Jacki Zehner On Women, Money, and Changing the World  » “Why I Left Goldman Sachs” (VERSION TWO)

March 16, 2012

“Why I Left Goldman Sachs” (VERSION TWO)

This is a longer and still far from perfect post in response to the recent OpEd in the Times.   Sorry my original one had so many typos but I was rushing to post something before leaving on a few day vacation with my family, which I am still on…

Revised from the post on WEDNESDAY.

I read the OpEd in the New York Times upon waking early, very early, to get some work done before heading off on a short vacation with my family. I don’t know the author Greg Smith, nor do I know anyone who knows him personally. I do know a lot of people who have worked, and do work, at Goldman Sachs. I am a former partner (left in 2002), as is my husband Greg (left in 2000), and I have many close friends who are or have been partners as well. Needless to say, there has been a flurry of emails and phone calls regarding what Mr. Smith has said so very publicly. I also went online and read many of the articles that have been written in response. Talk about a diversity of opinions!

Who am I to challenge what Mr. Smith has said? Based on his background, he certainly seems like a credible guy. He has worked at Goldman for 12 years, has a big title and more. I have known many disgruntled employees and none have ever done something like this. None. For that reason alone I felt I had to pay attention. As a rule, I love people who are really brave and I really dislike people who are passive aggressive. Only Mr. Smith knows which one he is. So although I am not directly challenging Mr. Smith, I did work at the firm for 14 years, was the youngest woman and first woman trader to be made partner in 1996, and served on multiple committees for the firm including the firm’s partnership committee, and thus want to weigh in. That committee was, and I believe still is, responsible for all of Goldman’s people practices, had as members many management committee members and business line heads, and reported to the board of directors in some form. That said, I did leave the firm in 2002, which, my children point out, is a very long time ago.

I joined Goldman Sachs in 1988 as an analyst in mortgage trading. I, like Mr. Smith, appeared in recruiting videos and annual reports, spoke on college campuses and recruited actively. As the first woman trader to be made partner at the age of 32, I was almost a ‘poster child’ for diversity, meritocracy, and more. I gave countless speeches to thousands over my 14-year career at the firm. When I spoke so positively about the firm, it was because I believed what I was saying. My reviews were always outstanding in both the commercial and culture sense and that is why I believe I was promoted so young. Though I left my trading position 12 years ago, I will tell you from personal experience that the vast majority of people I worked with cared deeply about our customers, and, if you were heard calling customers any of the things Mr. Smith mentioned, you would be in big trouble. BIG.

More relevant is that if you continuously ‘ripped your customers eyeballs out’, they would cease to be your customers. The behavior that Mr. Smith so graphically describes was, at the time, the exception and not the norm in my opinion. Were we supposed to make money? Yes. If you promoted that this came at the customer’s expense, that was a bad thing. At that time sales managers called on accounts regularly to check in regarding their feelings on the level of service they were receiving from their salesperson and traders. If you were not doing a good job, you heard about it. These sales managers were senior people and had power, as did the traders. That balance made for responsible behavior. Traders in general pushed to make money and the salespeople pushed to keep their customers happy. I believed in a win/win approach and, more often than not, that was the case. If that were not the case, I don’t believe Goldman would have been as successful as they have been for so long.

That was 12 years ago. The questions now are: has the business changed and has the firm changed? I think the answer to both is yes.

First, how has the business changed? I believe there is, in general, a climate of greater suspicion. Firms like Goldman and others have large proprietary positions that can never, in my opinion, be divorced from providing liquidity for customers. This is not in and of itself a negative, as it can be argued that having large positions can help facilitate large customer trades. On the other hand, traders can use customer information to do things like ‘front run’, which is unethical. Traders cannot do their jobs by just bidding and offering securities to their customers without having positions.  This is what the public and government regulators do not seem to understand.  That has been the way traders have operated for DECADES.  You have to take positions and, in fact, your customers should, in general, want you to.  Their job as customers is in part to figure out who on the street has positions in what they want to buy so they can ask you to make an offering. Conversely, if they want to sell something, the best buyer is likely the one who is short that security.   This is where a talented salesperson comes in who has a long-term relationship with the client. That person helps to bridge the divide between what his client may want and what his trading desk is positioned to do. The most common question asked every single day to me for 10 years as a trader was: ‘what is your axe?’ Meaning what are you the best buyer or seller of today? What this does is allow the salesperson to go to his client and let him or her know what her trader wants to do and thus become the best buyer or seller of. This is called a win/win.  This approach worked when there was relationship and that relationship was based on telling the truth.

I know this is a very long paragraph but I believe that there is so much misunderstanding about the business and it makes me nuts.   Bottom line: if people don’t trust each other, none of this works.  Our financial system is built on TRUST and if that trust breaks, really breaks, look out.  Game over.

Another major change over the past 10 to 15 years is that customers have become huge and do huge trades. In my day, a $100 million trade was big; now trades can be in the billions. Many customers are much bigger than the firms they trade with. Mr. Smith himself says he works with customers that have total assets of over a trillion dollars. Further, there never used to be so many mega hedge funds. Hedge funds are not good or bad, but my experience has been that they are less open to sharing information. They trust the street less. They are truly paid on how much money they make, more so then the average street trader or institutional customer. In discussion with many a hedge fund manager, they often say ‘we treat Goldman and any other firm like another hedge fund.’ In other words, we don’t trust them, think they are only out to make money for them.  Which came first, the chicken or the egg?

