Goldman has a kind of hilarious understated response, in which they note that this guy was a VP (there are thousands of VPs at Goldman) and that the group he managed consisted of him and him alone. Plus, this was a bad year for bonuses. Nothing like a slow career and a dwindling bank account to make you aware of how morally imperative it is that you switch careers!
The people I know at Goldman are generally bright and hard-working. The ones who perform agency work seem to serve the interests of their clients; the ones who are closer to proprietary traders tend to advance the interests of Goldman. There are some products for which it's very hard to have a pure agency relationship, though; the best way to keep them liquid is to trade with someone who is taking the other side of your trade.
I'd keep that kind of thing in mind when reading a story like this. It's asymmetric warfare: he has nothing to lose by talking about how bad Goldman is, but if Goldman talks back, they're a) dignifying a silly story, and b) creating an opportunity for irresponsible folk like Taibbi to willfully misinterpret them.
This article is the table tennis bronze medal of moral outrage.
According to the NYTimes byline, he is a "Goldman Sachs executive director and head of the firm’s United States equity derivatives business in Europe, the Middle East and Africa."
That doesn't sound like a lowly VP.
It's rubbish that he has nothing to lose: coming out so publicly against your former employer never looks good on a resume. And Goldman can respond in the tradition of politicians facing similar stories: by using surrogates.
VP in IB doesn't map to VP in any other industry I've seen. The (many, many) titles become more confusing when employees refer to Managing Directors (highest rank) as MDs, as if that wasn't overloaded. ("gonna see my MD today...")
Managing $1T in client assets doesn't sound like a job for a lowly VP. Your comment is mostly an ad-hominem attack against the author because he may or may not have received a smaller bonus this year.
The article is all about the hominem. He says he left because of how he felt. It's entirely appropriate to ask if there might be other feelings involved.
As another reply points out, he didn't manage that much money. Goldman had clients who managed that much money, and he apparently handled equity derivatives for those clients.
I once worked at a company that worked on an internal web app for one of the largest advertisers in the world, but that doesn't mean I "ran advertising for clients with a multi-billion dollar marketing spend."
To be clear, I can sympathize with someone who used to be in the business of working as an agent for his clients, and who is now in the business of executing the same transactions but taking the opposite side and then hedging his risk. I just don't think moral outrage is the right response to a change in the macro situation. One could argue that while financial markets got more sophisticated, Goldman Sachs coincidentally got evil, but I think it's more likely that markets evolved, Goldman evolved with them, he didn't evolve with Goldman, and he took it personally.
Fair point, but I'll note that Mr. Smith didn't manage $1T, rather he had clients who had an asset base at that level. That could mean "manage" but could also mean "I have spoken to people who manage."
I agree that the Goldman response is funny, but that is not enough to dismiss the claims in the OP.
Several times now there have been internal documents and emails released that verify not only that there are people in GS that really are not looking out for their clients, but this was a fundamental strategy when it came to at least some of the derivatives they were selling, knowing that they were shit deals.
Sure, the argument can be made that it's just a 'few bad eggs,' but that argument just gets you so far.
Now, it's not out of the realm of possibility that that some of these things are taken out of context. In IT, it's pretty common to vent concerning some... difficult customers.
I think it's fair to say that you're right that some good people work there. Conceding that, I would like to see more by GS to address some of these other things.
I thought this guy was an "executive director"? I think a lowly VP writing something like this wouldn't make nearly the splash he is making right now.
A story like this is a nightmare to GS though. They've always prided themselves on valuing their reputation above all else and this is yet another shot to what they want to be seen as. However, it is important to realize that the public's perception of GS is different than their customers' perception. They were #2 in the league tables for M&A last year and their long time clients haven't shied away from using their services.
even if he was executive director, still not senior, more midlevel.
hierarchy is - management committee > partner managing director > managing director > executive director > vice president > associate > analyst
managing director is where you would be running a business, sort of like making general in the army, there are about 1700 of them. And the partners are the true senior managers and where real authority in the firm starts. Title inflation FTW.
He might have trouble eating lunch in this town without changing his name LOL. Best bet might be to write and try to be the next Michael Lewis (Liar's Poker, Moneyball, The Blind Side, contributes to Bloomberg and Vanity Fair, didn't turn out too bad for him.)
d'oh! thanks - will fix. Lewis screwed up a few people's names in Liar's Poker and I always thought it reflected that he was more interested in a good story than facts, so it was kind of ironic I did same.
He got on the list the money he gave NYT the go-ahead to publish that article, and he knew he would perfectly well. Next week you'll hear about his new gig as an executive at a non-for-profit.
When Goldman doled out annual bonuses earlier this year, Mr. Smith's small payment became a point of friction, according to people familiar with the matter. Mr. Smith hadn't previously voiced his concerns about Goldman to his managers, according to people familiar with the matter.
Occam's Razor says that the NYT was masterfully trolled.
I don't really know what he's thinking. But it is interesting that he was fine with the culture during most of his career, then not-fine with the culture after he found out how much money he'd be making in the future. There are many boutique banks whose management shares his sentiments, in the sense that they believe big banks are too self-serving and too indifferent to their clients. Some of those banks do very well, and it wouldn't be terrible for their PR to hire him.
Do you know anyone who pays people for saying stuff like this on random message boards? I tend to say this kind of thing because I think it's true, and because I'm unimpressed with the quality of opposing arguments and would like someone to refute me. But if I can get paid while I'm at it, that's even better! I don't think the economics really work out, though.
Some of those banks do very well, and it wouldn't be terrible for their PR to hire him.
Possible, but unlikely.
Smith must have known he'd be attacked personally (as in that ad hominem piece you posted), and it's unlikely another bank would want to touch him, regardless of their true feelings towards Goldman.
Do you know anyone who pays people for saying stuff like this on random message boards?
I tend to say this kind of thing because I think it's true, and because I'm unimpressed with the quality of opposing arguments and would like someone to refute me.
I'll give you credit for the latter (if it's true), but not the former.
Yeah, that reddit IAmA post is not very convincing. Considering it attempts to confirm every single /r/politics stereotype about the evil Koch Industries, I'm inclined to believe guilty_of_innocence's theory that it's a fake and a troll.
I have often wondered, though, about his alacrity to side with the establishment, in defense of investment bankers, against net neutrality, etc., and what his motivation is.
Can you imagine yourself paying someone to smear others on a forum? What if you really believed in your own cause? What if it cost you a trivial proportion of your buckets of money, and if you had legions of lawyers able to write terrifying NDAs? What if you had a history of being unscrupulous in countless other contexts?
What if all it took to "solve the problem" were a few choice words said to the right person?
This kind of smearing is almost certainly happening all over the place because there is tons of motive, tons of opportunity, and many people with a habit of being unscrupulous.
He could be doubling down. Sorta like they did on Mad Men after losing the tobacco contract.
He figures finance is dead as a way to make people wealthy, so he's setting himself up for a career change into criticism of the financial industry, which looks like it's a booming business.
Michael Lewis ended his career in finance by writing Liar's Poker. But he jump-started a successful career as an author and journalist. Something tells me he's doing better than he ever could have in his old career.
Or does Occam's Razor say that Goldman used their surrogates at the WSJ to propagate a phony story aimed at undermining his credibility. Actually, I don't see old Occam making any sort of obvious call here.
It's interesting how the tone of this article is almost exactly the same as the one about the Microsoft employee that recently quit Google.
Something happens to companies as they get larger, where the culture of a company starts dying from a death-by-a-thousand-cuts, and then they start promoting the wrong people into upper management that seem to really poison a very good company culture. It sounds like Goldman Sachs is one of these companies.
The irony is that I think the shift in mentality came from Wall Street itself pushing the idea of "maximizing shareholder value", in the 80s. This lead to a bunch of financially positive but culturally negative (some would say sociopathic) decisions, such as closing plants that were profitable, but weren't profitable enough. I think Michael Moore had a movie on this called "The Big One".
Forbes has an article on this, calling it "The Dumbest Idea in the World":
I read the biography on Goldman Sachs, and I don't doubt for one second that there was a historic culture that most of the employees were fiercely proud of. But as the author mentioned, a few mistaken promotions into power and the whole culture of a company can change through death by a thousand cuts. No doubt the same thing is happening at all large companies that started off with great roots. I saw this occur at Yahoo, where completely idiotic decisions were made in order to preserve revenues so that managers' bonuses were left in tact.
Is this something that can be avoided? I'm not sure... corporate culture starts at the top and works its way down. It's something that must be demonstrated by the leaders of the company at every level, and it filters down to the lowest ranks. So if you have a company with strong leadership, then I think it can be staved off for a while, but it requires a relentless focus.
> Something happens to companies as they get larger...
I think promotion happens. When you're a fresh grad right out-of-college and the Managing Director says "client is our #1 priority", you take it to heart. That's your new mantra now. Nine years later, when the same Director, now promoted to the Board says the same line, you groan inside because you know exactly how often he calls his clients muppets. Slowly you begin to feel that the company is no longer the same wonderful, inspirational place of work that you signed up for.
Positions of power at any company, non-profit, government, or political organizations are not filled with do-gooders who want to give everyone a hug. They are filled with thick-skinned, ambitious, practical people who have learnt to say the right things at the right time. So if you're a junior exec., you will hear inspirational BS. As you join their ranks, you will hear their real thoughts. If the latter disgust you, it clearly means you aren't fit to join their ranks, not because of any lack of skills on your part but rather the difference in how you view the world.
