What Happened to Goldman Sachs. Steven G. Mandis
impact of its strategic business decisions on the firm’s reputation after the principles were written. In 1989, two Goldman partners convinced the management committee to commit as much as $100 million of the firm’s money toward starting Water Street, a fund that bought controlling blocks of distressed high-yield junk bonds. The fund began soliciting outside investors in April 1990, with the goal of raising $400 million. Within a few months, Goldman had raised almost $700 million and stopped accepting investments. The partners were willing to give Water Street four years to see whether it could produce an annual return of 25 percent to 35 percent.14 However, several corporate executives and large money-management firms complained to Goldman that the fund was a “vulture” investing business, claiming it was in direct conflict with the firm’s reputation for acting at all times in the best interests of clients. The executives were particularly concerned that the fund was also being run by someone who was actively involved in Goldman’s corporate finance advisory business. The dual roles would potentially allow the Water Street Fund to access confidential information from investment banking clients that it could use to benefit its investing. Nine of the twenty-one Water Street investments were in current or former clients. Even though the fund was making a lot of money for Goldman, the management committee, advised by John L. Weinberg, shut it down. At the time, investing clients who bought stocks and bonds also were threatening to boycott Goldman’s trading desks because of their concern about potential conflicts (although many discounted that would actually happen). John L. was concerned that clients thought the fund violated Goldman’s number one principle. According to partners I interviewed, the firm’s decision to shut the fund down sent a powerful message, internally, especially considering how profitable the fund was. Many clients at the time also felt it sent a powerful message differentiating the firm from the principles of its competitors.
Best and Brightest
Goldman’s corporate ethos, its common value system, John L. called “the glue that holds the firm together.”15 Goldman executives were conscious of sustaining this culture when recruiting and tried to hire the best of the best, but not just for their intelligence, drive, or experience. The partners looked for people who fit a certain profile: people who had all the requisite skills and knowledge, were hardworking and driven, and also espoused a value system consistent with Goldman’s.16 New hires were immersed in the Goldman culture and encouraged to apply their preexisting values and principles in a business context.
Goldman was not known as the highest payer on Wall Street for entry-level positions, and yet talented people often prioritized working for Goldman. Interviews revealed that they were attracted by the allure of partnership and the feeling that the firm’s culture of putting clients’ interests first and being long-term greedy was different from the other firms on Wall Street. They pointed to the principles and the firm’s actions and policies, along with stories and lore that reinforced this differentiation.
Although many firms had high hiring standards, they did not as regularly send senior executives to college campuses to interview potential recruits. In the 1980s and 1990s, this was a critical part of a Goldman executive’s job, an outward expression of the company’s passion and culture. It was one of the roles of a culture carrier—someone who always put the firm and clients first, had the right priorities, cared about the firm’s reputation, and put the firm’s principles and long-term goals before short-term profits.17
Whitehead described Jimmy Weinberg, brother of John L. Weinberg, as “one of the most important culture carriers … He was an advocate of team play, no internal ugly competition, service to customers, putting the customers’ interests before the firm’s interests and all of those good things that make a partnership.”18 In a speech to the partnership, a partner stated, “Hiring the right people is the most important contribution you can make. Hire people better than yourself.”19
Partners wanted people smarter even than they were, but they also wanted recruits who shared their values. The relatively low wages paid during employees’ early years, partners thought, fostered an appropriately long-term perspective.20 To this end, sometimes twenty or more employees, including several partners, often interviewed successful candidates. Whitehead told me that during his time, a potential candidate also had to be interviewed and approved by at least one secretarial assistant, because how one treated assistants was considered important. It showed one’s values. Sometimes the interview process itself weeded out candidates better suited to a firm where “individual performance was applauded and assimilation was less important.”21 Author Charles Ellis notes that “extensive interviewing was becoming a firm tradition … It gave the firm multiple opportunities to assess a recruit’s capabilities, interests, and personal fit with the firm … ‘You could say that our commitment to interviewing was carried through to a fault.’”22
Whitehead was clear that, as a service business, Goldman needed to select the best people if it was to be the best firm: “Recruiting is the most important thing we can ever do. And if we ever stop recruiting very well, within just five years, we will be on that slippery down slope, doomed to mediocrity.”23 Active participation by the most senior partners underscored Goldman’s emphasis on hiring the best people.24
Goldman also made sure that the future leaders devoted a “material” amount of time to recruiting. Rob Kaplan—who joined Goldman in 1983, went on to run investment banking, and retired as a vice chairman—credits Goldman’s recruiting process with helping build a “powerhouse operation.” He describes his impressions of the process: “I grew up [at Goldman]. We identified attracting, retaining, and developing superb talent as a critical priority. As a junior person, I was enormously impressed that the very senior leaders of the firm were willing to interview candidates and attend recruiting events on a regular basis. I learned from their example that there wasn’t anything more important than recruiting and developing talent.”25
As evidence of his commitment to recruiting, Whitehead personally conducted on-campus interviews. The qualities he looked for in potential recruits were “brains, leadership potential, and ambition in roughly equal parts.”26
During a meeting I challenged him, saying that every firm claims to look for these qualities. “What about values?” I said.
Whitehead told me that he had overlooked the word values because it should have been obvious that Goldman would hire only people who exhibited values like the firm’s. To him, it was the first prerequisite for employment—and the firm dedicated senior people to the task. Most importantly, he wanted people who shared the Goldman values and were willing to act in concert with its ethical principles both within the firm and in interactions with clients. For example, the boasting and displays of ego common on Wall Street were not welcome at Goldman; offenders were quickly reminded that their accomplishments were possible only because of everyone’s hard work and contributions. Whitehead once admonished an associate for saying “I” rather than “we.”27 When I interviewed him, Whitehead himself used “we” instead of “I.” To this day, my wife and non-Goldman friends tease me for the same subconscious substitution—it is that ingrained.
Goldman’s practice was to hire directly from top business schools rather than from other firms because recent MBAs were more malleable; the “plasticity” of a young MBA’s character made it easier to inculcate the Goldman ethos.28 The firm’s recruiting focused on merit rather than pedigree.29 A privileged background was often a strike against a candidate: it was thought that perhaps he or she might not work as hard or be as careful with money as someone who had not come from wealth.
My own experience in interviewing for my job at Goldman in 1992 told me, in no uncertain terms, exactly what Goldman valued in an employee. A partner who interviewed me explained that I would regularly have to work one hundred hours a week—until two or three o’clock in the morning, Saturdays and Sundays included, and most holidays.30 I was then asked what I had done that demonstrated my ability to maintain that pace and still excel, so I explained that I had done well academically while playing two sports in college and performing community service.
Playing team sports in college, serving in the military, performing public service,