I have heard many in the business ask this troubling question about the current state of affairs, ‘who is a customer anyways?’ Wow. Back in 2000 when I left trading, the lines were starting to get blurred but now it seems that the lines may be gone altogether.  It used to be that, generally speaking, both sides of the trade cared about the relationship as it was in their mutual best interest to care over the long term; both needed each other for liquidity, ideas and more.  When everyone starts seeing each other as competitors, that is a big problem.  The goal ceases to be one of building relationship and becomes instead to win.  Not to be overly dramatic here but think about war crimes for a second.  How do people justify doing what they do to other people?  They stop seeing them as human beings. How does the street perhaps justify what they are doing?  They are not clients. And vice versa.

Let me give you an example. It is not uncommon, I am told, for a trader to be asked to sell a large block of bonds, hundreds of millions, only to learn that many other dealers were asked to do so at the very same time resulting in instantaneous losses and an inability to buy back what you sold or anything else that might provide a hedge for that sale. Such ‘customers’ are not innocent victims but the opposite. Is it right for that trader to no longer be transparent with that customer? Yes.  The vicious cycle of mistrust begins. In the old days we knew which customers could not be trusted and we adjusted our prices accordingly but traders often found themselves in a ‘catch 22.’  When the next trade came, they would adjust their prices expecting to get bamboozled and then the client would often scream bloody murder about how much the trader ‘sucked.’  The opposite could easily happen as well.  A salesperson would give the trader a ‘heads-up’ that the client was thinking about doing a big trade based on their relationship and the trader could inappropriately jump ahead of it.  The client would figure this out, accuse the salesperson who would then accuse the trade and bingo, trust broken.  My point is, at the end of the day, TRUST is what makes it all work.  Without that, you have nothing.

Firms like Goldman do not make money on every trade, and it is not as one-sided as Mr. Smith makes it out to be.  Did I ever ask the question of my traders ‘how much money did you make on that trade?’  Of course, and that was my job as desk manager, but again, it is not so black and white.  Making money might have meant a smart and hard-working trader bought a block of securities at a low price months earlier and worked hard to tell the story of why that security was so undervalued before selling it to an educated client because he/she thought it would go up even more.  A more common example is that a trader positioned herself long before an economic announcement, then the market went up and that trader was given an opportunity to sell a block of bonds to a customer at the most competitive price.

Please don’t read this as poor Wall Street firms and big bad customers, that is NOT what I am saying, but the discourse has been so skewed and should be at least partially rebalanced. There are huge issues on BOTH sides of the equation.

Is this all to say that clients do not get “their eyeballs ripped out?”  No, they certainly can and do but institutional clients are, in my experience, smart too. They usually quickly figure out that they’re getting ripped off and will stop doing business with that trader and salesperson.  I know the whole ‘buyer beware’ thing can be an excuse for a lot, but we are talking about institutional clients and not ‘Mom and Pop’.  Also, in my day, if the client felt they were being ripped off they would call their salesperson first, then the sales manager, and often the head of the division.  It was not uncommon for the sales manager and department head to march over to a trader to talk about a ‘situation.’ This was not a good thing. At the end of the day, the trader had to care about the customer and not just about making money because it was in their best self-interest to do so.

Notice I am not going to that dark place of talking about sub-prime mortgages, CDOs, CDOs squared, credit derivatives and more. That is an essay in and of itself and really not the point of Mr. Smith’s article. So much junk was created that should never have been with disastrous consequences and that will be a black mark on the whole industry for a long time, as it should be. That in and of itself is testimony to the industry in general having lost its way. When you create toxic waste and market it as if it is was not, you are indeed harming your moral fiber. I know many people who were in ‘that business’ who quit because they could not in good faith sell the crap they were being asked to create and market. Too many people leaned on the ‘buyer beware’ clause and forgot to look in the mirror. As per the war crime example above, they stopped treating their customer like a customer.

Next question: Is Goldman Sachs, as Mr. Smith says, on a serious decline with respect to their moral fiber? I cannot answer that from my personal experience of late, but I will say that the Goldman Sachs I joined in 1988 was not the same one I left in 2002 from a culture perspective. That is one of the reasons I left too. When you put your values out there so publicly you better damn well honor them. No one wants to intentionally be a hypocrite. This was the big point in Mr. Smith’s article. As long as he believed what he was saying, all good. When he stopped believing it, he had to leave.

So what was my story? In my later years at Goldman I was promoted to a position wihin the Executive Office where I was responsible at some level for the people processes of the firm. As mentioned, I served on the Partnership Committee, which was a HUGE honor. I witnessed people getting promoted who were not positive ‘culture carriers’, and I knew exactly where people were ranked and what was said about them by their bosses, peers and more.  I also knew what every managing director got paid. I sat and listened to arguments about how commercial people HAD to be promoted despite being poor team players, downright jerks or much more. That really pissed me off.

