assigned a “big buddy” who had graduated from business school and worked at Goldman for a few years to work with me on my first few projects. Big buddy relationships could be traced like a family tree: my big buddy had a big buddy, and so on. He also had little buddies like me. We were “related,” and one could essentially trace his “ancestors.” It was an informal network, and people had a sense of pride in their lineage of buddies.

Fortunately, my big buddy was great (as were my several little buddies). He had been an athlete at a small college, worked as an accountant, and pushed his way through to an Ivy League business school and into Goldman. Someone told me that when my big buddy had been a summer associate, he essentially slept under the desk in his cubicle because he wanted to make sure he would get a full-time offer. When I sheepishly asked another associate whether the story was true, he scoffed and said, “Of course not.”

I was relieved.

Then he walked me to the other side of the floor, to the office of Peter Sachs (a descendent of the original Sachs). He pointed, smiling, to a worn leather couch and advised me to take short naps there when pulling all-nighters, adding, “It’s a lot more comfortable than a cubicle.”

In addition to teaching me financial analysis, my big buddy gave me hints about what to wear and how to act. His general advice was don’t do or wear anything to draw attention to myself.

I also was assigned a mentor—a vice president—who was supposed to speak to me about my career and give me a senior connection to the firm. If my big buddy was like an older brother figure, my mentor was like a father figure. He took me to lunch or dinner periodically and told me which projects I should work on and with whom. He also spoke to other senior people to get me assignments that would help me improve. In addition, I sat in a cubicle right outside a partner’s office, and we shared the same assistant.

My mentor told me that everyone was expected to accept any social invitation from another Goldman employee (not to mention attending every department or firm meeting or function). He told me there was no excuse for missing a wedding, funeral, bar or bat mitzvah, or christening. My London wedding in 1998, when I was an associate, was attended by the head of my department, one of the co-heads of banking, and a member of the management committee.

After seeing how my mentor and the partners worked, I certainly didn’t need codified business principles to understand the ethic. One partner literally had holes in the soles of his shoes. My mentor had holes in the elbows of his shirt. Both worked twelve- to fourteen-hour days and on the weekends. I once had to call a partner at his home on Christmas Day to ask him a question and got no complaints. My mentor had an L.L.Bean canvas briefcase, and one of the partners carried his things and paperwork in a large brown paper bag. I was afraid to carry the new leather briefcase my parents had given me for college graduation. And I made sure I was in the office before my mentor and the partners, and I left after they did.

When I started at Goldman, I was handed a two-hundred-page, green-covered directory with every employee’s and partner’s home address and work and home phone numbers (cell phones were not widespread, and e-mail was years away from being used at Goldman) as well as summer or weekend contact information. Obviously, having readily available contact information increased efficiency, but the other message was that you were expected to be reachable at all times—no matter who you were. The directory seemed like a club book, and it reinforced the feeling of being in a family, adding to the flatness of the organization.

One implication of the value of keeping a low profile was that there were to be no superstars.³⁵ The implicit proscription of displays of ego extended beyond office walls. Unlike other investment banks, which allowed their bankers to be quoted by the media, Goldman preferred its M&A bankers to be “anonymous executers of transactions.” The unspoken message was clear to all: “No one is more important than the firm.”³⁶

Goldman also invested serious time and effort in training. Most analysts and associates joining Goldman from school are trained over weeks to learn the firm’s history, expectations, processes and procedures, and organizational structure. The primary intent is the socialization of new members. During my training, various Goldman executives came and spoke about the Goldman history and their departments. Junior people gave talks about their jobs and explained how to be successful at Goldman. There were group dinners and cocktail parties. We learned specifics that would help us in our day-to-day jobs, such as Excel spreadsheet-modeling skills, but it was also a way for new people to gain exposure to various people and departments that would help trainees think about problems or provide information to help clients. The people we were in training with were our “class,” and we developed a strong identity as members of our class. You would also be evaluated by comparison to those in your class. Even with the implicit competition, we felt a great camaraderie. My twenty-year class reunion party in 2012, sponsored by Goldman, drew people from all over the world. Retired senior partners also attended.