To me all these execs leaving companies and saying "it's so different now" just means they all grew up and realized they didn't like what they signed up for. It's no different than couples splitting because "we grew apart." I highly recommend people quitting if things aren't working out ( http://chir.ag/200804242130 ) but I do not recommend airing out the dirty laundry, especially when no laws were broken because you're just scaring off the next company you intend to work for.
None of my above comments were in reference to anything at GS/Google/MS specifically. Facebook will start charging for integration some day too and some Dropbox exec will joke in company meetings about all the stupid people who save personal photos on their servers. People are people and companies are companies.
I agree with your point that part of the cause is getting more senior and actually watching the lies. But I don't accept that we should condone that behavior.
Full disclosure: I left Micosoft last year after I long debated the trade offs of starting my career over. I was a "top performer" and Microsoft makes a point of telling the many people like me to stick around for all sorts of reasons. Deferred compensation. Trajectory. Influence. Etc.
But then I actually got into the VP's circle and didn't like what I saw. This smooth-talking, confident leader within Office was some kind of sociopath. He and his comrades snickered after a middle manager announced he would put the blame on someone for failing to deliver a major feature. I was confused when it happened. Like one big inside joke, that would be my initiation.
This feature was promised three years ago to the previous President of the division, and it turned out to be a top priority for the incoming president. Well, the middle manager miscalculated and let it slip. We've all done this to some degree-- answer an email late, forget to deliver on a request -- it's part of being an engineer working with people. But the middle manager had done it at a big scale and was wrong.
Rather than admit it because that would end his career (as I'll explain in a minute), he threw someone else under the bus. He asked this senior PM to take the project over. Rather than give her support, he decided to undermine her. He had people give copious amounts of negative feedback on her specs, held back people from working with her, and lied about progress to management. He was setting her up to fail so he could swoop in and deliver it after she failed without the wrath of being late. We've all seen managers excuse being late because of low performers. The VP and his manager needed to construct a low performer. And all he had to do was signal to the herd to stay away from her with all the negative feedback.
The hell they put her through so they could save their asses. And the fucking snicker. She was a warm, smart, expert in this feature and had she been allowed to work she would have outdone the middle manager. But the middle manager was ambitious. And the VP seemed to like watching people destroy their lives. And he liked loyalty. He knew if he could get dirt on his managers he would keep them for a long time.
I try to be a good person. I try to be honest. I try to stand up for people. But I couldn't help her. For a year I gave as much moral support as I could without the inner circle knowing. But the politics were too thick and toxic to touch. I watched her nervous breakdown. And then I knew I had to leave. Maybe it really was this one bad team. But this was the rising star VP. If this is how he succeeded then the others VPs would have to eventually. And the middle manager was his replacement.
So, I got a different job. I took 3 months to travel in Europe to wash off the filth. And I checked in with my friend, and am pleased to hear that she has landed on her feet and is doing much better. At my current job the people argue about -- gasp -- the customer. What a difference.
But I am still angry that evil people -- the VP, the middle managers -- are allowed to continue. I don't agree we're supposed to be quiet. Food critics used to be afraid of giving bad reviews because they wouldn't be allowed to keep their jobs (in local markets unless you were someone politics would prevail). Now we have Yelp. Really bad restaurants should have a hard time of hiding. I wish there was something like that for managers and companies without blowback. I wish there was a way to give feedback on LinkedIn. The middle manager's profile is really funny to read. Apparently he runs all of big data at Microsoft. From Office. As a middle manager.
Anyway, my point is there is opportunity to expose evil people and good people in their careers. We should find a way to do it safely. People should have an incentive to be good.
"Now we have Yelp. Really bad restaurants should have a hard time of hiding. I wish there was something like that for managers and companies without blowback. I wish there was a way to give feedback on LinkedIn."
We are working on this very issue right now -www.feedbackninja.com - coming soon!
> I try to be a good person. I try to be honest. I try to stand up for people. But I couldn't help her. For a year I gave as much moral support as I could without the inner circle knowing. But the politics were too thick and toxic to touch.
You "could not" help her? That's not exactly true, is it? It's just that if you had, there would have been negative consequences for yourself, and so, you didn't.
> You "could not" help her? That's not exactly true, is it? It's just that if you had, there would have been negative consequences for yourself, and so, you didn't.
I think the question isn't so much whether he could have tried to help her, as whether it would have done any good. The end result might well have been no improvement in her situation and a drastic worsening of his. In other words, negative consequences for him without any compensating positive consequences for her. In that situation, I'm not sure I would see much point in openly intervening.
Perhaps the positive consequence could be the simple matter of having done something because it is right.
Perhaps he could look back on that period of time and reflect that, rather than watch it happen, he took action. Even if it accomplished nothing, he could at least say "I saw something wrong and I worked to right it."
What can he say now? "I saw something wrong, watched it happen, and vacationed in Europe until I felt better."
One of these is morally praiseworthy. The other is not.
There is a lot of gray with this story. One IC vs many middle managers and a VP will never turn out well for the IC, especially at Microsoft. I don't know what I could have done. To whom would I have sounded the alarm?
What I did: "I told my manager," "realized it's a systemic problem," "I was a friend to someone who needed one," "I helped her leave and get her next job," and "I quit."
I made lemonade and enjoyed time in Europe. But I don't think there was a choice to fight.
I'd say helping her leave and get her next job was the best thing you could have done for her.
Even if someone had solved this particular crisis, it sounds like she wasn't going to thrive in this political environment anyway. At that point, leaving is the best choice and, all too often, people don't see that.
Predatory loan usually refers to taking advantage of someone who doesn't know what they are getting themselves into. Are you saying that Greece lacks the financial knowledge to understand what they are signing?
It might be that things never change and all attempts to bring back the good ol' culture are just reactionary, but that doesn't mean people shouldn't speak up when they feel disgusted by what's going on around them.
Fear(s) motivate(s) people pretty well to do just about anything, including to keep silent (as you recommend), but I'm glad that people are brave enough, or stupid enough, to say what they think is right, even in the face of such fears. It might also turn out that the people who agree with the dissenters outnumber the powerful incumbents who they oppose.
It's called being wet behind the ears. Most people in that situation simply don't realize how much they don't know. And guess what you aren't going to be able to read about it and know either. You will find it out through life experience.
The upside is you aren't jaded and you will try things that older people will avoid because of their wisdom and experience.
That Forbes article is a great one. Personally I think now that the cat is out of the bag, we should start to see things changing at the executive level (though it's going to take years).
For a long time, many of us have speculated that CEOs were overpaid but suggesting this was met with claims of being "anti-capitalist" and other such nonsense. Now thanks to the Forbes article and the book it's talking about, we can demonstrate that CEOs are * clearly* overpaid. Their own pay has gone up, while company performance per salary dollar has gone down. Meanwhile the rest of us produce vastly more than, say, 20 years ago, yet wages remain mostly flat.
Could you define what you mean by "overpaid"? Is it merely a complaint that CEOs are paid more than you wish they were, or something else?
Meanwhile the rest of us produce vastly more than, say, 20 years ago, yet wages remain mostly flat.
This claim betrays a misunderstanding of how productivity is measured, and how workers are compensated for their productivity (i.e., comp is wages + benefits, not wages).
And productivity can easily go up due to factors unrelated to workers. E.g., if a company replaces workers with robots, the measured productivity (total production / # of employees) of the remainder will go up. Is this a reason to increase their pay?
Yeah, except he didn't say compensation was flat. He said wages were flat. The fact that we have a higher percentage of our compensation tied up in the skyrocketing cost of health care only underscores his point.
I wasn't disagreeing that CPI-adjusted wages are flat, I was pointing out that there is no reason for CPI-adjusted wages to be related to productivity.
Wages are related to creation of value, which itself is related to productivity. By what logic would productivity go through the roof but CEOs realize the gains of it?
You can try to claim that's simply the market value of getting a CEO, but this doesn't hold up: CEO salary-to-revenue has decreased. We're paying more and getting worse performance. Further, your argument depends on efficient markets which don't pass the common sense test and has been shown to be an N!=NP problem.
You find productivity goes up due to robots, who should get the higher pay? The CEO? If so, why? Or should prices be lowered? It is completely disingenuous to argue over on "deserves" economic surplus, the whole point is that surplus is in excess of everyone's contribution, so social and power factors come into the forefront in determining the distribution.
I already did. We can now prove that revenue has actually decreased per dollar paid to a CEO. One might say that that that is because salaries have gone up, but for everyone else wages have stayed mostly flat. So by what possible logic would CEOs now make more money for accomplishing less? And why wouldn't these same factors apply to anyone else?
>This claim betrays a misunderstanding of how productivity is measured
I understand the theories of how it's supposed to work just fine, thank you. In theory, if I can accomplish more than those before me I should make more because I'm creating more value. In my career I've made an uncountable number of jobs unnecessary through automation. But did I capture any of this productivity boost? No, the executives took it all.
The system is broken because CEOs have been gaming it ever since this idiotic "Shareholder value" focus came about. Everyone has known this deep down for years and now we're finally starting to prove it concretely. To me it's going to be funny watching so-called "experts" explain why they spent decades preaching nonsense about CEO pay being correct as it's systematically shown to be a product of system exploitation.
