In yesterday’s New York Times, Greg Smith penned a resignation letter to Goldman Sachs. After 12 years at the company, he feels the ongoing change in culture is more than just a threat to the continued business of the firm, but also to the atmosphere within the company and the individual motivation of employees.
In his case, the lack of culture is such that he felt the need to leave the company, not because there were insufficient financial motivators or disappointing working conditions, but because the only purpose left in the company was profit.
As humans, we look for motivators to determine what we want and what we avoid. But motivators are much more than the simple financial aspects that so many companies rely on, or even benefits such as insurance, working hours and holidays. Motivators are much more broad, and as Mr. Smith shows, one important motivator within the company is the sense of purpose, of shared culture; the idea that the entire company is working towards a common goal that each person adheres to. When this purpose erodes, not only do employees lose productivity, but they start making choices that are not in the interest of the business, the customer or the shareholders. Eventually, talented and driven employees will leave the business not because they can be better paid elsewhere, but merely because elsewhere they can have a purpose, a meaning to what they do.
Mr. Smith’s tale is a cautionary one all businesses can learn from, not just Goldman Sachs’ top executives.
[C]ulture was always a vital part of Goldman Sachs’s success. It revolved around teamwork, integrity, a spirit of humility, and always doing right by our clients. The culture was the secret sauce that made this place great and allowed us to earn our clients’ trust for 143 years. It wasn’t just about making money; this alone will not sustain a firm for so long. It had something to do with pride and belief in the organization. I am sad to say that I look around today and see virtually no trace of the culture that made me love working for this firm for many years. I no longer have the pride, or the belief.
Investment banks even more so than other businesses rely on the confidence their clients have in their knowledge, their integrity and their judgement. If any one of these three ingredients goes missing, clients will eventually turn to other companies and the bank’s existence will be put in doubt. It’s hardly a surprise so many of these banks are named after founders or persons of great importance in the early years : Mr Goldman & Mr Sachs, Mr J.P. Morgan, Mr Barclay, Mr H.S. Morgan & Mr Stanley, Mr Merrill & Mr Lynch. In each case, the institution was foremost the continuation of the integrity, experience and character of those people.
These companies had built a precise culture, a business purpose regarding how and why they invested as well as the manner in which they treated their customers. Similar as they were, they remained distinctive at least in the eyes of their clients. Goldman Sachs took the resolution to not take part in hostile takeovers in 1974, and had been clear since 1969 that they were the bank looking for long-term profit even if that meant short-term losses. On the other hand, Morgan Stanley was much more focused on the emerging technology and high-risk markets, investing in them and learning from them by creating the first computer financial models, but also by being one of the earlier american investment banks to establish offices in Europe and East Asia.
During the 2000s, however, Goldman Sachs started to lose focus on its purpose, as Greg points out :
[Goldman Sachs] changed the way it thought about leadership. Leadership used to be about ideas, setting an example and doing the right thing. Today, if you make enough money for the firm (and are not currently an ax murderer) you will be promoted into a position of influence.
As expected, this leads to behaviour within the company that is not in the client’s interest, not in the long-term interest of the company, and not in the long-term interest of the stockholder. Lehman Brother’s record profits from 2005 to 2007 might have seemed to be in the best interests of the stockholders, but they were responsible for the company’s bankruptcy. The stockholders got improved dividends for a few years, a few managed to jump ship at the right moment, but they missed out on any dividends that the company could have paid were they still in activity, and lost the entire value of their stock.
Mr. Smith hopes this can be a wake-up call for Goldman Sachs management to put the client back at the heart of the business process, and I can only hope they do so. However, the picture he paints is bleak and it looks like there is a very long way before Goldman Sachs has a strong culture again. With a strong culture, not only will they be better suited to convincing clients to have confidence in them, but it will also pave the way to attracting the right talent and building an organisation that achieves the best results with the least effort.