A Goldman Sachs executive leaves the firm in a stand against its culture

On March 14th, 2012, in the opinion section of The New York Times, there appeared an article  by Greg Smith, a midlevel executive at Goldman Sachs (GS). He announced that in rejection of the current GS culture, which he qualified as “toxic and destructive”, he had just resigned. This was quite different to what he had found on being hired 12 years previously.

While the Goldman Sachs Business Principles begin by stating that: “Our clients’ interests always come first”, Greg Smith affirmed: “the interests of the client continue to be sidelined in the way the firm operates and thinks about making money.” According to him, the key to be promoted into a position of influence within the organization is making enough money for the firm. What is more, he mentioned three common practices to become a leader in GS: “a) Execute on the firm’s ‘axes,’ which is Goldman-speak for persuading your clients to invest in the stocks or other products that we are trying to get rid of because they are not seen as having a lot of potential profit … b) “Hunt Elephants.” In English: get your clients — some of whom are sophisticated, and some of whom aren’t — to trade whatever will bring the biggest profit to Goldman, and c) Find yourself sitting in a seat where your job is to trade any illiquid, opaque product with a three-letter acronym.” In addition, Smith affirmed that he witnessed  five managing directors call clients “muppets”, in reference to a group of puppet characters from the Muppet Show, a popular British-American television program forecasted in the 1980’s.

Lloyd C. Blankfein, GS CSO, and Gary D. Cohn, company president, rebutted  the article immediately through a letter addressed to GS employees published on the corporate web site. They labeled Smith “disgruntled” and his views as something that did 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.” Blankfein and Cohn mentioned independent, public surveys of the workplace environment at GS favorable to the company, and a recent survey answered by 85% of GS employees across the firm at all levels, according to which, 89% agreed that the firm provided exceptional service to clients.

Actually, this is not the first time that GS had received criticism for questionable practices, some related to the last financial crisis. Thus, the accusations brought by the Securities and Exchange Commission in 2010. The firm intentionally duped certain clients by selling a mortgage-security product contending that it misled investors in a subprime mortgage product as the housing market began to collapse. Although Goldman denies any wrongdoing, a negative public image could make Smith’s allegation credible.

Although a sound ethical evaluation would require further information, some ethical comments can be made on this situation. One is about the contents of Smith’s whistle-blowing. If his statements are true, this would mean that not only was dishonesty practiced, but that the first GS principle of putting their clients’ interests first was broken. In addition, there may also be found here eventually  an abuse of the good faith and confidence of those GS clients  with less than an expert grasp of the sophisticated financial products in which had they entrusted their assets to the company.

Even in the case of the allegations proving true, we should still consider whether publishing an article in the NYT were the best way to proceed. Wouldn’t some action within the firm rather than a public denunciation have been sufficient? Probably not, but this possibility should have been explored, especially if the behaviors reported were not widespread within the organization.

Another consideration refers to the intention of Smith, which is crucial for a sound moral judgment. Did the complaint respond to resentment and retaliation, or was it perhaps a courageous attempt to create a tide of public opinion to pressure for cultural change in GS? Or, maybe the motive was trying to get a substantial contract from a publisher? He knew what the real intention was.

Finally, if Smith is right, this could be another case to increase empirical evidence about the influence of leadership in culture and how this and incentives, such us promotion, have a real influence on the behaviors of people. But, it would also show that personal conscience can be there and some employees do have the courage to say “no, I can no longer follow directions which erode my integrity.”



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One thought on “A Goldman Sachs executive leaves the firm in a stand against its culture

  1. I don’t intend to play the devil’s advocate, but in terms of putting the firm’s interests ahead of clients’ it would seem GS is complying with their legal, i.e. fiduciary, duty. Then, of course, the question rises whether fiduciary duty towards shareholders should be the be all and end all objective of a corporation. Indeed, increasingly, business ethicists see this legal duty as a severe obstacle to a more ethical way of doing business.

    I agree wholeheartedly with your questioning whether Mr. Smith had hereby opted for the most appropriate means to ventilate his concerns. One necessary condition for whistle-blowing to become appropriate is that one has exhausted the internal channels to change the dubious practice concerned. Another would be that the general public – or the common good, if you want – stands to gain from making this information public. Both questions seem unresolved, but not evidently to be answered in the affirmative.

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