After the initial sessions, Goldman provided constant formal training: tools to do the job better, updates on product innovations or trends, information about how to be a better interviewer or mentor, training on how to better provide clients with full solutions and not only a product solution, and updates on compliance and legal issues as well as best practices. Not a month went by without some sort of formal training. We also had outside guest speakers to talk about specific topics. As we progressed in our careers, we received specialized training for any promotions—usually followed by a cocktail party in which partners congratulated us, perhaps followed by handwritten notes of congratulations from various partners. In addition to training, we attended many department functions, including holiday parties, strategy sessions, outdoor bonding exercises, and picnics—even group trips to the beach or skiing (often, spouses were invited).

Goldman also strongly encouraged participation in community and public service. Most people looked up to and admired Goldman employees who went on to public service, and those who were hired from government. You were expected to participate in Goldman’s Community Teamworks program, an initiative that allows employees to take a day out of the office and spend it volunteering with local nonprofit organizations. The firm also matched the charitable contributions of employees, and partners generously gave to their alma maters and other nonprofit organizations. In some interviews, partners explained that citizenship had multiple purposes: to do good, to make people feel good about where they worked, and, admittedly, to extend Goldman’s network.

Long-Term Greedy

Goldman’s foremost principle—of “clients’ interests first”—entails doing what is best for the client, regardless of the size of the fee (whether it will be received now or later) and never suggesting deals to clients specifically to generate fees. Putting clients first requires a commitment to the honesty and diplomatic candor that enable clients to trust Goldman to honor confidentiality of information, provide reliable advice, and not pull any punches. This honesty was a hallmark of Goldman’s earlier days, and the firm’s reputation for ethical behavior distinguished it among Wall Street firms.³⁷

When I was a financial analyst, we were asked to review the strategic alternatives for a division of an industrial company. Internally, we informally gathered about a dozen M&A bankers and debated the best courses of action for the client. During the discussion, a young associate revealed something the CFO had said: that the client CEO thought the division in question should be sold, and pointed to the data and analysis that would substantiate this point of view. Goldman would collect a fee if the division sold.

The vice president who was assigned to advise the company patiently listened and then snapped, “The CEO hired us for our unbiased advice, and not to justify what he thinks.”

We incorporated the group’s suggestions and then spent days going from one partner’s office to another, discussing the merits of various courses of action. I was impressed that all these partners would take the time to listen to discussions about a situation in which they were not involved—to help us get to the best advice and teach us how to think about the issues.

In the meeting with the client CEO, the Goldman vice president presented the various alternatives. He concluded by recommending that the CEO not sell the division at that time, because there was a good probability it would be worth more in the future. Then there was an awkward silence. The client CEO complimented the team for the quality of its work and then said Goldman was the only bank that did not recommend a sale. Unexpectedly, he called a few days later. He decided to wait and continue executing the business plan.

A few years later, that same division had doubled its profits, and Goldman was hired to sell the entire company.

The Goldman approach in this case was consistent with Steve Friedman’s description of Jimmy Weinberg: “He just had a great demeanor, and people would develop confidence in him because he wasn’t pandering to them, he would tell them what he thought.”³⁸ I interviewed several Goldman clients from the 1980s, and there was a general consensus that typically Goldman did emphasize unbiased advice.

Devotion to Client Service

The values of integrity and honesty are codified in the last of Goldman’s business principles as being “at the heart” of the business. In the eyes of the partners during the Weinberg and Whitehead days, the firm’s reputation for ethical behavior was a competitive asset and crucial to the firm’s success. It was the right thing to do, and it made good long-term business sense. They recognized the value of their reputational capital.³⁹

Integrity was the favorite word of longtime Goldman head Sidney Weinberg, and he defined it as a combination of being honest and putting the interests of clients first. As one partner observed, “Mistakes were quite forgivable, but dishonesty was unpardonable.”⁴⁰ John Whitehead explains: “Our industry is one in which the services of the leading investment bankers are all pretty much the same. So, I’ve always believed that one’s reputation is extremely important and that decisions are often made according to the general reputation a firm has, not so much by the fact that they will perform a service a little cheaper and a little faster. Reputation is what matters.”⁴¹

When describing Jimmy Weinberg, Tom Murphy, former chairman and CEO of Capital Cities/ABC, said, “His clients were his friends … His whole reputation in the business world was as a person of honesty and integrity.”⁴²

Whitehead expressed the strategy behind the philosophy this way: “We thought that if our clients did well, we would do well.”⁴³ Together with the emphasis on maintaining a “steadfast” focus on the long term, this almost religious devotion to clients’ interests and service was largely responsible for Goldman’s success.