I also heard business leaders fight passionately for their people who were amazing positive culture carriers and less strong commercially. These same leaders fought against promoting the commercial animal/jerks and often won. That made me happy.  For both categories of people, there was frequently a fight and the more powerful leaders’ candidate often won. Not surprisingly, partners who were great culture carriers generally had people working for them who were as well and vice versa.  What made the firm GREAT for so long is that one held the other in check. You need people who are very commercial but they cannot dominate or you risk the outcome that Mr. Smith described.

During my time at the firm, there were a lot of people in that optimal category who were both great commercially and culturally, and those were the people who were quickly and unequivocally promoted. If you were to ask me, ‘did people get promoted who should not should not have?’, I would say yes. There was always tension but, more often then not, the right decisions were made. Great people got deservedly promoted. Was it perfect? Of course not, but it was pretty damn good.

Many people over the past few years have told me that Goldman has increasingly become tilted towards the money side at the cost of the firm’s character. I cannot tell you the number of times I have heard ‘Goldman is not the place it was’ and that truly breaks my heart. Mr. Smith was right in saying that a trajectory of descent occurs over time when more and more people are promoted who are not good culture carriers. It that is the case, then correcting this will also take time by weeding out the toxic people, and promoting ones who are BOTH commercially and customer-oriented.

The Goldman Sachs of my memory was indeed a very special place and was recognized as such in countless ways over decades and decades. It was the professional home of not only some of the smartest people I have ever met, but the most generous and kind as well. Books were written about Goldman’s culture because it was great, it was different, and I am sure that the firm’s founders and historical leaders would be devastated by the article that was written, as was I.  A person who comes to mind is John Whitehead, one of the most ethical and service oriented human beings to ever walk the planet. I would like to know what he thinks at this moment.

I also have to make this point: Mr. Smith likely does not know even the tiniest fraction of the 30,000 something people who work at the firm, the majority of whom are a long way from the trading floor in Europe or anywhere else. The vast majority of people do their job in a deeply respectful way. It is just not right or fair to paint all people who work at Goldman, or Morgan Stanley, or any other firm with the same brush. Most don’t make a million dollars a year and most are not ‘masters of the universe.’  Most are just normal, good people who chose a career in finance when that was a really acceptable thing to do.  It seems to me that Mr. Smith is really speaking to the ‘five different managing directors’ who he has had deep interaction with and the upward chain of command that promoted them to those positions. Maybe he is also talking about the trading businesses in general but he is certainly not talking about the 1,200 people who live and work in Salt Lake City? Has he ever even been there?

So what now? Will this article have consequences? I hope so. These are very serious accusations from a credible person in my view and I hope it does indeed provide a ‘wake-up’  (quote from Mr.  Smith’s piece) call to the board of directors. It is their responsibility to ensure that promotion and compensation decisions are not divorced from peer reviews and customer feedback. It is their responsibility to ensure that traders, and especially ones who do not have the best interests of clients in mind, do not dominate the firm. It is the board that is accountable to the shareholders and before they take another paycheck, I hope they ask a heck of a lot of questions and get honest answers. If those answers do not reflect the kind of behavior reported by Mr. Smith, then they would have done their job, this story will fade, and Goldman will go about its business for another 143 years. If the answers are the opposite, there should be accountability.

I am not defending Goldman nor am I attacking them. I just cannot as it is just way too personal for me. At times, in private conversation, I can be their most passionate supporter, and at other moments, their worst critic. Both come from a place of wanting Goldman to be what it was, and what it could and should be. Thoughts of parenting come to mind.

I am so grateful to Goldman as it was there I met my husband, it was there that I developed quality relationships that have lasted decades, it was there I learned so much about myself, it was there I was made a partner before the firm went public, and it was there that ignited my passion for the advancement of women and girls. On the other hand, I do believe that the firm has changed and perhaps lost hold of the business principles that made it so great and so special for so very long.

This I know to be true: If you promote people into leadership roles who are bad people, the outcomes will be bad over the long term. If you promote people who are all about their paycheck, the culture will be all about the paycheck. The opposite is true as well.  Has Goldman become full of bad people who really only care about money, money, money? I will leave that to the board of directors to figure out. I sure hope not.

To Mr. Smith: If what you described in your OpEd was indeed your honest and unembellished personal experience, you were right to quit, and it was very brave to put yourself out there. If not, and you are a disgruntled employee who wants his moment in the sun, shame on you. Either way, as you did currently state, without clients they will not make money, or at least make a heck of a lot less.

In the words of Forest Gump: “And that’s all I have to say about that.”

47 Responses to ““Why I Left Goldman Sachs” (VERSION TWO)”

ErikcorrMarch 18th, 2012 at 12:36 am

Very objective and on a further note organizations over time do decline, and very likely he is right, just look at the other organizations and how they have declined, US education, US Senate, State governments, local governments, the DMV, the Police, Lawyers, the Music industry etc…

SP BiloxiMarch 18th, 2012 at 1:27 am

Very insightful statement. It is crucial that Goldman Sachs and other investment firms change the culture within their companies and change their behavior. Clients come first, profits come last on the list and it shouldn’t be the other way around.