EconTalk interviewed Kaplan about this very subject. His research shows that CEO's pay has _not_ risen faster than any other "highly skilled labor", such as doctors, lawyers, etc. If you listen to the podcast, it is a very convincing set of data backing up his conclusion.
Instead, hedge fund managers are the ones that have absolutely rocketed out of the stratosphere in terms of inflating pay.
I'm afraid you've been tricked. CEOs used to make 40-70 times as much as the average worker. Now it can be hundreds of times. All the while, revenue per dollar of CEO salary has gone down. The cat is out of the bag. Everyone who defends the status quot in regards to CEO pay is either benefiting from it (and wishes to continue) of suffering from Stockholm syndrome.
We can now prove that revenue has actually decreased per dollar paid to a CEO...CEOs now make more money for accomplishing less?
Your metric is a ratio and it does not prove that CEO's accomplish less.
For example, suppose a CEO doubles revenues (did you mean profit?) from $1B to $2B and their pay increases from $10M to $30M. They have accomplished more, but revenue/pay has gone down.
In my career I've made an uncountable number of jobs unnecessary through automation. But did I capture any of this productivity boost?
Most likely. Pay for programmers has skyrocketed, unlike pay for ordinary workers.
Besides, the productivity of the few people you failed to replace has also gone up. If you make 8/10 jobs redundant, should the pay of the remaining 2 increase commensurately with their drastically increased productivity?
It's a little hyperbolic to compare Goldman Sachs culture to Google culture. Little has changed as far as I can tell about Google culture internally. People still care about the same things, management for the most part, still cares about the same things, and all of these public assertions that G+ is an all consuming diversion to the detriment of everything else is a gross hyperbole.
Googlers are not sitting around making fun of their users, joking about them, giving them funny nicknames.
With these types of rants, it is hard to derive truth from fiction. Once a narrative is set up, everyone starts to keep feeding into it. It's easy to believe the worst about Goldman, so everything said "fits" and makes it believable. My own biases make it more likely to believe in stories of greedy people selling snake oil.
Still, one should be skeptical and avoid piling on.
> Something happens to companies as they get larger
They went public. My gf is a senior manager at GS (200+ drones in her department). When the company went public the partners could easily cash out. Without as much skin in the game, they could squeeze as much profit (aka bonus) from GS without worrying about the long-term viability. Also, hedge funds are now a more lucrative place to work for many people. So if GS doesn't pay, then a hedge fund will. Another thing is that prop trading made vastly more money than IBanking for the last decade, which changed who got promoted and rewarded. Finally, the company grew very rapidly in the last 10 years and much of it's culture got diluted with all the new people. It's not a bad place, it's just a normal IBank now.
I agree that going public hurts companies but not because the partners/founders can cash out. At least in the tech world once a company reaches a certain size, it seems as though founders can liquidate a large portion of their stock pre-IPO; Mark Zuckerberg doesn't need to worry about Facebook's IPO in order to get rich. Rather, I feel that having a somewhat-arbitrary, short-term indicator in the form of stock price is what hurts public companies and their culture much more than the loss of its leaders.
What you say is IMO correct. But, I think there is something more fundamental. A company cannot function to full potential when beholden to 2 masters - customer and investor - with opposing needs. The customer wants the best product/service possible; the investor wants the maximum ROI.
I think your last paragraph aptly explains it all. A fish rots from the head down. If we take a broad and intangible concept like "culture" and reduce it to its mechanical workings, we see that it's usually the net result of everyone's incentives. If people at the top are setting perverse incentives, then their lieutenants will meet those incentives, and on down to their lieutenants, and so forth. Those at the bottom of the ladder will model the behaviors of those they're seeing get ahead. And one day, when they're moving up, they'll carry out the behaviors they've been conditioned to exhibit.
The other tricky thing about culture is that it's a lot like trust: very hard to earn, very easy to squander. Once lost, it's difficult -- sometimes impossible -- to recover.
"Something happens to companies as they get larger, where the culture of a company starts dying from a death-by-a-thousand-cuts, ..."
Goldman (or Google) is no where near death. But Goldman is still in crisis mode. The primary focus now is profit margin. making money for you and your clients isn't the point any longer. It's your position that matters. But Goldman, used to award your bonus not just based on your position. They used to survey your clients. And their opinion mattered. Not sure if they still do this. I haven't worked in Wall Street since 1996.
And Goldman isn't the only firm in this position, by the way.
And Google is sort of in the same place. FB scares the hell out of them. And instead of innovating (and taking risks) they copy.
Google and Goldman are blinded now. They can't see beyond their own models.
I would strongly advise reading Machiavelli's Discourses on Livy on the subject of emergent culture in sovereign institutions.
These companies are small empires in their own right, creating a lasting and prosperous empire is an monumental undertaking where chasing fads has little effect.
In business circles I find Bosch and IBM to be prime examples of quality in this regard.
Goldman survived for 140 years without promotion problems. My personal theory is these problems - corporate profit before clients, short-term gains, lack of long-term vision - is a symptom of our current culture and, more broadly, the shifting information landscape. 100 years ago, few people even knew what the DOW index was, let alone followed it daily.
Funnily enough, the Dow was a relatively unimportant indicator until the Great Depression, when the media seized upon it as something to watch on a daily basis. It was originally intended not to be checked more than a few times a month, and only as a brief snapshot of the economy.
It's importance in popular media and culture is vastly overblown. The rising and falling of the Dow on a daily basis is basically worthless from an economic point of view - it's just noise.
"financially positive but culturally negative (some would say sociopathic) decisions, such as closing plants that were profitable, but weren't profitable enough."
This is something that is inherent in a certain type of investor and Wall Street and you see it in YC as well as VC firms and (startup) angel investors.
While you might be able to get a local businessman on Main st. to believe in your idea which is profitable (but not sexy and not "billion dollar") that will probably make both of you money, you won't get anyone in the de facto startup community to take you seriously. They won't give you money unless you are shooting for the stars.
"It's interesting how the tone of this article is almost exactly the same as the one about the Microsoft employee that recently quit Google."
An interesting difference, though, is the Goldman-Sachs employee sees a problem with focusing on short-term gains, while the Google employee sees a mistake in a long-term bet (that Google can compete successfully with Facebook in the social realm).
I keep thinking about this article and the recent Google one as well. And I wonder, is this sort of moral decay necessarily part of the current corporate world? Is it possible, over the long run, to have a tech firm, or any other firm, that empowers employees to do what is best for everyone and to hell with the rules? Or is this merely a matter of a few good leaders who get it, and everyone else eventually overcoming them?
When I worked at Microsoft in Product Support Services, our general director "got it" and encouraged us to break any rule if it helped the customer out, so long as we did so reasonably responsibly, something I took him up on to the point it seriously annoyed my direct manager. He left, and the group I worked with ended up getting shipped off to India. And given more recent discussions with Microsoft customer service, the question of "how do we deliver quality customer service" has become far less important.
I guess my musings lead me to the thinking that being good requires a level of confidence that is easy to lose as an organization, and that as it is lost, the organization can turn toxic fast. But we can't succeed all the time. We will face huge challenges. So how do we resist the urge to turn and focus only on the immediate challenge, whether a competitor or the bottom line?
Currently work at Google, obviously speaking for myself and not my employer.
In my experience - yes, this moral decay is a necessary part of the current corporate world. Or any corporate world. Or really, any world without the possibility of failure baked into it.
I've seen a lot of idiotic decisions made at Google, many of which have been complained about on Hacker News, many more of which are hidden causes of things that are complained about on Hacker News. In every case, when I looked at the chain of decisions that led to things being the way they are, every single decision was rational, given the information that all participants had at the time. There's no vast conspiracy dedicated to turning Google evil, no influx of incompetent new PMs & designers. Some of the most questionable decisions have come straight from old timers like Marissa, or even from Larry Page.
Instead, it's an information problem. Running any enterprise the size of Google or Goldman Sachs requires trading off many competing factors. To make the tradeoff, someone has to keep all that information in their head at once. There's no other way to balance competing demands; if you keep only part of the information in your head, your decision will be biased towards the part that you've loaded into your brain. If you try to spread decision making across multiple people, the decisions will be biased towards the part that the person who screams the loudest can hold in his head (which is usually a smaller subset than optimal; it takes mental effort to scream loudly).
I often see mystified posters on HN wondering why Google did something or other, and a good amount of the time, I know (but can't say) exactly why we did it. The userbase does not have all the information. Unfortunately, they don't care that they don't have all the information; they want Google to work as expected, and the fact that there may be internal systems that don't quite behave according to their mental model is irrelevant. And so the fact that decision makers make decisions based on information that users can't have becomes a liability in this case, biasing them away from what's "good" for the user.
I remember Paul Buchheit writing here, several years ago, "A system's participants don't have to be rational for the system itself to be rational", referring to market economies. I'd posit that the inverse also holds: a system with completely rational participants can still be irrational, if information flow between participants is not organized in a rational way.
I really think that you're completely missing the point in defending Google and maybe Goldman Sachs by saying that their decisions are ok because they are made rationally.
Rationality is emotionless and mechanical. It's about making a reasonable decision based on whatever information is available to you. However, rational decisions do not involve morals, culture, or feelings. This is exactly what companies like Google and Goldman Sachs are being criticized for.
