What Happened to Goldman Sachs. Steven G. Mandis
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STEVEN G. MANDIS
WHAT
An Insider’s Story
HAPPENED
of Organizational Drift
TO
and its
GOLDMAN
Unintended Consequences
SACHS?
Harvard Business Review Press
Boston, Massachusetts
Copyright 2013 Harvard Business School Publishing
All rights reserved
The views and opinions expressed in this book are strictly those of the author and do not necessarily reflect those of any organization with which the author has been or is affiliated. The contents of this book have not been approved by any organization with which the author has been or is affiliated. Analyses performed within this book are based on theories, are only examples, and reply upon very limited and dated information and require various and subjective assumptions, interpretations, and judgments. The author’s opinions are based upon information he considers reliable; however, it may be inaccurate or may have been misinterpreted. The reader should not treat any opinion expressed in this book as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of the author’s opinion.
No part of this publication may be reproduced, stored in or introduced into a retrieval system, or transmitted, in any form, or by any means (electronic, mechanical, photocopying, recording, or otherwise), without the prior permission of the publisher. Requests for permission should be directed to [email protected], or mailed to Permissions, Harvard Business School Publishing, 60 Harvard Way, Boston, Massachusetts 02163.
Library of Congress Cataloging-in-Publication Data
Mandis, Steven G.
What happened to Goldman Sachs: an insider’s story of organizational drift and its unintended consequences/Steven G. Mandis.
pages. cm
ISBN 978-1-4221-9419-5 (hardback)
1. Goldman, Sachs & Co. 2. Investment banking—United States—Management.
3. Corporate governance—United States. 4. Global Financial Crisis, 2008–2009. I. Title.
HG4930.5.M36 2013
332.660973—dc23
201301870
The web addresses referenced in this book were live and correct at the time of the book’s publication but may be subject to change.
ISBN: 9781422194195
eISBN: 9781422194201
This book is dedicated to my devoted wife, Alexandra, and my two loving
daughters, Tatiana and Isabella. They were my cheerleaders through many
long days and nights of working, studying, and writing.
I would also like to thank my parents, George and Theoni, who immigrated
to America from Greece with very little money and no knowledge of English.
They quietly sacrificed so that my brother Dean, my sister Vivian, and I
could have a better life. They taught us the meaning of values and hard work
as well as the power of the combination of these two qualities. They asked
for only one thing in return—for us to strive to give our children more opportunities
than they had been able to give us.
Contents
Prologue: A Funeral
1. What Happened
PART ONE
How Goldman Succeeded
2. Shared Principles and Values
3. The Structure of the Partnership
PART TWO
Drift
4. Under Pressure, Goldman Grows Quickly and Goes Public
5. Signs of Organizational Drift
PART THREE
Acceleration of Drift
6. The Consequences of Going Public
7. From Principles to a Legal Standard
PART FOUR
Goldman’s Performance
8. Nagging Questions: Leadership, Crisis, and Clients
9. Why Doesn’t Goldman See the Change?
Conclusion: Lessons
Appendix A: Goldman and Organizational Drift
Appendix B: Analytical Framework Applied to Goldman
Appendix C: Selected Goldman Employees and Lobbyists with Government Positions (Before or After Goldman)
Appendix D: Value of Partners’ Shares at IPO
Appendix E: Goldman’s History of Commitment to Public Service
Appendix F: Key Goldman People
Appendix G: Goldman Timeline of Selected Events
Appendix H: Goldman’s Culture and Governance Structure
Notes
Acknowledgments
About the Author
Prologue
A Funeral
ON SEPTEMBER 25, 2006, I FILED INTO THE MEMORIAL service for John L. Weinberg, senior partner of Goldman Sachs from 1976 to 1990. More than a thousand people filled Gotham Hall in New York to pay their respects. John L. (as he was often referred to within Goldman, to distinguish him from other Johns at the firm) was the product of Princeton and Harvard Business School and the son of one of the most powerful Wall Street bankers, Sidney Weinberg, who had literally worked his way up from janitor to senior partner of Goldman and who had served as a confidant to presidents.
The program listed a Goldman honor roll of those who would speak, including Lloyd Blankfein, the firm’s current chairman and CEO; John Whitehead, who had run the firm with John L.—the two of them were known as “the Johns”—and who had left Goldman in 1985 to serve as deputy secretary of state; Robert Rubin, who had gone from co-senior partner in the early 1990s to secretary of the Treasury; Hank Paulson, who had run Goldman when it went public on the New York Stock Exchange (NYSE) in 1999 and had just become secretary of the Treasury; John S. Weinberg, John L.’s son and current vice chairman of Goldman; and Jack Welch, former chairman and CEO of General Electric and a long-standing client of John L.’s.
Welch’s eulogy stood out. His voice cracking, holding back tears, he said, “I love you, John. Thanks for being my friend.” Imagine a CEO today saying that about his investment banker and almost breaking down at the banker’s memorial service.
John S. tried to lighten the mood with a funny line: “My father’s favorite thing in life was talking to his dogs, because they didn’t talk back.” But he caught the essence of John L. when he said, “He saw right and wrong clearly, with no shades of gray.” John L. was a veteran, having served in the US Marine Corps in both World War II and Korea, and the recessional was the “Marine Hymn.” The lyrics “keep our honor clean” and “proud to serve” seemed to provide a perfect end to the service.
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