KennethMarch 18th, 2012 at 6:16 am

No where in Greg Smith’s Op-ed letter was he criticizing the other 28000 GS employees that he has no interactions with. He was directing his criticism to the leadership of GS and that leadership no longer has the moral fibre required of a great organisation.
Strip the corporate veil and GS is as naked as it can be.

ex-Goldman internMarch 18th, 2012 at 7:42 am

Thanks Jacki for a well-written piece. FYI, a respected Chinese business newspaper in China reported on the Greg Smith op-ed, and the report also quoted an ex-Goldman MD who’s just left Goldman, the ex GS MD says “I basically agree with Greg Smith’s views, many people have seen the problems (at Goldman), but very few would speak out publicly.”

Below is link to the Chinese report and the quote from this ex-Goldman MD:

http://www.21cbh.com/HTML/2012-3-17/5NMzE0XzQxMDI5NQ.html

史密斯的公开信让他震惊,但他基本同意其观点,“许多人看到了问题,但很少有人公开说出来”。

BearMarch 18th, 2012 at 1:11 pm

143 more yrs? You do realize GS went belly up in 08 ? What makes you think these guys will manage to stay solvent?

Dave ForemanMarch 18th, 2012 at 8:47 pm

Thank you for giving your honest opinion. I wish more people had the guts to speak their mind, spelling errors and all. We need the truth, not a polished carefully balanced version of it.

Whitney TilsonMarch 18th, 2012 at 9:14 pm

Jacki,
This is the best article I’ve read on this — kudos! But I think there are two typos that change what I think you mean to say:
1) It is their responsibility to ensure that traders, and especially ones who do not have the best interest of clients in mind, DO NOT dominate the firm.
2) If those answers DO NOT reflect the kind of behavior reported by Mr. Smith, then they would have done their job, this story will fade, and Goldman will go about its business for another 143 years. If the answers are the opposite, heads should roll.

N_RMarch 19th, 2012 at 1:45 pm

Jacki,

This is the best commentary by far I’ve seen on the Greg Smith op-ed. Yours was so well informed and very illuminating. It’s amazing how many people feel qualified to comment about Smith’s points, who clearly have only the most general grasp of the issues (e.g., inherent conflicts) at the heart of his arguments.

I consider myself to have a pretty good grasp of how an institutional equity trading desk works, but not the fixed income side, and so your specific description was extremely helpful. As was your putting the discussion in a specific context as to timeframe (talking about the difference between the 1980s, 90s, 2000s, and now the 2010s). I’ve seen a number of (what I now recognize as) superficial defenses of Goldman and unilateral denouncings of Smith – – based on the writer’s perceptions of the firm as he or she knew it in the 1990s or before!

Thank you, thank you, thank you. As someone who also works on the sell-side, I do have a lot of concerns about the basic ethical tensions inherent in our business, and I really was hungry to read something that seriously advanced the discussion, and I think your blog post is the first to do just that. (Because it advanced the truth by refusing to sort of thoughtlessly descend into designating heroes and villains.)

The Epicurean DealmakerMarch 19th, 2012 at 3:07 pm

Well done.

Changing culture is very hard and takes a long time, because it becomes self-reinforcing. Bad guys like to hire bad guys like themselves. If Goldman truly has gone over to the dark side, it may never be able to come back.

I fear it is too late: http://epicureandealmaker.blogspot.com/2012/03/hypocrisy-as-business-model.html

Also, as you imply, it is senior management which must enforce the principles of a firm’s culture. Failing that, there is no hope: http://epicureandealmaker.blogspot.com/2009/07/fish-stinks-from-head.html

Lee Adler / The Wall Street ExaminerMarch 19th, 2012 at 3:20 pm

This post was way too long for me. I stopped when I got to the point where Jacki said she left GS in 2002.

What did Greg Smith have to gain by going public? Nothing. Whistleblowers are scum in today’s culture. They are heaped with scorn and opprobrium. Smith’s act was either an act of extreme courage or insanity. Either way, I’m with him.

As expressed here: http://wallstreetexaminer.com/2012/03/14/greg-smith-is-my-hero-bloomberg-not-so-much/

PSMarch 19th, 2012 at 7:30 pm

A Sample of the Wall Street/Washington Incest

JP Morgan 2004 (Mutual Funds)
http://online.wsj.com/article/0,,SB110435632010212266,00.html

Dimon For Demos 2009
Theodore Dimon (JP Morgan/Bear Stearns/Stockbroker), (Zip code: 10021) $250 to GEORGE DEMOS FOR CONGRESS on 11/25/09

George Demos 2010 (Disgraced SEC Enforcement Attorney)
http://www.politicsdaily.com/2010/01/28/long-island-congressional-candidate-cited-for-giving-up-jpmorgan/

Jamie Dimon 2010 (“Do The Right Thing”)
http://www.sec.gov/comments/df-title-ix/whistleblower/whistleblower-24.htm

JP Morgan 2012 (Credit Cards)
http://www.rollingstone.com/politics/blogs/taibblog/j-p-morgan-chases-ugly-family-secrets-revealed-20120313

Sign The Petition 2012 (What The Hell Is Going On?)

http://www.change.org/petitions/ny-committee-on-professional-standards-make-public-the-investigation-of-george-demos

AveryMarch 19th, 2012 at 8:03 pm

Does the bad press hurt your feelings? Cry me a river. I don’t care how many “generous people” may once have worked at Goldman Sachs, or any other Wall Street firm. The people working their over the last decade leveraged that reputation and sold it for a fortune. It’s gone.