When game theory is baked into your corporate culture, this is what you get. The company starts an inevitable slide from "Do No Evil" into "Make the Best Decision You Can With the Information You Have".
If I look down into my wallet and see no money there, and I'm hungry for lunch, and I decide to steal some money from a little old lady, that may be a perfectly rational decision to make. An outside observer may say I'm being evil, but they don't have a complete information picture about how hungry I am, or how long the line at the ATM is, or that everyone else is eating lunch so I have a duty to my shareholders to do the same.
Rationality doesn't necessarily exclude "morals, culture, or feelings". That would imply that having a rational discussion about culture, e.g. anthropology, is impossible.
Gus Levy, a former senior Goldman partner, coined the firm's then philosophy of being "long-term greedy". Taking image, "headline risk" in finance parlance, impact on recruiting, etc. into account is part of rational decision making.
What makes a seemingly terrible decision rational is usually that the time-frame invoked is too short. If a decision looks rational in the long-term but conflicts with our value system it generally means that our value system needs to be re-evaluated.
>Rationality doesn't necessarily exclude "morals, culture, or feelings". That would imply that having a rational discussion about culture, e.g. anthropology, is impossible.
No I am not implying that the process of making rational decisions has anything to do with the process for holding rational discussions about stuff (the stuff may be rational or not).
Rationality can serve whatever values you have. You can rationally optimize the amount of love, happiness, and fuzzy puppies in the world if you want to. You can also rationally strive to keep a company efficient and non-evil. But the bigger it gets, the harder that gets, modulo economies of scale.
Agreed. At certain scales, it no longer makes sense to give primary mover status to humans within institutions. It is important to realize that there are several mechanisms within institutions that alter the values they serve. It makes more sense to treat them as black boxes and reason about outcomes rather than intentions.
> If I look down into my wallet and see no money there, and I'm hungry for lunch, and I decide to steal some money from a little old lady, that may be a perfectly rational decision to make.
And that reasoning is the very definition of the term unethical.
Rational decisions correctly apply information and resources to optimize values that the decider cares about. (meta level: you can also be rational in deciding how much effort to allocate to MAKING a particular decision - deliberating or gathering more info).
Those values can include morals, culture, and feelings.
You miss the point, which is that good intentions are not transitive. It it not enough that a series of acts be individually kind. The interfaces between the acts must provide end-to-end kindness, or the results may well be ghastly. In giant projects this is a hard problem to deal with.
Most decisions are made under incomplete information. So the principles that guide you in uncertainty are very important. I think it's quite rational to select principles that guide you well even under uncertainty, even if their immediate conclusions don't seem maximizing. Likewise it's rational to use principles that will be comprehensible to those observing you, so they can predict your behavior and retain trust in your decisions.
To the parent post question, of avoiding deterioration of institutional culture from such principles there are two answers. Best is to align corporate equity interests with long-term interests, which are generally customer interests. That generally means not going public, as stock market attention to short-term interests is a constant distraction from long-term interests. Failing that, be lead by a mutant like Buffett or Jobs, who understand the long-term interests and have the authority to ignore the short-term to get long. But the availability of mutants is unpredictable and it's really best to get the capital structured properly.
I am not denying that corporate culture takes on a life of its own, and that the system's rationality and the participants are not closely linked.
What I am asking is whether great places to work inevitable decay as the company gets large, and if that is the case, what is the point of a startup? Why not seek to make an idea that scales down rather than scales up? Is it all about personal wealth? But for those of us who want to build great businesses, in every sense of the word 'great,' how do we get around this problem?
I have my own ideas but they are largely untested.....
What I am asking is whether great places to work inevitable decay as the company gets large
Odds are you will definitely lose that personal connection as you go from working for "the owner" to working for a manager that reports to a VP that reports to the CEO that reports to the Board that reports to the shareholders.
But what I've seen in a lot of these "leaving" posts isn't quite that... It's more of a "the king has no clothes" epiphany: They go to work at a place thinking it's a thing-in-itself then wake up one day and realize how the sausage is being made.
So GOOG isn't a post-grad research lab: It's a company that sells ads.
So GS isn't the equivalent of a fee only financial planner.
They never were more than that.. only the people involved thought they were something more.
I served as a VP & President for a small non-profit club.
Two takeaways:
1) You don't really have any power. You need to lead by example and empower other people rather than command.
2) The personality required to establish a project is often different than the personalities required to keep it going.
But on top of that, I wonder how much management could be eliminated. Management is, in most businesses, fundamentally a communication infrastructure. How much of it can be replaced through implementing IT through was that work for FOSS projects?
My thinking is to have a relatively small group of high level managers, a group of project managers, and an HR department, and eliminate all middle management. I think teams should have rotating leadership but coordination should take place in ways which include both the upper management and folks on the floor directly using things like email lists.
Maybe this is a pipe dream. But maybe it can be made to work.....
Rotating/randomize leadership is called "sortition" and it has been known since Roman Empire times as a solution to the corruption and inefficiency problems of hierarchy and representative democracy.
It also solves the problem of bizarre distortion when you need to choose a winner among 100 qualified candidates -- better to pick one well rounded winner at random than to choose purely based on metrics that promote "teaching to the test".
At least at Google, middle management doesn't exist to run projects. They exist to provide career guidance, ensure people are happy, and keep them from leaving for Facebook.
This is a task that doesn't scale, because it requires knowing your reports well enough, as a person, that you understand their career goals, their likes & dislikes, their strengths & weaknesses, etc. so you can steer them into the right role. It's the tech lead's job to manage the (engineering half of) the project, and the tech lead frequently doesn't manage any of the people involved. I've found that managers can rarely manage more than 20 people effectively, and usually drop off sharply in effectiveness after 8-10 people.
Open source projects don't face this limitation, because your way of ensuring that everyone's happy is to assume that everyone who's not happy has quit. I suppose some big companies do this too - Yahoo seems to be trying out this strategy right now - but it really doesn't go over well with the public at large, and it wastes a lot of effort spent investing in new employees.
Presumably it has something to do with external stakeholders. The more influence they get, the more they can drive the company towards short-termism and potential destruction. You either need an incisive leader, or a bootstrapped business.
I believe that such "decay" processes are inevitable in the long run, following organizational growth as time goes by. Maybe in the advanced management theory someone has yet to formulate the laws/principles of corporate thermodynamics. (This is not my original thought, I've read it somewhere but can't remember the source).
On a more practical grounds, a few seeming counter examples:
- Virgin Group is a highly decentralized conglomerate of 300+ businesses all over the world and each of them is mostly autonomous (Though when you think of Virgin Group there is only one personality springing in mind - that of Richard Branson)
- Well, Apple, of course.. Though some say Apple of the 2000's after Steve Job's return is a different company entirely (in most of the aspects but those concerning mainly legal formalities around the corporate entity, its registration details, and logo design principles).
P.S.
So the point of a startup to a business is that of a birth and early childhood to a human.
Businesses (as functional organizations) and humans (as living beings) have ultimately the same fate in the end, though the time-scales differ.
> Unfortunately, they don't care that they don't have all the information; they want Google to work as expected,
OTOH, if they had all the information, they might set new expectations. Essentially you are describing a corporation that is failing to communicate properly.
Completely agree on the effect you are describing. I've encountered it, too. I think it can be easily countered through regularly context switching, though. That is, switching your thinking over to that of an end user.
> And I wonder, is this sort of moral decay necessarily part of the current corporate world?
I think it's as mundane as simple, Darwinian selective pressure. The ruthless ones perform better[1]. The people who have ethical constraints, or who consider the long-term, find themselves under-performing by comparison. They can choose to either mimic this destructive behavior or get marginalized as they are seen as ineffective and stubborn.
So basically, ethical behavior is unstable, and having one sociopath on a team will tend to make others act the same way. It's not exactly inevitable, but it's the natural tendency. If you want to stop it from happening, you have to work very hard and be very diligent.
[1] Or rather, they perform better in more visible ways, i.e. by more objective metrics and over a shorter time period.
And I wonder, is this sort of moral decay necessarily part of the current corporate world?
by construction:
The documentary is critical of the modern-day corporation, considering its legal status as a class of person and evaluating its behaviour towards society and the world at large as a psychiatrist might evaluate an ordinary person. [...] corporations are systematically compelled to behave with the DSM-IV's symptoms of psychopathy
I was an esoteric derivatives trader at an investment bank making money off clueless clients. We actualy prided ourselves, as a prop desk, on not being client facing. I went in expecting to parse global markets for inefficiency while pioneering the frontiers of 21st century finance. As time went on I found that the firm was content with mediocrity (as it could survive by simply existing in its role) and had no time for risky business like thinking.
You delude yourself into thinking you're inherently superior, a "Master of the Universe", even as you have never been able to explain to your mother what you do. Sooner or later you realise your colleagues are smart but terrifically insecure human beings, valuing their roles for who association with the firm's name makes them rather than what they actually do. Thus hierarchy is strictly enforced and innovation rages furiously in quaint, safe areas, e.g. introducing "new" leveraged/inverse hedged swaps, while ignoring fundamental assumptions, e.g. the trading floor should be siloed by product.
