“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.”
GREG SMITH, New York Times (March 14, 2012)
There are resignation letters, and then there are resignation letters.
Greg Smith got his published as an op-ed in the New York Times and International Herald Tribune. Mr Smith, executive director and head of Goldman Sachs’ US equity derivatives business in Europe, the Middle East and Africa, quit spectacularly. He made very public accusations about the state of his former employer, which, in the social media era, soon traversed the world.
Now this, folks, was not the sort of letter by a disgruntled employee that we are used to in this part of the world. This came across as a deeply felt, acutely observed, poignant missive. And it hit its mark.
Goldman Sachs would probably qualify as one of the world’s most mistrusted organizations right now. It has faced accusations of unethical practice repeatedly, from its role in the global financial meltdown of 2008, to its questionable role in mergers and in selling instruments to clients that seemed designed to fail. Many observers feel the company only gets away with it because its influence extends deep into the corridors of power.
This, however, is the first blow struck from within. Mr Smith did not mince his words. Try this for size: “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.” Or this: “I truly believe that this decline in the firm’s moral fiber represents the single most serious threat to its long-run survival.”
What could hurt Goldman most is the allegation that firm has stopped caring about its clients, and is interested only in maximizing its take in every transaction. Mr Smith alleges: “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.”
Now that one will hurt. Customers of the venerable firm are going to take note of those words, and will undoubtedly review their options. At the very least, the “muppets” will examine every deal curated by Goldman henceforth with a beady eye. Watch this space – Mr Smith’s letter is going to have repercussions.
I have written on this page many times that the time for being merely “shrewd” in business is over. Serious businesses are going to have to choose wisdom over trickery. You have to go beyond mere maximization of profit on every deal, and start to think deeply about long-lived, shared value that nurtures a whole ecosystem, not just a few shareholders. It is astonishing that this point is lost on what was one of the world’s most prestigious institutions.
Mr Smith says he intended his public letter to be a wake-up call to the Goldman board of directors. I suspect they’re wide awake now.