Tens of thousands of families have been desperately hurt by the short-term greed of financiers, and we are not going to forget it anytime soon. Bankers and brokers have a decade or more of work to do rebuilding the “trust” that you claim supports their livelihood if they want to be thought anything other than rather shabby vampire squid. I don’t think they can do it.

A Former TraderMarch 19th, 2012 at 9:03 pm

Thank you for your insider perspective on the issue of integrity and responsibility. I appreciated your candid remarks and totally understand what you mean by “Parenting”. I worked as a trader at a large hedge fund and one of the principles that made the fund successful was the absolute commitment to fairness- to not only our clients but to our brokers as well. I well remember the time I was chastised on the floor when I knowingly traded on a misquoted price by a LME floor broker. I was made to call back in front of everyone, apologize and accept the trade at a much lower price. Lesson- do not screw the people you work with. They also have to make a living.
I certainly don’t know much about the Goldman culture but I hope that folks like you who care deeply will be listened to by the management.
Thanks again for a well balanced response.

jphMarch 19th, 2012 at 9:07 pm

John Whitehead. wow. good call. Had a chance to meet him only briefly– at a book signing for his autobiography some years ago. But i was so impressed. such a charming, intelligent gentleman. (intelligent also in the emotional sense).

RichLMarch 19th, 2012 at 9:14 pm

To: Lee Adler

Aren’t you just a little ashamed that you have an opinion without reading the article?

In 7 short sentences you’ve exposed the problem that the press has always had – LAZINESS.

williambanzai7March 19th, 2012 at 11:19 pm

I don’t think AIG got its eyeballs ripped out. Neither did Goldman…as for Main Street, Uncle Sam and the functionality of the global capital markets…

MichaelMarch 20th, 2012 at 1:06 am

Excellent commentary, and I appreciate you sharing your experiences and honest opinion. I used to work at Arthur Andersen and witnessed first hand what can happen when ‘revenue generators’ are valued over ‘quality generators’. Everyone ends up losing…clients, employees, and the industry.

Let’s hope that never happens again.

CarlosMarch 20th, 2012 at 2:37 am

I do want to know if the Logo of Goldman Sachs is an advert on your website? Does that means they paid you to have that logo advert there? I just want to know before I can comment on your “liturgy”. Thanks

MichaelMarch 20th, 2012 at 9:49 am

Carlos, the $5/month (or even $1000/month) the advert would net is chump change to a person with her background. Don’t be a chump.

Best Smith commentary I’ve read yet. I wish it was longer ;-). Thanks

John BeltranoMarch 20th, 2012 at 2:00 pm

Well, I’d be surprised if some retired executive from GS didn’t come up saying that Greg was wrong. And of course the clients are going to say they’re being treated well because THEY ARE. The best thieves are the ones who make the victim unaware that it is one.

MichaelMarch 20th, 2012 at 2:33 pm

Mrs. Zehner,

I think it is marvelous that persons like yourself are responding to the article posted by Mr. Smith. I think it is important that your industry is recognizing that there is some validity to the issues Smith raises and that, agree or disagree, the simple fact that people are talking about it is a testament to the current state of the trust in Wall Street and its system.

I write a periodic newsletter that evaluates the market. It is circulated among a small group of friends and, basically, it explains where I am personally looking to invest and why. If the friends like the ideas they are welcome to risk as much or as little as they want. On their own and after doing their own homework. There is no charge for the paper or service, ever. Yesterday we also responded to Mr. Smiths Op-Ad and I wanted to share a portion of that with you. Partly because I agree with most of what you have written and partly because I did not like that you gloss over the bad acts of the last few years that created, in large part, the current culture of which Mr. Smith speaks. This is only my humble opinion, of course.

Banks like Goldman share a fundamental problem by their very nature, and that is what Mr. Smith is pointing out. How can a business like a Goldman Sachs or Bear Sterns keep the interest of their clients front and center when their own interests are opposed to the client’s in a given transaction?

The most blindingly clear example was the mortgage short trading that was the lynch pin to the decimation of the US economy in 2008-2009. Where Investment banks were selling their clients security packages wrapped up in bad or overextended debt. Which, in and of itself, wasn’t the bad act. Anyone can make a mistake.

The poison was that these very banks creating these investment vehicles, selling them to retirement fund clients, some of whom represented the most vulnerable of the investing public, fixed income, KNEW that what they were selling was absolute crap. They were betting their own money on it, a hardly defendable position.

Investigation after investigation in the aftermath showed overwhelming evidence to support the fact that these banks operated with one goal in mind. Make the most money at the expense of their own clients well being. As despicable as that sounds, it is not in dispute? At some point the investigations were just closed, perhaps out of fear that further scrutiny wasn’t going to make the situation any better. In fact, it would most likely continue to make things worse. And, at the end of the day, we had to begin to recover.

But what is most important about Mr. Smith, the reason everyone should take five minutes to read his thoughts, is that he points out our worst fear. That NOTHING HAS CHANGED! After all of the loss and hardship caused by the fox watching the hen house, not a damn thing was learned or fixed. And Smith is warning us that, continued unchecked, we are only one bad trader’s greed away from another disaster.