The bureaucracy and technical debt, combined with constant turnover in the under-paid operations and IT staff, mean that gaining understanding of the firm's as a whole as of no less than a quarter ago is a Herculean undertaking. And it's worse when you talk about the sales traders - none of them understand their product (they don't need to - the client's the one taking the risk), it's a miracle if they know a few shortcuts in Excel, and every one of them has an opinion on how xyz company (or country) should re-structure without having read a single term sheet or prospectus.
Luckily, there are start-ups that are raging equally furiously but with un-paralleled agility towards the financial sector. Alas, we'll have to find a new slot-in role a la consulting, investment banking, and sales & trading for insecure college graduates without hard skill sets to plump.
Note on recruiting
I've seen some comments tacitly saying Messr Smith should have known what he was getting into when he signed up for the job.
I was recruited by a very charismatic and values-driven MD when I was 19. Our desk merged with the rest of the firm's shitty culture when he was fired for being too ambitious. I didn't join for the six-figure salary - I turned down other offers that paid more at the time. There are lots of other people I know, brighter than I am, who were similarly drawn to the thought of a dynamic work-day filled with brilliant, ambitious people all working to solve difficult problems (that could be a tech company's recruiting ad...). Maybe I should have been more clairvoyant, but in the end what drives people to finance and what drives people to tech isn't all that dissimilar - the unique cultures change like to unlike from there.
Great story, thanks for sharing. I spent last summer at a hedge fund and found myself dangerously close to becoming one of the prototypical insecure college graduates you so aptly describe.
It really is remarkable the delusions of graduation that emanate from a desk with even the most paltry of P&L's for the week. I'm excited to see what might come of the furious yet agile rage directed towards the financial sector. Square and the like seem to have the credit card companies on their heels but revolution in IB still seems distant. Then again, agility and innovation are often underestimated.
Some pointless pedantry: There is no singular title "Messr", because "Messrs" as the plural of "Mr" comes from the French "Messieurs".
The French singular is "Monsieur", which is abbreviated as simply "M".
To me, that's just reallocating resources. Any efficient system of capitalism will see that happening.
However IPO's with unreasonable valuations, and investments greater than what's needed is a pretty good sign of bubble. So i'll let linkedin, and facebook make me scared of a bubble. Not to mention the startup Color.
What kind of work will you be doing? I'm in a similar situation (M&A side though), and I'm not sure what kind of value I could bring to a tech firm without the coding skills that are needed in a early stage startup.
Simplest answer: a tech deal team - Google, for example, has one internally.
Abstracted a little, capital markets start-ups. You could add value by hybridising Silicon Valley and New York.
Go any further, e.g. to a Pinterest, and I don't know. Maybe there is a business development role? I'd guess you'd be throwing away a lot of your existing value at that point.
Big tech companies are buying up startups left and right. I am guessing they have some ex-M&A guys on staff (Note: The OP said that he was moving to tech, not necessarily a startup)
Forecasting, pricing and marketing analytics roles are all good transitions. Lots of excel still necessary - all you really need to learn is some SQL and maybe R/SAS.
So he thinks Goldman was honorable back when he was young and had no idea what was going on. Bullshit. I happen to know of some shady Goldman credit swaps from the 90s that my municipality has been trying to get out of. I'm sure there is plenty of other garbage that went on back then too. You don't hire a bunch of mostly young male type-A personalities and wave million dollar bonuses in their faces and not expect questionable deals.
>mostly young male type-A personalities...wave million dollar bonuses in their face
This also characterises hackers and Silicon Valley. There are some really good people on Wall Street just as there are some real turds in Silicon Valley.
If you go back into Goldman Sachs's history it was a venerable firm with a storied past of forsaking short-term profit for the client, i.e. being long-term greedy instead of short-term greedy (quoting a GS executive from the 1970s). It started changing in the 1980s and completed its transformation after its IPO.
"there are some real turds in Silicon Valley", understatement of the year. Gimme some time, I'll eventually rant about this on my way out the door too.
I found this a bit strange as well and initially thought the article to be some kind of a spoof. I don't know a thing about investment banking but I have never, ever in my life read anything positive about the prevalent cultures at these firms.
I worked at Goldman briefly in the 90s, and I remember being pleasantly surprised at how little cynicism, and how much genuine enthusiasm for helping others I found there. It was a bank, sure, in the business of making money, but there was always this sense -- emanating from the top -- that money was not its sole purpose. I can see where this writer was coming from, and I agree with him that if this bank has lost its unique culture, then it has lost touch with what made it successful in the first place.
I used to work for Lehman Brothers; since then I've worked for Amazon and Google in product capacities. (I was a PM before I went to MBA and then LB.)
The biggest problem was that there's little incentive in financial products to pursue true creativity or innovation that generates value for your clients. Both the market and the regulatory climate make it very hard, and very risky, to develop and market new products. It's a lot easier to just find innovative ways to strip value from your clients, or make new securities look a lot like old securities.
My role at Lehman involved helping issuers structure securities for various capital markets. I did not see us openly fleecing clients in the style of Enron or this Goldman article, but it was pretty clear that some kinds of deals were far more profitable for the firm than others, and it was going to be in your interest to promote those kinds of transaction. It's the people at the top who set the incentives and set the culture of a firm, and things will only generally get worse as they trickle down the structure to individual teams who are more interested in their personal comp than the overall corporate brand.
One of the main reasons I wanted to go back to tech from finance was that I felt like there's at least a lot of tech companies (Amazon and Google included) where delivering true value to the end user is the primary value, and how you get promoted and paid. I did not feel that was the case on Wall Street; it was more important how many fees your team brought in than whether the issuers (clients) were still in business a year later.
I used to work for Lehamn too, M&A. Now working on my own startup. I also found that the focus was on our incentives, and this is where the tech industry is different in that it sets the incentives aligned with the users.
Wall Street could do the same by changing its incentives, and grow massively together with their clients. Once they understand that clients all the way to the end ("crowd") investor can also be happy users.
One thing that bothered me about this article though, is that it just seemed like he had a personal reason to make his superiors look bad. After all, he built his entire career in Goldman, so why burn your bridges? Unless they are already burned and you are leaving with a blast anyway, and maybe you are trying to get back at someone.
I think he burned his bridges because he believes that GS is on a path that will lead to its collapse if it continues unchanged. I don't think he published the letter to be vindictive. It's supposed to be a wakeup call and it's not like they were going to distribute that company-wide internally for him.
Wall Street can't really grow that much more. It's already something like 11% of US GDP and that's way too much for an industry that really doesn't produce anything much. Fin services shouldn't be more than 3-4% of an economy, barring export of services to other countries.
I'd argue this is part of why it's starting to eat its own young; it's an industry full of extremely driven, competitive people but it has started to run into the natural limits of its potential size. If the industry starts to shrink a bit, things will get even uglier. It's not like there's a natural other industry for all these people to work in that's growing and will take the oversupply - if things get worse it will look like a piranha pool in the dry seasons where a million fish have been concentrated into one puddle.
It's probably all true, but the piece reads like an extended resume. If only I could get NY Times to let me rant about how ethical I am and what trillion-dollar clients I advised.
If you're going to write a piece about leaving a firm, you need to establish why your opinion is more important to your readers than the opinions issued as inevitable rebuttals to this piece. That is purpose of including his resume.
I agree with you but if you are at his level, you don't really need a resume anymore. Financial industry is all about who you know and from what I can see, he is very well connected.
FYI Executive Director at GS means the same thing as VP, which sounds much more impressive than it actually is. There are literally thousands of them. To put it another way, ED is a level up from Analyst. The real cheese begins at Managing Director -- which is the first level you don't reach through seniority, but through "skill" (or politicking!).
"Greg Smith is resigning today as a Goldman Sachs executive director and head of the firm’s United States equity derivatives business in Europe, the Middle East and Africa."
I could be wrong, but I don't think the number of positions heading business units across continents is that large.
I know a lot of people who have left Goldman, etc. in the past few months, specifically for tech jobs. It's because 2011 bonuses were utter crap. (and it is toxic I'm sure, but the $ was the main thing)
Also several have said they'd apply to YC (they have money, but not startup industry connections, or at least not current ones). Remember, the deadline is March 28th...
I'm pretty sure that after working for Goldman, you don't go work for another large bank, you go work for the Goldman of another field. Otherwise it would be like going from MLB to a farm team -- not an upward move.
“We disagree with the views expressed, which we don’t think reflect the way we run our business,” a Goldman spokeswoman said. “In our view, we will only be successful if our clients are successful. This fundamental truth lies at the heart of how we conduct ourselves.”
Mr. Smith described himself as an executive director and head of Goldman’s U.S. equity derivatives business in Europe, the Middle East and Africa.
A person familiar with the matter said Mr. Smith’s role is actually vice president, a relatively junior position held by thousands of Goldman employees around the world. And Mr. Smith is the only employee in the derivatives business that he heads, this person said.
If he really were head of US Equity Derivs (derivatives) Sales in EMEA, he'd be an MD (managing director). We can all be head of something... after you put enough creative thought in it.
Supposedly it's at least partially true (as in featuring real people really saying these things) but my source for this is this blogger that says so, so...
I have ranted for a long time about the corruption at Goldman Sachs, mostly to deaf ears. :) This is the tip of the iceberg, as far as I am concerned. My bigger concern is how involved GS is with our government.
As it turns out, the human race is extremely intelligent and wherever there is an opportunity to make money (corrupt or not), people are probably doing it. I would call it a conspiracy theory, if it were not occurring in plain site. Exactly which Americans approved of the multibillion dollar bailout, show of hands?
