The Wall Street Journal has a report on Goldman’s new efforts to rebuild its damaged brand. The problem, of course, is that this is certain to be just that, a branding/marketing exercise, not an plan to make fundamental changes.
And why should it be? Goldman, even with the heat it received and the fines it paid, is still a spectacularly profitable firm. The cost of its, um, improprieties are vastly less than the ill gotten gains. So there’s no reason, from the firm’s perspective, to do anything more than damage containment.
As important, Goldman is a cult. I say that as a former employee, based not just on my experience a very long time ago (boy, am I getting old, more than 25 years ago) but also on reports I get from recruits and what I can infer from press reports. If anything the firm has become more inward looking over the years
The people there honestly believe that working for Goldman is the most elevated calling (Blankfein’s bizarre-sounding “Doing God’s work” remark no doubt resonated within the firm) and doing anything else is a fall from grace. Seriously. People who exit Goldman typically take a year or two to get over it the deeply-inculcated belief that departure = failure (this isn’t my own response; I’ve had a number of men volunteer that to me). Similarly, the first person I met at Goldman, which was through personal contacts, made it clear he was blocked in her career (his boss was too close to her in age) said he couldn’t possibly work for another firm. It wasn’t that he had assessed the tradeoffs and decided on balance it was still better to stay; he literally recoiled on a psychological level from the idea of departing. That sort of deep indoctrination was not at all unusual.
And people who had managed not to imbibe the Kool Aid were viewed with some suspicion. I left as a pretty junior person; the only reason I was remembered was a woman in investment banking in the early 1980s was an unusual commodity. Someone who checked out my reputation years after my departure said the party line on me was “She could have made partner, but we would have had to break her.”
Cults are marvelously effective forms of organization. Goldman managed to keep the real productivity-destroyer on Wall Street, internal jockeying, to a minimum (within the partner ranks) and extract even more slavish devotion than is achieved elsewhere on the Street.
But this simply means Goldman is a particularly well tuned machine. And as the constraints on financial firm bad behavior have been eroded by cultural shifts in the industry (the elevated importance of trading), the broader culture (a more widespread acceptance of “might make right” thinking) and the end of the partnership model (which made the firm’s leadership keenly aware of their downside risks), this machine has increasingly been turned to socially destructive ends.
From the Wall Street Journal:
Goldman Sachs Group Inc. is taking its first steps to change the way it does business after it weathered harsh criticism and paid a $550 million fine tied to its actions before and during the financial crisis.
The Wall Street firm, which is trying to rehabilitate its public reputation with an ad campaign that, among other things, tries to show how it helps create jobs, is planning to make changes in the way it reports its finances and how it relates to clients, investors and analysts, people involved in the planning say. It has also gone outside the company and hired an executive who has been a vocal critic of Wall Street pay practices and weak corporate governance
Goldman announced in May that it formed a Business Standards Committee to reshape its business practices and mend its reputation. Chief Executive Lloyd Blankfein said at the time that “there is a disconnect between how we view the firm and how the broader public perceives our roles and activities.”
Yves here. It isn’t hard to see the disconnect between the spin the firm is putting out, that it is changing how it is doing business, and the list of things that follow, which are entirely cosmetic. Even the move to hire Bess Joffe, formerly of shareholder-advocacy firm Hermes Equity Ownership Services, is a mere PR ploy. Hiring one executive is not going to make a dent in Goldman culture or processes. And the Journal tacitly acknowledges that later:
Goldman’s Business Standards Committee is examining conflicts of interest and attempting to set guidelines for the firm’s activities involving structured products such as collateralized debt obligations. It is also deciding whether or not to make more disclosures in its financial reporting.
Mr. Elson and others question how much change a committee like Goldman’s can make because it is staffed mostly by insiders at the firm. Companies that have gone through major investigations typically hire outsiders to overhaul business practices. Goldman’s committee is made up of 17 people, nearly all of whom are business heads and senior staff. Former SEC Chairman Arthur Levitt, who signed on in 2009 to advise Goldman on public policy issues, is also on the committee. “Often, the only way to make real change at companies is to change the leadership,” Mr. Elson said.
The irony is that Elson is head of the John L. Weinberg Center for Corporate Governance at the University of Delaware. The Weinberg family brought the firm to its preeminent standing and believed in the famed “long term greedy” approach to banking, that a parasitic approach to banking was short-sighted and destructive to the franchise. The Weinbergs are reported to be very distressed about what has happened to Goldman, but the attitude, of treating customers fairly, is now seen as an antique artifact rather than sound business.