The fact is that banks like these are necessary. They are what make opportunity for growth and retirement earnings available where they would not be to the common American. We McDonald’s McMuffin eating work-a-day Joe’s that could never in a million years afford to risk our paycheck buying Apple stock every week. We are the Majority of the investors in the market through the vehicles that these banks create. But, at the same time, we are the most vulnerable as well. It is because we have to rely on the Goldman Sachs and Bear Sterns etc. to look after our future for us. And that isn’t necessarily a bad thing.

They act in our interest for a fee, it is by no means free. By providing them access to our collective funds we give them the ability to operate in the big show. The leveling factor has always been trust. We trust them, and in turn, they are well compensated for that trust. What Mr. Smith is warning is that the trust once governed by some moral compass has all but disappeared. That the culture of investment firms remains unchanged from that which brought our Country to its financial knees. The products have been repackaged. Spit shined. Bleached by loosely effective government intervention that has proved it has no real power to regulate the actions of Wall Street. So beware.

If nothing else, the lesson we should all take away here is that we all must become our own advocates when it comes to investments and retirement planning. The ability to trade using internet tools has never made it easier or made information more accessible. But the whole process fails if we do not rise to the occasion.

Lastly, if you take Mr. Smith’s farewell to heart and believe he is even 1 percent correct about the mindset of those guys still holding the purse strings, be proactive. If you allot 9% of your pay to your companies 401K, cut back to 7% and invest 2% yourself. Start slowly if you need to. Realize that if you place all of your trust, and money, in the self-interested investment-banking sector and get burned again, you may only be able to look in the mirror when looking for whom to blame.

Will Mr. Smith’s call for a return to integrity be heeded? Unfortunately NO! Don’t bet on it… Literally. It is unfortunate, but it is where we have come.

david guarinoMarch 20th, 2012 at 2:47 pm

Jacki,

Thanks for enlightening us a bit from your own very special perspective. I was also in the industry but from a service perspective and have a very different background from your own on the “inside”.

You have mentioned a couple of things that most of the general public can relate to, not just Goldman staff or its clients. TRUST makes everything that we humans do work, without it we grind to a halt. I think that’s clearly where we are in our political discourse and unfortunately also in many of our businesses dealings as well. Since the financial meltdown of the housing bubble (which most of its participated in in some way or other), nothing has been rectified and we are wallowing in the mire. It’s unfortunate but true, but if we were to do as the Chinese who simply condemn and kill the guilty as an example for the rest, things might change. Fortunately that’s not how we operate, but there needs to be some REAL atonement for what went on, at least as a way to help get beyond the fruitless situation we find ourselves in now. Nobody listens, we fingerpoint and shake our heads, and nothing happens.

It is a shame that since Goldman went public things have changed, but I’m not surprised and I’m quite sure you aren’t either. That may be the unstated reason you and your husband aren’t there any longer. Working for the stockholder interest is much less personal than working for and emulating a leader like Mr. Whitehead, whom I’m sure is a wonderful man as you said. It’s unfortunate we don’t seem to have these leaders or figureheads to help guide us in the this new business culture. As great as Jamie Dimon and Jeff Imelt are, their positions just aren’t what they were before. We live in a different world now.

If you do really care to give back a little from where you are (understanding how you got there), please help put Goldman back together again. It would do a lot for all of us to see them on the right path again.

Thank you.

adminMarch 20th, 2012 at 4:46 pm

Thank you for your comments. This is my personal blog and not a public site like say, The Huffington Post. I will approve comments that are negative and reflective of your experiences if posted in a respectful way. If the comments are attacking, start with words like ‘you people’, or really not related to the content of this piece, I will not. So far there has only been one I have not approved. For those that have sent me incredibly thoughtful emails, thank you.

ChadMarch 20th, 2012 at 5:40 pm

Well written and well thought out article. Very balanced. Unfortunately, the trust you speak of has already been shattered. Greg Smith’s letter wasn’t a warning cry, but a symptom of what is happening after that trust has been destroyed.

Worden ReportMarch 20th, 2012 at 5:48 pm

I wrote a comment but I’m not sure if it took, as I got an error message (which I think was incorrect). At any rate, my comment regards whether you and Greg Smith will be enough to prompt enough customers to walk from GS that there will be any difference. In http://www.thewordenreport.blogspot.com/2012/03/ethical-leadership-integrity-recipe-for.html, I argue that instilling ethical leadership in GS might be more efficacious than relying on the market mechanism.

KevinMarch 20th, 2012 at 6:33 pm

I read your article in its entirety and felt a bit let down at the end.

It sounds like you left long ago (10 years) during a different environment, and worked in a completely different part of the company with completely different customers. A lot can happen in a decade–especially in one with such a tumultuous story. Companies went belly-up, and fear of insolvency can certainly cause a company to focus more on making money over sustaining such a great culture that you speak about.

The truth is, from a public perspective, Goldman is seen as the worst of the worst. It is a money making machine with (as Mr. Smith puts it) a Vampire Squid at the helm. Some inside perspective gleaned from the book “The Big Short” showed Goldman massively benefiting from the mortgage crash by taking out insurance policies on the toxic crap it was selling out the back door to its customers as a sound investment. That act doesn’t show a whole lot of scruples.