"tax" giveaway? It's all borrowed money anyway, not actual tax revenue. Drop in the bucket compared with the rest of the federal budget, and most of it was paid back.
If you disagree with me, that is cool - just leave a comment telling me why. If you think my comment is irrelevant for some reason, also let me know why.
The author must be really angry at Goldman. Didn't he get his 500k bonus, but only 200k? The other thing I learned is that corporations are out there to make a profit. Who would have thought? However, as an outsider, it's good to have some insight into the real business model of Goldman. It appears it partly relies on information asymmetry, i.e. ripping off clients without them knowing. This business model seems to have been damaged by this bad PR that aims to dissolve illusions of the clients. I hope this kids gets his bonus, but probably Goldman will just fire him after such a move. This is what happens when there are too many greedy hands wanting the honeypot, but one isn't satisfied. Not that unique to Goldman to be honest. When your business model relies on information asymmetry, whistle blowers can be a real pain. To combat that Goldman must discredit the source, and distract from the topic, which is what we saw here in their response.
"'There are a couple of things out of place. 1) This guy has been at firm for 12 years and is only a VP…a pissant of sorts. He should have been an MD-light by now, so clearly he has been running in place for some time. 2) He was in U.S. equity derivatives in London…sort of like equities in Dallas…more confirmation he is a lightweight. Somewhere along the line he has had sand kicked in his face…and is not as good as he thinks he is. That happens to a lot of high achievers there.'"
Still, his lack of success within Goldman doesn't take away from what he has to say. This is basically an ad hominem attack - instead of refuting what he has to say, GS (or it's supporters) attempt to tarnish this guy's image.
Given what it takes to be admitted to the firm, let alone stay in it for 12 years, I wouldn't consider him "pissant". That time guarantees he's survived and gone above probably 100K other bright hires over the years. Can't say that for most companies.
My take, it's just the press milking the point/counterpoint style of argument to attract more eyeballs and ad dollars.
Exactly what I came over here to say. If there's been a change, it has to be something like the cynicism at GS having grown so overt that they can't pay some of their institutional drones enough to ignore it.
To be fair, I think many of the people who were employed at Goldman Sachs three generations ago are no longer with the firm, so it's hard to judge GS based on that.
Many of the sentiments expressed by the author are shared by developers and other technical staff working in the finance industry. In places like London and New York, finance has, for a long time, managed to get the best technical staff by paying the highest wages even if the work is less interesting. This has been detrimental to other industries in the same regions. As morale declines in finance firms, however, this is changing.
For a long time finance has been the place where the most interesting tech was going on (not to say there isn't a lot of boring bog standard stuff as well).
It's an industry where many firms have had to develop their own network transport layers, database engines, languages, etc. Where machine learning and big data have been standard practice for over a decade. Where understanding complexity and concurrency theory are important, and designing lock-free algorithms can be a daily activity. There's very few areas of core CS that aren't used in investment banks.
I'm wondering if any of that work has been made available, eg. as an open source project? There's a standard practice among tech/web companies to share innovation on the infrastructural level, but I cannot name one example of a bank innovating openly in that way. Perhaps they do publish academic papers about their innovations?
I've been contracting in the finance industry in London for seven years (at four firms) and although financial companies are some of the biggest users of open-source software, it's almost unheard of for firms to contribute back to open-source projects. There are a few progressive companies but unfortunately I've not worked at any of them.
Many firms have a strict policy of disallowing any source (open or not) from leaving company premises. Email servers and proxy filters have detectors that will raise an alert if source code is emailed or sent out over HTTP. It's easily a sackable offence and this discourages developers from contributing changes back to open-source: there are simply too many hurdles to jump through in order to do it.
Given your experience, what would you say are the top 5 techs that are being used in this area in London? I was looking at the job market a while back but it's not very transparent. How do you best go about finding a job of this kind?
But the real influence of banking is driving the development of stuff like RDMA over Infiniband, which eventually makes its way into other industries. Everything that "web companies" know (and take for granted) about scalability, performance, resilience, security etc etc comes from either investment banking or pr0n.
But obviously a lot of it remains behind closed doors, but there certainly some of that sort of thing going on.
Some of it also happens indirectly, for example a bank might design an improvement to the Linux kernel but because they want to remain covered by their support contract with say RedHat they might supply to the patch to RedHat and RedHat will then verify it and merge it into their core release and submit it back upstream, but it would have RedHat's name on it rather than the originating bank who might want to remain anonymous.
Im not sure about publishing of papers on innovations but there is constant work going on to improve the database systems and few people I know have come up with software programs to check the bankruptcy!
In most large finance companies though, it's also true that a lot of the less-exciting back office development work is being done by software developers who are overqualified for the roles but attracted by high wages.
'It changed man. The culture wasn't the same as when I joined five years ago.'
These 'I said GOODBYE SIR!'s are interesting, but I'm not sure how much reliable information can be gleaned from them. What ever happened to not 'burning your bridges'?
I agree with your sentiment, but not with the "burning your bridges" part. Seems like the fear of burning your bridges keeps many people from speaking frankly about what's happening in the corporate world. And that's important nowadays because as they say, politicians don't run the world, Goldman Sachs does.
Yes, given the cynicism which seems to have developed there, it seems like only a matter of time before some GS employee decides to leak embarrassing information as part of an insider trading scheme.
It's good to take them with a pinch of salt, just as you take what your girlfriend say about her ex with a pinch of salt. That said, after the salt has been applied you are still left with some useful information.
But if you lift the curtain behind that statement, what they really care about is their own success.
>"... if we serve our clients well, our own success will follow."
Then a few lines below, they essentially define what success looks like for them and say that profitability critical to achieve those goals. It seems like that profits are a more direct way to achieve "success" for them.
> "Profitability is critical to achieving superior returns, building our capital, and attracting and keeping our best people"
This should serve as a reminder that you can talk, talk, and talk some more, but ultimately, you need to "walk the walk" for your words to carry a significant impact.
Call me a cynic but a large percentage of people in I-Banks make their money and move on. Not that I doubt what he is saying, but it seems odd for people to just develop morality after 12 years at GS where he must have made his millions.
Basically, IMHO, he has made his money, is burnt out and wants to do something else and thought it'd be a good idea to write this article since it perhaps increases his profile for he wants to do next.
Way to leave in style, good for him. I hope it gives the firm the wake up call it needs.
I left a couple of years ago after a three year stint. It was partly out of the boredom of babysitting a legacy platform that had little future, but mostly because the department's role devolved into getting away with doing the minimum for clients to justify our fees.
No matter how well GS pays, despite the relatively poor bonuses, it's not going to be possible to attract and retain the kind of staff they need. I wonder how many other nerds sit at their desks and catch a minute's respite by daydreaming of building something great? If they're lucky enough to have the freedom and enough of a financial cushion to take the leap I highly recommend it. I've not been happier since.
This is indicative of the shift of power within GS from investment banking to the trading side of operations. That shift itself is based on who is generating the most profits. Seems that trading and investment banking maybe ideologically opposing forces, from a client interest standpoint. So to remove conflicts of interest they should divest of one or the other and decide who they want to be.
it's hard to sell common sense values and mores without dropping hints and lines about who you associate with and how awesome you are.
in all seriousness though, he probably saw this as a golden moment to build his personal brand, gain some media exposure, and leverage that exposure and brand building into another job offer, a writing gig, or a TV gig. consider it a golden parachute moment.
I find it somewhat ironic that a 12-year finance veteran is preaching about integrity and resigning through an op-ed piece in the Times.
While it feels good to recognize the eroding integrity of the industry (assuming it existed in the first place); I don't think this messenger is praiseworthy. Reeks of self-righteousness to me... and somehow I'm certain he'll be starting his own fund in the coming months.
I hold him in very high regard - he took care of us junior guys, gave us great pieces of advice, and in general came across as one of the more personable, friendly, and genuine guys on the floor.
This article reminds me of the girlfriend that puts up with all sorts of issues in a relationship but never addresses them. Then one day she snaps and leaves without warning, when all along the relationship may have been saved with some effort. I'm not saying he didn't try (his mentoring certainly suggests he did), but it's a shame such a (previously?) reputable firm has fallen so low. I'm not familiar with Goldman's hierarchy, but my impression would be that Greg is in a very senior position within the company. Greg sounds like he was in a direct position to influence the culture of the company and maybe turn it back into what he remembered from his past. As an executive director, I think that he almost has a duty to do just that. I'd be interested in Warren Buffet's take on Goldman's Culture, or was he one of the ones that got bilked (although it seems like his investment is doing well)?
As a New York Times Op-Ed author myself (with a friend; URL http://www.nytimes.com/2006/06/09/opinion/09orlow.html), I can assert that the typical trajectory after such a performance is to end up commenting on Hacker News.
I thought the same thing, it's very obvious that he's starting either his own firm, or will land somewhere else, and this article is a public attempt to retain his clients and advertise to new ones.
The problem with the world of finance is that it does not create anything in and of itself. It is a derivative of true commerce, true business, the real world.
Now that the big bonuses, expensive sell-weekends and general prestige associated with being in finance have washed away, people on Wall St are looking around realizing the emperor has no clothes. There's no money anymore, and there was never anything ultimately redeeming about their work.
