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Author Topic: Goldman Sach's Greg Smith Resigns.  (Read 662 times)

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Online Callie Del NoireTopic starter

Goldman Sach's Greg Smith Resigns.
« on: March 16, 2012, 03:17:03 PM »
http://www.bbc.co.uk/news/business-17402964

Quote from: Greg Smith
Today is my last day at Goldman Sachs. After almost 12 years at the firm — first as a summer intern while at Stanford, then in New York for 10 years, and now in London — I believe I have worked here long enough to understand the trajectory of its culture, its people and its identity. And I can honestly say that the environment now is as toxic and destructive as I have ever seen it.

To put the problem in the simplest terms, the interests of the client continue to be sidelined in the way the firm operates and thinks about making money. Goldman Sachs is one of the world’s largest and most important investment banks and it is too integral to global finance to continue to act this way. The firm has veered so far from the place I joined right out of college that I can no longer in good conscience say that I identify with what it stands for.

It might sound surprising to a skeptical public, but culture 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.

But this was not always the case. For more than a decade I recruited and mentored candidates through our grueling interview process. I was selected as one of 10 people (out of a firm of more than 30,000) to appear on our recruiting video, which is played on every college campus we visit around the world. In 2006 I managed the summer intern program in sales and trading in New York for the 80 college students who made the cut, out of the thousands who applied.

I knew it was time to leave when I realized I could no longer look students in the eye and tell them what a great place this was to work.

When the history books are written about Goldman Sachs, they may reflect that the current chief executive officer, Lloyd C. Blankfein, and the president, Gary D. Cohn, lost hold of the firm’s culture on their watch. I truly believe that this decline in the firm’s moral fiber represents the single most serious threat to its long-run survival.

Over the course of my career I have had the privilege of advising two of the largest hedge funds on the planet, five of the largest asset managers in the United States, and three of the most prominent sovereign wealth funds in the Middle East and Asia. My clients have a total asset base of more than a trillion dollars. I have always taken a lot of pride in advising my clients to do what I believe is right for them, even if it means less money for the firm. This view is becoming increasingly unpopular at Goldman Sachs. Another sign that it was time to leave.

How did we get here? The firm 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.

What are three quick ways to become a leader? 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. Call me old-fashioned, but I don’t like selling my clients a product that is wrong for them. c) Find yourself sitting in a seat where your job is to trade any illiquid, opaque product with a three-letter acronym.

Today, many of these leaders display a Goldman Sachs culture quotient of exactly zero percent. I attend derivatives sales meetings where not one single minute is spent asking questions about how we can help clients. It’s purely about how we can make the most possible money off of them. If you were an alien from Mars and sat in on one of these meetings, you would believe that a client’s success or progress was not part of the thought process at all.

It makes me ill how callously people talk about ripping their clients off. Over the last 12 months I have seen five different managing directors refer to their own clients as “muppets,” sometimes over internal e-mail. Even after the S.E.C., Fabulous Fab, Abacus, God’s work, Carl Levin, Vampire Squids? No humility? I mean, come on. Integrity? It is eroding. I don’t know of any illegal behavior, but will people push the envelope and pitch lucrative and complicated products to clients even if they are not the simplest investments or the ones most directly aligned with the client’s goals? Absolutely. Every day, in fact.

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.

These days, the most common question I get from junior analysts about derivatives is, “How much money did we make off the client?” It bothers me every time I hear it, because it is a clear reflection of what they are observing from their leaders about the way they should behave. Now project 10 years into the future: You don’t have to be a rocket scientist to figure out that the junior analyst sitting quietly in the corner of the room hearing about “muppets,” “ripping eyeballs out” and “getting paid” doesn’t exactly turn into a model citizen.

When I was a first-year analyst I didn’t know where the bathroom was, or how to tie my shoelaces. I was taught to be concerned with learning the ropes, finding out what a derivative was, understanding finance, getting to know our clients and what motivated them, learning how they defined success and what we could do to help them get there.

My proudest moments in life — getting a full scholarship to go from South Africa to Stanford University, being selected as a Rhodes Scholar national finalist, winning a bronze medal for table tennis at the Maccabiah Games in Israel, known as the Jewish Olympics — have all come through hard work, with no shortcuts. Goldman Sachs today has become too much about shortcuts and not enough about achievement. It just doesn’t feel right to me anymore.

I hope this can be a wake-up call to the board of directors. Make the client the focal point of your business again. Without clients you will not make money. In fact, you will not exist. Weed out the morally bankrupt people, no matter how much money they make for the firm. And get the culture right again, so people want to work here for the right reasons. People who care only about making money will not sustain this firm — or the trust of its clients — for very much longer.

Source: The New York Times

Wow.. just.. wow. This guy laid out what a lot of outsiders have been saying for a long time. That long term investment and growth was no longer the concern of the big banks. Money, for the brokers and not the clients, is the only target of the day.

The more cynical side of me wonders if he shorted Goldman Sachs on the way out the door though, after seeing the hit it took from such a public slam.