I agree with most of what you are harping on. Investment companies need to focus more on the customer and slowly develop trust with the community. I do not think that you have the current perspective to deny anything that was said by Mr. Smith in his article, however I appreciate your prose to persuade companies like Goldman to get back to the old ways of putting customers, rather than money, first.

-Kevin

SteveMarch 20th, 2012 at 6:57 pm

Thank you for the insights from the inside (as of 10 years ago).
I would ask an obvious question though. If the Board placed traders as the 2 highest positions in the company, would that not have been the earliest signal that the Board wanted the culture to change to the short-term profit model? Does not keeping those positions unchanged strongly imply that the plan, despite any rhetoric to the contrary, is to maintain that approach. In trading, the old axiom is “Trade what you see, not what you think you see.” With the actions (or lack thereof) taken thus far – what do you see?

CaseyMarch 20th, 2012 at 10:16 pm

In reference to the following passage: “Let me give you an example. It is not uncommon, I am told, for a trader to be asked to sell a large block of bonds, hundreds of millions, only to learn that many other dealers were asked to do so at the very same time resulting in instantaneous losses and an inability to buy back what you sold or anything else that might provide a hedge for that sale.”

Could you give a little more detail here. I’m assuming the traders are being asked to sell per a client’s request. Are the bonds being sold owned by the client? If so, would not the instanteous loss hurt that client as well? If they are not owned by the client, but a part of the investment bank’s portfolio, then why would the trader be so willing to carry forward the transaction?

ChrisMarch 20th, 2012 at 10:41 pm

Thank you for the insight. As a b-school student, I see many of my peers interested in and planning to do the recruiting for investment banks and specifically Goldman. In a way, I find it strange that many people are so willing to dedicate themselves to wanting to join a company before even knowing about it’s culture. But then again, maybe it’s one of those things that is hard to see until you’re actually in it.

Larry LMarch 21st, 2012 at 3:55 am

The culture you recall is one where the financial industry serviced the Main Street economy. Now the Main Street economy is made to service the financial industry. By accessing cheaply available money (0-.25%) the largest financial companies essentially do not need customers any more, as they create products that are booked as assets and self-lower their capital requirements. This allows them to prey on the economy-at-large, not service it. If you look back over the last decade at the level and amount of malfeasance and recidivism by the largest banks, there is no other conclusion to be drawn.

RedXpressMarch 21st, 2012 at 3:14 pm

Nice beginning – “I don’t know the guy, nor I know anyone who knows him personally”. And “I like brave people, and dislike cowards”. Then, obviously, since you try to destroy his arguments, you dislike him, which means you call him a coward, or in your words “passive aggressive”. Yea, mistreated, left out, disgruntled. Not somebody who got sick of his own role in the blood-sucking squid, that almost controls this entire nation…..
I don’t judge you, nor can I speak of your role in the “government sucks”. Just an observation.
And if I ask you a question of who is to blame for the state of this once great nation, for the financial crisis of 2008 (still in play), who’s to blame that capitalism is dead and we are living in a fascism, why every line of our society/life is so corrupt, I guess you’d say something like – that’s because gs and the likes have been too much regulated, right?

Thomas HillMarch 21st, 2012 at 3:26 pm

Thank you for a refreshingly detailed and personal perspective on Mr. Smith’s Op Ed. I work in the industry, but on the technology service provider side, and so do not have the same inside perspective on what drives my clients’ cultures (including the Goldman trading desks), so this was enlightening.

However, there is an aspect of this issue that I have been privately speculating about ever since Mr. Smith’s article first came out, but have not seen discussed in detail in any of the articles I’ve read. How much of the culture shift at Goldman that you and Mr. Smith have both felt is driven by inevitable changes in institutional incentives caused by Goldman going public in 1999?

I would be interested to hear your thoughts, but basically my thesis boils down to the naysayers at the (by all accounts extremely emotional) 1999 partnership meeting were right. Below is the argument, sorry about the length.

In all institutions subject to major structural change culture changes very slowly, as culture carriers like yourself gradually retire and new blood gets promoted into positions of influence. The process is often difficult to see on a day-to-day basis, but becomes clearer when observed over a long time span. So it seems to me that, given the timing of your two careers, the changes you noticed are not accidental. Mr Smith joined Goldman in 2000, when presumably the firm was still almost entirely populated by senior people who had spent their careers in a partnership. You spent most of your time at Goldman in the final partnership years, and left shortly after the firm went public.

In the partnership, the main goal would have been to make partner (in the real economic ownership sense, not the current titular award Goldman still uses to reward its top performers). And once a partner, the vast bulk of your personal net worth was hard-tied to the long term performance of the firm, very importantly including your retirement income and assets when you became a limited partner. This must have encouraged and incentivized the recruitment and training of customer-centered, conservative junior staff who could look after the firm when you left, and in whom you were basically entrusting your fortune (and for a retiring Goldman partner, it really would be a fortune). Similarly, the incentives for a junior staff member would be heavily stacked in favor of proving to the senior partners that they were worthy culture carriers who could be entrusted with the partners’ future — as well as people who were likely to stay at the firm their entire careers. After all, this was the path to personal wealth. You yourself must have succeeded spectacularly in this endeavor, to have made partner so young (and as a woman).