The only silver lining is that hopefully now our best and brightest will be focused on solving real problems that matter.
Lots of discussions on "evil Goldman Sachs" or "the useless profession of finance" that I have seen also include the business of management consulting (McKinsey, Bain, BCG, etc) as the similar career tracks. It is true that lots of elite students at US colleges are interested in Banking and Consulting when they graduate. They are interested because both careers are prestigious and lead to more things.
But the comparison is very limited.
There is a passage at the end of his op-ed when he talks about his first days in the values driven organization learning the ropes of what the work is, how to be productive at it, and how to take the client perspective always.
I worked for McKinsey from 2003-2006 and I had that same first-day experience and it was more or less my experience throughout. I talk to folks now and they still think/act this way -- values are super important, the client comes first, being smart is all about helping the client better and therefore the firm prospering in the long run. People bragged about "we turned down the work" ALL THE TIME because it isn't a good use of "the client's money/time/focus".
There have indeed been scandals where individuals (even the ex-head of the firm!) have done unethical things at McKinsey.
These are more famous because McKinsey is so super duper integrity focused and they are embarrassing, but they happen on a backdrop of client service.
And indeed many many public spirited, "business isn't really what I'm about" people come work at McKinsey and leave and go on to do other things.
The big thing about consulting firms like McK which is really great and different from banking -- apart from the values which may be good for their business -- is that they are places for GENERALISTS. You get there and work on a wide range of problems, with a wide range of analytics/collaborative/communication skills. This is what is great about consulting and why people go on from there to do great things.
In the "old" world of Goldman Sachs this might have been true too -- when they were investment bankers advising clients on what to do. You and client win in this scenario. But much of the firm's money these days is made from TRADING, where there is a loser on the other side -- apparently the client.
I worked in the business trading interest rate products before deciding to return to school. I still miss the game a lot and waste way too much time trying to supplement my PhD stipend trading stocks, equity options, and futures.
Mr. Smith's editorial describes a lot of the reasons I left when paired with the dire outlook for the business now and back then. As others sort of noted, much of the business changed simply from the sources of profits. OTC (Over the Counter, i.e, non exchange traded) derivatives dealing and proprietary trading started driving all revenue. From a cursory glance OTC derivatives create a zero sum game with the client. The bank takes one side, the client takes the other. Yes, on a large enough scale things should balance out, and perhaps no moral hazards will develop, but at the most fundamental level the client or the dealer wins.
This opens the door to a very unique class of businesses including casinos, some annuity providers, buyers' agents in real estate where the provider has a strong conflict of interest with their client. Previously banks did not have these conflicts, or the divisons with these conflicts were not the dominant earners. Well maybe M&A advisors on the buyers' side had an issue, but that was generally less lucrative to advising the seller or on a hot IPO.
The question becomes, is this a Goldman problem, or a banking industry problem? I am studying for the CFA, simply because the information is fresh in my head, and I may need it some day. CFA ethics clearly states that one must always put the client's interests ahead of the firm. I remain foreign to the sort of magic that allows for this, while allowing one to operate as a derivatives dealer and stay solvent.
Simultaneous, Mr. Smith forgets about the sort of horrible clients these banks must deal with on a daily basis. Remember that the best guys at these firms are the ones that get spots at hedge funds, asset managers, and sovereign wealth funds. They know how to screw a counter-party better than anyone. Anyone who has ever sat on a fixed income trading desk knows how viciously PIMCO swings around their size to trade through the market. Every junior trader has gotten crossed by a non-repetent small hedge fund. I doubt the clients ever thought Goldman or any other bank was their friend. To assume that a bank would help a client when there is blood in the water is lunacy.
You can probably tell I still have a lot of unresolved issues about exactly what is right here. I have major issues with conflicts of interests. If I ever return to finance, I will stay on the buy side. At least that way my interests and the client's are fully aligned. I deliver higher returns and get paid more.
Funny side note: Michael Lewis said that he wrote that as more of a warning. He was astounded (and a little horrified) to find out it was being used as a how-to.
I came away with a couple of things after reading this article. One was that it was nice to know that there are principled people out there on Wall Street who are willing to place their conscience ahead of their own interests and be willing to resign if necessary in order to protest a corporate culture willing to mistreat their customers for the sake of a dollar (as did Mr. Smith). The second is that the real way to create long-term wealth for any business is by exercising the time-tested principles such as the one mentioned in the article- integrity, a spirit of humility, teamwork and always doing right by your clients.
What I don't get is.. if Goldman Sachs is 'ripping' people off, why do their clients continuously pay them money?
I see a pattern among consumers. Lots of businesses give consumers what they want and tap into their emotional sensitivities, rather then what they need. Who's to blame? the business? or the consumer? the business is just seeing an opportunity for some profit. There's a misalignment in some industries between really serving the client, and making profits.
Example:
- Junk food companies and fast food: they give us what we want: great tasting good that makes us addicted, but is it what we need?
The guy in the article has been at GS 10 years, heads up a desk, and is only an MD. Bank promotions are normally announced early in the year, and bonuses vest about now.
I'm guessing he is pissed off he didn't get MD, and has waited for his bonus to hit his account before self-destructing.
Stage 2 in his plan will be to push his ex-colleagues under the bus by writing an article about how evil bankers are, as per City Boy (http://en.wikipedia.org/wiki/Geraint_Anderson)
One hypothesis could be that all organizations go through waves of growth and success which then impact the subsequent talent they attract.
In other words, the most recent wave of talent that Greg Smith talks about is more interested in being associated with the Goldman brand, rather than the genuinely possessing the underlying desire to be world class bankers.
Also, perhaps this happened years ago and now its too late because those B players are now running the show.
There are a few lessons in there for a few tech companies as well I think. If your customers don't trust you then they will leave. OR not begin using you in the first place.
However big you are supporting your customers and being contactable when there are problems is an essential cost of business.
"It astounds me how little senior management gets a basic truth: If clients don’t trust you they will eventually stop doing business with you. It doesn’t matter how smart you are."
What if clients don't trust anyone? Its about risk/reward ratio. Trust/faith went out the window when the scam of a monotheist God gave into the lesser mistake of ubiquitous currency. The religion of the Semites was nursed on trade. Money is the visible face of the Abrahamic God. Its with this righteousness that Goldman Sachs engages in the world with such impunity.
Gone are the lineages of the priestly classes. Gone is the prudent care of the warrior/king caste. The merchants rule in the decadent age. Soon we will be holden to the mind of the sudra slaves.
I'm unsure how an organisation which does not add any value and is based on dead labor can possibly have anything other than a toxic culture.
When your primary goal is to repackage existing value and make money from usury, it's a little bit steep to expect your employees to care about anything else - your primary incentive is how much money you can extract from dead labor, and not 'the success of clients' or anything else.
I see more and more of these exodus posts from various companies. The one static thing I seem to be able to pinpoint between them, is that as companies grow larger - more management is needed. As the management grows in a company the modus operandi shifts from product to bottom line. While interesting, it seems that this is just inevitable with most companies growth.
The most amusing thing I find about Goldman Sachs, is their refusal to put their name on their building. They built a brand new 43 floor office building right across the street from Ground Zero to serve as their new headquarters, and their name is no where on the building.
It makes one think that they are hiding -- perhaps they're ashamed of themselves?
That is normal for all sorts of financial organizations, to not put the name on an office building. If they do, they get customers wandering into the lobby thinking it's a retail branch looking for services. Bigger problem for banks, but investment firms get that too. I once worked for Citibank in an owned but unlabeled building.
Basically it's the same reason that Wal-Mart doesn't put its name on a distribution warehouse facility. People would try to walk in thinking it's a store.
People don't really wander around downtown Manhattan with bombs or assault weapons. If they're looking to bomb GS, figuring out GS is at 200 West is unlikely to be the greatest of their challenges. (There's few ways it could be more public than being listed in their Wikipedia infobox.)
I don't claim it makes any sense, but after 9/11 one of the things that JP Morgan did was remove their name from many of their buildings in the UK.
I agree that most people don't have assault weapons or bombs. "Blogger Bob" shows what a few people take into airports (many training grenades, which look real to scanners and cause delay). It's surprising how many people try to take loaded handguns onto planes.
They did in the 1920's the first ever car bomb (a horse drawn cart) was used against the NY stock exchange. I belive you can still see the shrapnel scars on the buildings facade.
We wanted to share with you the below communication which was today sent to the people of Goldman Sachs:
Goldman Sachs Logo Office of the Chairman
March 14, 2012
Our Response to Today’s New York Times Op-Ed
By now, many of you have read the submission in today’s New York Times by a former employee of the firm. Needless to say, we were disappointed to read the assertions made by this individual that do not reflect our values, our culture and how the vast majority of people at Goldman Sachs think about the firm and the work it does on behalf of our clients.
In a company of our size, it is not shocking that some people could feel disgruntled. But that does not and should not represent our firm of more than 30,000 people. Everyone is entitled to his or her opinion. But, it is unfortunate that an individual opinion about Goldman Sachs is amplified in a newspaper and speaks louder than the regular, detailed and intensive feedback you have provided the firm and independent, public surveys of workplace environments.
While I expect you find the words you read today foreign from your own day-to-day experiences, we wanted to remind you what we, as a firm – individually and collectively – think about Goldman Sachs and our client-driven culture.