The other side of me wonders what he's going to do for a living now. Write books? I know not one brokerage firm or investment bank in the western world would hire him now..he's well and truly burned those bridges. One part of me hopes he goes out and tries to teach ethics to the big business folks.
« Last Edit: March 16, 2012, 05:56:25 PM by Callie Del Noire »

Offline grovercjuk

Re: Goldman Sach's Greg Smith Resigns.
« Reply #1 on: March 16, 2012, 06:31:01 PM »
   It truly amazes me that anyone could actually believe that the bank, the investment broker, in fact anyone in Financial Services gives a rat’s ass about their clients interest.
It is totally about how much money they can make out of the client regardless of the result for the client.

         We have in the UK had so many scandals, from banks persuading people to pay for Payment Protection Insurance on their loans who could not claim on the policy. The 85 year old man who was sold a 5 year bond that meant he could not touch the money for the five years and of course died before the 5 years.

         Like cigarettes every financial product should carry the warning ‘You may make money from this product or you may lose money but we the provider will always make money out of it.’

         The major problem is that of course people want to earn a living so for example if a client comes with 100,000 to invest for say 5 years and there are 2 products, product A will give the broker 5000 in commission but will give the client a good return. Product b will give the broker 10000 in commission but is a poor investment.

                 Now the Broker could say I will forgo the additional 5000 and look after my client or I could grab the 10000 and in five years time it is the client’s problem. Which option do you think they will go for?
 


Offline Torch

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Re: Goldman Sach's Greg Smith Resigns.
« Reply #2 on: March 16, 2012, 07:04:08 PM »

The other side of me wonders what he's going to do for a living now. Write books? I know not one brokerage firm or investment bank in the western world would hire him now..he's well and truly burned those bridges. One part of me hopes he goes out and tries to teach ethics to the big business folks.

Knowing the pay scale at GS, I doubt Mr. Smith has any money worries at all, he's more than likely financially solvent for life.

A book deal might be in the works, but it would depend on the terms of his separation from GS. He might be legally prohibited from writing in depth about his experiences at the company.

Online Callie Del NoireTopic starter

Re: Goldman Sach's Greg Smith Resigns.
« Reply #3 on: March 16, 2012, 07:20:26 PM »
Knowing the pay scale at GS, I doubt Mr. Smith has any money worries at all, he's more than likely financially solvent for life.

A book deal might be in the works, but it would depend on the terms of his separation from GS. He might be legally prohibited from writing in depth about his experiences at the company.

Given his..VERY public resignation I'm sure he's forfeited his departing compensation package. Some of the sites I read said that is typically where the company locks the departing worker's lips.

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Re: Goldman Sach's Greg Smith Resigns.
« Reply #4 on: March 16, 2012, 07:29:09 PM »
Given his..VERY public resignation I'm sure he's forfeited his departing compensation package. Some of the sites I read said that is typically where the company locks the departing worker's lips.

I'm sure his departure was carefully calculated. It's not a coincidence that he resigned just after the period when annual bonuses are typically awarded on Wall Street (mid to late February).

If he had any deferred compensation awards in his employment contract (very common for his executive level), those were definitely forfeited.

Online Callie Del NoireTopic starter

Re: Goldman Sach's Greg Smith Resigns.
« Reply #5 on: March 16, 2012, 07:45:01 PM »
I'm sure his departure was carefully calculated. It's not a coincidence that he resigned just after the period when annual bonuses are typically awarded on Wall Street (mid to late February).

If he had any deferred compensation awards in his employment contract (very common for his executive level), those were definitely forfeited.

Yeah.. typically VPs aren't usually axed as often as directors and such, so I'm betting he didn't have to worry about being 'parachuted' out. It might have been a consideration but I'm betting that he wasn't IMMEDIATELY on the way out or the company would have said so in their press release.

Still, to have that level of discontent, I'm sure someone noticed. And what you want to bet that the sharks in the company are looking a LOT more closely at their rivals and associates now. Last thing they'll want is another public departure like that. A PR disaster if they do.

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Re: Goldman Sach's Greg Smith Resigns.
« Reply #6 on: March 16, 2012, 08:07:02 PM »
Still, to have that level of discontent, I'm sure someone noticed. And what you want to bet that the sharks in the company are looking a LOT more closely at their rivals and associates now. Last thing they'll want is another public departure like that. A PR disaster if they do.

The fallout from this will be interesting to watch. Brings new meaning to the terms "disgruntled employee" and "exit interview".

Online Callie Del NoireTopic starter

Re: Goldman Sach's Greg Smith Resigns.
« Reply #7 on: March 16, 2012, 08:15:51 PM »
The fallout from this will be interesting to watch. Brings new meaning to the terms "disgruntled employee" and "exit interview".

Oh yeah.. I'm expecting LOTS of questions being asked.. and perhaps some summons to Mr. Smith to answer, in detail, about his letter before congress and parliment and other spots.