However, in the public company senior management and the board are primarily responsible to the stock price, and so incentivized to get caught up in the whole ROE arms race that the other tier 1 firms were playing (and which Goldman has been very, very good at). Thus they have an incentive to encourage aggressive, risky but profitable behavior in their underlings, even if it might be unethical. As for the employees, the primary route to personal wealth becomes the annual bonus. And cash or stock options, both are very short term when compared to a partnership stake. Once that bonus is cashed in, any sensible person would diversify out of the firm as quickly as possible, not because they believe the firm is at risk, but simply because they are presumably mostly smart investors. As for staying at the firm for your career, with true partnership off the table, there is always a powerful incentive to go elsewhere if a bigger bonus is on offer, hence the incentive to continually ensure that the firm pays the highest bonuses on the Street. And to pay these, you need short-term profits. So short-term profit taking is further encouraged.

The net effect — aggressive, risky behavior wins even when not in the interests of clients, and everyone’s mental time horizon gradually shrinks.

I hope I’m wrong about this, and would love to hear why. Because I fear that if this argument is correct, there may be very little the board or senior management can do, and over time Goldman’s culture will increasingly resemble that of its peer firms, even if it continues to outperform them because it hires smarter people for more money. And the Street will have lost one of its truly great institutions.

KalebergMarch 21st, 2012 at 6:48 pm

GS went public in 1999. Your husband left in 2000, and you left in 2002. There seem to have been big changes since then. Is this a coincidence, or did going public change GS?

DinoMarch 23rd, 2012 at 6:54 pm

Well written Jacki. But unconvincing. It doesn’t matter how the firm looked on the inside 10 years ago. What matters is that in the last decade, there have been dozens of instances when the real GS has been exposed. No one, but no one, pays s $550 mil fine to settle charges if they weren’t guilty. “Without accepting or denying guilt” is simply a shameless loophole that bankers paid the politicians to open.

GS and its people may well be doing god’s work, but they are human after all. And humans are not very good at being objective in situations where their own profits are at stake. And this applies to all bankers, not just GS; just that GS has been more shameless than most…

There are inherent conflicts of interest in today’s investment banking model – obvious enough for any high school kid to see. The banks want to be allowed to trade and underwrite and advise and finance – ostensibly because it allows them to serve their clients better. In actual fact, all it allows them to do is to front-run, to insider trade, and to play against their clients. Chinese walls, right. Traffic passes underneath the real one in China…

N_RMarch 25th, 2012 at 11:35 am

Jacki,

I would appreciate your thoughts on this: has investment banking culture become too internally specialized?

One thing that I know has shifted since the days I started working on the Street is the demise of rotational training programs. They were sort of on their last legs in the late 1990s, and I don’t think they’re standard now.

When people rail against the banks both creating (underwriting) mortgage securities and then shorting them as an asset class, I kind of understand their bad gut reaction, but it seems more clear to me that a bank with an inventory of securities needs to hedge it to offset risks, so the practice per se doesn’t bother me all that much. (I mean, at the time of the impending mortgage crisis, no bank going short the securities knew that trade would turn out so massively in their favor.)

But, those traders thus having a fairly confined worldview of who the “customer” is, and a sense of a duty only to make money for their desk (maybe oblivious to what it could do to the larger client relationship with the firm) seems to me an issue of overspecialization. I have had a bit of experience of dealing with clients as a lender (commercial banking dept. of a bank), as an equity underwriter, and as a principal in their stock. The commercial banking experience, especially, where in a bank you are closer to being an insider with the client (access to financial data and mgt plans that are not public, for the sake of credit modeling in what is contractually an ongoing, multi-year relationship and/or credit commitment) opened my eyes a bit to the different hats an institution can wear. As a result, I tend to think a lot when I’m involved with various transactions about where the customer’s interests are going to shake out vis a vis my firm’s actions.

It’s not like my own actions really change as a result of this sort of ongoing awareness (my role and responsibility relative to my firm and the client is pretty clear), but it definitely informs how I communicate with other departments regarding the client. (For example, I go a bit further to make sure certain departments are in the loop, and/or that everyone who should be “over the wall” compliance-wise should be.)

In contrast, I don’t have the assumption that, “well, I’ve done the letter of my job, and my part in this transaction is off my plate now, so all is good.”

So, I’m wondering if people are recruited and trained so specifically into the silo of their function nowadays that they’re clueless about the potential dominoes that they could be setting in motion, regarding the larger firm. And the tunnel-vision mindset, it seems to me, would get increasingly self-reinforced and insular, year after year, especially among those who are newer to than industry than the last crisis in the particular sector or product they cover.

As I think about this, I also feel that there’s much less admiration for the generalist (of any stripe) in banks today. It seems like it’s more like, “choose a function, be a star, move up that hierarchy” and darn the rest of the organization. I mean, I get it that a culture of specialization is more efficient nearly all the time (and a cheaper way to add new people for a bank’s growth), but it seems to me to carry some hazards as well, perhaps particularly at market and/or macro inflection points like we saw in 2008-2009.

So, has the demise of the culture of training and rotation made some of our current problems inevitable?

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