First, 85 percent of the firm responded to our recent People Survey, which provides the most detailed and comprehensive review to determine how our people feel about Goldman Sachs and the work they do.
And, what do our people think about how we interact with our clients? Across the firm at all levels, 89 percent of you said that the firm provides exceptional service to them. For the group of nearly 12,000 vice presidents, of which the author of today’s commentary was, that number was similarly high.
Anyone who feels otherwise has available to him or her a mechanism for anonymously expressing their concerns. We are not aware that the writer of the opinion piece expressed misgivings through this avenue, however, if an individual expresses issues, we examine them carefully and we will be doing so in this case.
Our firm has had its share of challenges during and after the financial crisis, but your pride in Goldman Sachs is clear. You’ve not only told us, you have told external surveys.
Just two weeks ago, Goldman Sachs was named one of the best places to work in the United Kingdom, where this employee resides. The firm was the highest placed financial services company for the third consecutive year and was the only one in its peer group to make the top 25.
We are far from perfect, but where the firm has seen a problem, we’ve responded to it seriously and substantively. And we have demonstrated that fact.
It is unfortunate that all of you who worked so hard through a difficult environment over the last few years now have to respond to this. But, our response is best demonstrated in how we really work with and help our clients through our commitment to their long-term interests. That priority has distinguished us in the past, through the financial crisis and today.
"...Blah blah blah dear god please don't leave us. We've even conducted an internal audit and 89% of us wanted to keep our job. See we're honest people."
I'd be more inclined to trust their communications, but as he cites in several parts of the letter about leaked internal communications to support his feelings. Then we also have other people stepping forward saying "Yes I worked at xxxxx, and I saw, suspected, or participated in fleecing clients." To what degree is all arguable. Are these all well timed publicity stunts of a person trying to take clients away from a firm to start his own? That's one hell of a conspiracy theory, and probably pretty unlikely. Maybe he is. Who cares.
Here's what I think. The last down turn shook Goldman to the core, and with it all the good will they had for their clients. Suddenly, the money train looked like it could derail permanently. When you got a lot of cash it's really easy to look like a genuine and generous person/firm. "Here there's enough cash to go around for all of us," they'll say.
But, when that cash dries up. Generosity dries up too. And it's all too easy for people to turn into selfish, desperate people. Remember back during the crash when Carl Icahn was quoted saying he had friends that didn't know how they were going to live on $10 Million/year? That was the desperation setting in.
Here's the thing though. S&P 500 closed the decade out flat. Contrast that with the 80's & 90's where it had multi-year straight growth. It was easy, and the money was easy. Now all that easy money ain't around. This drought is playing out all over the financial industry. Goldman ain't the only one behaving badly.
The gentleman era of investment banking is largely mythical. There was a long period where they were notably less scummy and cutthroat than other investment banks (compare: Salomon Brothers in the 1980s) but they were always an investment bank.
The most visible (to a young person) sign of a bank's character is how it treats its employees. The 90+ hour weeks and terrible conditions in the "analyst" program (the term has nothing to do with analysis; it means "whale-shit") are not a new invention; that goes back to the 1980s. Before that, banking was dominated by the Mad Men culture: the hours weren't long but the politics was just as malicious.
> The gentleman era of investment banking is largely mythical.
There was a qualitative change after the banks went public. The old partnerships were inherently more prudent. And that's where the old culture came from. The new corporate structure rewards any risk-taking where losses lag gains by a year or more. So the culture changes.
I really think being publicly-traded companies is the root of the problem here. When a company goes public, it adopts one (and only one) goal: Maximize shareholder value. When that's the priority, it naturally follows that the sharks take over the waters. This is not a tough leap of logic, and it's repeated in corporate culture constantly. We need a famous person to quote it succinctly so that it is enshrined as a colloquial law.
I once worked for a guy who was considering incorporating his two-person company. His investors were mostly family and professional contacts. One day he was talking about how it would limit his decision-making because of his obligation to always do what was most profitable for the shareholders. He was potentially facing a choice between selling out to a much larger company or staying independent so he could develop the company into the kind of business he always wanted to run. He and his partner had a controlling stake, but theoretically, if their investors wanted him to sell but he refused, they could sue him for damages, breach of fiduciary trust or what-not. Or so he said. I asked him, "If there was a perfectly legal, but morally reprehensible way to make a lot of money for your shareholders, and you were aware of it but didn't take advantage of it, could they sue you for damages?" He didn't think so, but he couldn't explain to me the legal difference between his moral judgment and his lifestyle preference for one kind of business over another. I'm still intrigued by the question.
To make the situation more dramatic, suppose a company disposed of a thousand barrels of toxic waste every month, and the board of directors found out that the perfectly legal method by which they were disposing of the waste was horrifically environmentally damaging but exposed the company to no possible liability. Could they choose to dispose of the waste in a much more expensive way? What if it meant cancelling a dividend? What if it meant bankrupting the company -- could they be sued then?
I think the whole "fiduciary duty" argument is mostly used by assholes as an excuse for being assholes. Managers of corporations have wide latitude to do as they see fit. Successful shareholder lawsuits of this type are extremely rare.
It was enough to scare him away from incorporation while there was talk of an offer to buy the company. The customer that was going to make the offer would have replaced him in his business role, limited him to research, and shut down all the work that wasn't relevant to the one product of ours that they used, but they were going to give all the investors a very significant profit. He didn't care because he thought the company could be much bigger than the buyer wanted it to be, and also possibly because he was already wealthy and enjoyed being the boss much more than he needed the money. When I ponder that last part I guess it's possible that his worries about getting sued reflected a guilty conscience more than a real legal risk.
> There was a qualitative change after the banks went public.
Many investment bankers knew they were selling crap at insane valuations during the internet bubble. Hell, the first time I saw IB's taking advantage of mass mania was the junk bonds era and Michael Milken.
Those guys have had the culture of taking advantage of clients for a very long time. It might be argued that the author of the OP article is just a slow learner... But I give him major props on teaching what he learned.
>The most visible (to a young person) sign of a bank's character is how it treats its employees
Character in a limited sense, but I don't know how much that translates into client satisfaction. Foxconn, Apple, and Disneyland come to mind.
As a trader I officially had a 50 hour week. I stayed for 70+ hours because I found the work I was doing, at least initially, interesting (I was generally the last trader on the desk to go home). Specifically regarding investment bankers, yes they work very long hours, but the analysts there generally see the time as financial boot camp. Besides, the staff senior to them are no less workaholic.
Some start-ups have their employees working 90+ hours. This isn't because they're evil but because they have limited resources, a lot of work, and the people there are amazingly passionate about what they're doing.
Some start-ups have their employees working 90+ hours. This isn't because they're evil but because they have limited resources, a lot of work, and the people there are amazingly passionate about what they're doing.
Limited resources. That's why the long hours are not a sign of evil in startups but are one in banking. Banks could easily hire more people. Startups generally hire good people as soon as they can.
Whether they could is debatable given that many of them are aggressively trying to raise capital, even if it means laying off workers to cut costs. But let's assume they can.
That doesn't mean they should. Most bankers I knew were much more upset about losing their week-end beer fridge or a $5 reduction in their daily meal allowance than they were about putting in a few more hours. You have to remember that most analysts see their 2 years as an apprenticeship or finance boot camp - they want all the experience they can get so they have a gilded resume at the end of it.
I still don't see a good argument for judging firms where highly compensated employees with plenty of options work long hours, particularly when, as in banking, their tangible skill-set is relatively low.
Whether they could is debatable given that many of them are aggressively trying to raise capital, even if it means laying off workers to cut costs.
They could always, you know, stop paying million-dollar salaries to people with no skills other than office politics. I know this sounds radical, but it would free up some of the money.
Most bankers I knew were much more upset about losing their week-end beer fridge or a $5 reduction in their daily meal allowance than they were about putting in a few more hours.
I'm not talking about "a few more". I'm talking about the difference between 40-50 (sustainable, safe, sane) and 80-120.
In most companies, a 5:00 pm work drop with 6 hours of work due next morning would be taken as a sign of dysfunctional process. It might happen occasionally, such as during a production crisis, but it wouldn't be an everyday event. Bankers like to hire naive college kids because they don't know their rights and don't know that these kinds of late-day work drops are a textbook example of bad process.
they want all the experience they can get so they have a gilded resume at the end of it.
You and I both know that the "experience" most analysts are getting isn't very useful or interesting-- not enough to merit working 100+ hours per week. Checking pitchbooks at 1:30 am? Downloading 600 corporate logos? Do you really think people learn much doing this kind of grunt work that a high-schooler could do?
They just want the name on the resume and the automatic acceptance at a top business school, because for whatever reason B-schools still believe people actually get something useful about being an investment bank's peon for two years.
The people I know at Goldman are generally bright and hard-working. The ones who perform agency work seem to serve the interests of their clients; the ones who are closer to proprietary traders tend to advance the interests of Goldman. There are some products for which it's very hard to have a pure agency relationship, though; the best way to keep them liquid is to trade with someone who is taking the other side of your trade.
I'd keep that kind of thing in mind when reading a story like this. It's asymmetric warfare: he has nothing to lose by talking about how bad Goldman is, but if Goldman talks back, they're a) dignifying a silly story, and b) creating an opportunity for irresponsible folk like Taibbi to willfully misinterpret them.
This article is the table tennis bronze medal of moral outrage.