Gus Levy, a senior partner at Goldman from 1969 until his death in 1976, originated the maxim, mentioned earlier, that expressed the proper attitude for Goldman partners: “greedy, but long-term greedy.”⁴⁴ These words helped remind partners to focus on the future, as evidenced by the nearly 100 percent reinvestment of partners’ earnings. One author interprets Goldman’s long-term greedy mantra to mean that “while the firm worked in its own interest, it did so in a manner consistent with the long-term health of its industry, business, and clients.”⁴⁵ This was not purely a matter of altruism. Goldman existed to make money for its partners, not only at the moment but also for years to come. Goldman cultivated an image of responsibility, trust, and restraint by intimating that the firm held itself to a higher standard than other firms.⁴⁶

The emphasis on long-term greedy also explains in part why employees were willing to work grueling hours for relatively modest wages. In the long term, if they made partner they would more than make up for the sacrifice. Lower wages in one’s early years with the firm were part of Goldman’s strategy for success—part of the business model—because the less that was paid to nonpartners, the more the partners got paid.⁴⁷ Goldman got its employees to buy into long-term greedy for themselves, and the Goldman culture was distinctive enough that people wanted to work there even if they worked harder and for less money than did competitors.

Many of the partners I interviewed cautioned me that Goldman was not always all about teamwork, collaboration, and shared values. Hiring mistakes were made. Indiscretions were dealt with. Politics did enter into the picture the further one moved up, and there were sharp elbows. But in the end, the principles generally won out. People came and went, but generally the culture and principles remained. Just as the policy of not advising hostile raiders (see chapter 5) and keeping the client first were good business decisions, so was getting people to buy into a culture and a purpose—it made the partners (who were certainly greedy) more money over time and helped sustain the money machine for the next generation.

Very few people left Goldman voluntarily. When I was an analyst, in the early 1990s, a respected associate decided to leave and join his father’s business, and we had a department meeting to discuss this shocking event. The purpose of the session was to make us feel that in this one instance, it was acceptable; he was going to work with his family, and that was just barely excusable. I would have thought that many people would leave because of the lower pay than peers and the slim chances of becoming a partner. But voluntary turnover was less than 5 percent, I was told—significantly below the industry average in the 20 percent range.

Generally, Goldman bankers obsessed more about making partner and their relative compensation than they did about their absolute compensation. Their social identity was so bound up, through their socialization at the firm, with what Goldman valued, that bankers routinely turned down multiyear guaranteed contracts for significantly more money at other firms, even when the possibility that they would make partner at Goldman was, according to my interviews, less than 5 percent to 10 percent.⁴⁸ After their socialization into Goldman, working at any other firm, regardless of the title or compensation, would seem to them a step down, according to many of the people I interviewed.⁴⁹

Goldman bankers were also generally convinced that they were the best—that they worked at the best firm, with the best people, and with the best brand. At the same time, they were convinced that teamwork and a team relationship with clients were so important that their own value as bankers outside Goldman would be diminished. The socialization process made well-educated, thoughtful, talented people believe that Goldman made them better bankers than they could be elsewhere. Blankfein summarized the culture as “an interesting blend of confidence and commitment to excellence, and an inbred insecurity that drives people to keep working.”⁵⁰ Although it seems he was talking about an insecurity that motivated people to keep working harder and longer, this inbred insecurity is a paradox.

Nostalgia

I do not want to wax nostalgically about the good old days. I did on occasion observe vice presidents and partners acting in a way that might not be considered in the best interests of clients, though those were exceptions to the rule. For example, I remember working with an associate on a project advising a company that was buying a small subsidiary of another company. The partner was extremely busy and traveling, and although we sent him our analysis and kept scheduling calls to speak to him, he always canceled our discussions. He showed up less than a few hours before our client meeting, and, based on his questions, it appeared as if he had not read anything we sent him and was not prepared. This surprised me, because usually partners were highly detail oriented and well prepared.

