What, According To Greg Smith, Was The Cause For The Change In Ethical Climate Within Goldman Sachs?

Op-Ed Contributor

Why I Am Leaving Goldman Sachs

March 14, 2012

TODAY is my final solar 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 hither long enough to sympathize the trajectory of its culture, its people and its identity. And I can honestly say that the environment now is every bit toxic and destructive as I have e'er seen it.

To put the problem in the simplest terms, the interests of the customer continue to be sidelined in the way the firm operates and thinks about making money. Goldman Sachs is 1 of the world'southward largest and most important investment banks and information technology is too integral to global finance to continue to act this mode. 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'due south success. It revolved effectually teamwork, integrity, a spirit of humility, and always doing right past our clients. The civilization was the secret sauce that fabricated this place great and allowed us to earn our clients' trust for 143 years. It wasn't merely about making money; this alone will not sustain a firm for so long. It had something to do with pride and belief in the system. I am distressing to say that I await around today and see well-nigh no trace of the civilisation that fabricated me love working for this firm for many years. I no longer have the pride, or the belief.

But this was non always the case. For more than than a decade I recruited and mentored candidates through our grueling interview process. I was selected every bit one of 10 people (out of a house of more than 30,000) to appear on our recruiting video, which is played on every college campus we visit around the globe. In 2006 I managed the summertime intern program in sales and trading in New York for the 80 higher students who made the cut, out of the thousands who applied.

I knew information technology was time to exit when I realized I could no longer wait students in the eye and tell them what a great place this was to work.

When the history books are written nearly Goldman Sachs, they may reverberate that the current chief executive officer, Lloyd C. Blankfein, and the president, Gary D. Cohn, lost hold of the business firm'south civilization on their lookout. I truly believe that this decline in the firm'southward moral cobweb represents the single nearly serious threat to its long-run survival.

Over the course of my career I take 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 well-nigh prominent sovereign wealth funds in the Middle East and Asia. My clients accept a total asset base of more than a trillion dollars. I have e'er taken a lot of pride in advising my clients to practise 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 go out.

How did nosotros get here? The firm inverse the way it thought about leadership. Leadership used to be about ideas, setting an example and doing the right thing. Today, if you make plenty money for the firm (and are not currently an ax murderer) yous will exist 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 nosotros are trying to get rid of because they are not seen every bit 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 merchandise whatever volition bring the biggest profit to Goldman. Telephone call me erstwhile-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 task is to trade any illiquid, opaque product with a 3-alphabetic character acronym.

Today, many of these leaders brandish a Goldman Sachs civilization caliber of exactly nix percent. I attend derivatives sales meetings where non 1 single infinitesimal is spent asking questions about how we can help clients. It's purely about how we can make the nigh possible money off of them. If you were an alien from Mars and sat in on 1 of these meetings, you would believe that a client's success or progress was not function of the thought process at all.

It makes me sick how callously people talk most ripping their clients off. Over the final 12 months I take seen v different managing directors refer to their own clients as "muppets," sometimes over internal electronic mail. Even after the S.East.C., Fabulous Fab, Abacus, God'south work, Carl Levin, Vampire Squids? No humility? I mean, come on. Integrity? It is eroding. I don't know of whatsoever illegal behavior, simply volition people push the envelope and pitch lucrative and complicated products to clients even if they are non the simplest investments or the ones most directly aligned with the client'south goals? Absolutely. Every twenty-four hours, in fact.

It astounds me how little senior management gets a basic truth: If clients don't trust y'all they will somewhen stop doing business with you. It doesn't matter how smart you lot are.

These days, the most common question I become from junior analysts well-nigh derivatives is, "How much money did we make off the customer?" Information technology bothers me every fourth dimension I hear information technology, because it is a clear reflection of what they are observing from their leaders about the way they should deport. Now project x years into the future: You lot don't take to be a rocket scientist to figure out that the inferior 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-yr analyst I didn't know where the bathroom was, or how to necktie 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 nosotros could do to assist them get there.

My proudest moments in life — getting a total scholarship to go from South Africa to Stanford Academy, being selected as a Rhodes Scholar national finalist, winning a bronze medal for table lawn 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 plenty near achievement. It just doesn't feel correct to me anymore.

I hope this can be a wake-upwardly call to the lath of directors. Brand the customer the focal indicate of your business again. Without clients you volition 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 civilisation correct once again, and so people want to piece of work here for the correct reasons. People who care only about making coin will not sustain this firm — or the trust of its clients — for very much longer.