He asked us for our valuation analysis, the value of the synergies, and the price the seller wanted. The asking price was higher than our valuation analysis (a breakdown that is more art than science). Moreover, our estimates of the potential synergies (the cost savings and revenue enhancement resulting from the deal), which meaningfully impacted the value, were highly subjective. When we met with the client CEO, the Goldman partner claimed that he had “been poring over the numbers all day and night” and he thought that if the company could buy the business at X price (coincidentally, the asking price we’d told the partner), then it was a good deal for strategic reasons.

When he said this, the associate and I looked at each other and then looked down. I reasoned that he might have been poring over the numbers without my knowledge, or maybe he meant “the team” had been. The deal ultimately got done; Goldman was paid a fee; and the partner was right—it was a strategic success, and the synergies justified the price. But it was one of the few times when I was junior that I privately questioned the approach. As for the other junior associate, we never really discussed what the partner had said.⁵¹

A few times I questioned coworkers directly when I felt it was appropriate. For example, I was tangentially helping a team led by a vice president in selling a company, and when the final bids and contracts were due from all the potential buyers at the same time in a sort of sealed auction process, only one buyer submitted a bid, and the bid price was less than the amount our client was willing to sell for. It seemed to be a delicate situation, because we had little negotiating leverage to persuade the only potential buyer to pay more. Also, the bidder was a good client of Goldman’s. However, the vice president called the sole bidder and said, “We had a number of bids” and told the bidder that to win the auction, he would have to raise his bid.

I questioned him, and based on his facial expression and the tone of his response, I don’t think he appreciated my inquisitiveness. He pointed out to me that he had said “a number of bids,” and “in this instance, the number is one.”

Ultimately, the bidder raised his price and ended up buying the company. When the vice president told the client exactly what he had done and said, the client chuckled approvingly.⁵²

Then there are things I was uncomfortable with that I never raised through the proper channels—by speaking with vice presidents, partners, my big buddy, or my mentor, or by writing about the issues in “confidential and anonymous” reviews and surveys. Maybe it was because I didn’t trust the system or didn’t know how people would react. Maybe I was worried about developing a reputation as a tattletale or, worse, losing my job—something I couldn’t afford. Stories were quietly discussed and passed down—stories of people having challenged behavior or things said in confidence that got back to the wrong people, and then slowly and subtly those people would be “transitioned out.” Ironically, sometimes the guilty parties were characterized as not being team players or not embodying the culture when he or she left or was demoted. I was trying to figure out what was right and what was wrong—what was acceptable and what wasn’t—which, it seemed, wasn’t always black and white. In the story just related, the client seemed happy and the vice president didn’t “technically lie.” Technically, one could rationalize, we did put our client’s interests first.

But, as said, these examples were exceptions. The vast majority of the time that I worked in banking, the people with whom I worked did not rely on technicalities to determine what was right or wrong. I once joked to a friend that if someone found a nickel on the floor of the Goldman M&A department in 1992, he or she would go so far above and beyond what was required as to put up a “found” poster with a nickel taped to it, something that seems crazy anywhere, let alone on Wall Street. But in retrospect, “a number of bids” should have alerted me to the fact that there were multiple moralities or interpretations and that sometimes people might be obeying the letter of the law while violating its spirit, and rationalizing their behavior.⁵³

Old School

At its best, Goldman enjoyed a reputation for honesty, integrity, and unquestioned commitment to serving the best interests of its clients, and at the same time enjoyed superior financial results. Critical to the firm’s success were the principles and values, both codified and uncodified, intended to guide behavior, communicate the essence of the firm, and aid in the socialization of new employees, and a partnership culture that emphasized social cohesion and teamwork. Recruitment sought to bring in people perceived to share the values, and the meaning of “long-term greedy” was taught and practiced. Sharing information and getting input from others were important, as was the socialization that the firm was a part of you and your success.

In chapter 3, I discuss the importance of the partnership structure and explain how it supported financial interdependence and provided opportunities for productive debate and discussion—all of which also supported the Goldman culture.