- Shares in New York plunged 3.4% after Greg Smith's resignation in open letter to New York Times
- He blamed top bosses for 'decline in moral fiber' and being more interested in making money than looking after clients' interests
- However, sources today claim he was disgruntled after losing out on promotion
Goldman Sachs was hit by a £1.3billion backlash following a devastating attack on it as ‘morally bankrupt’ by one of its senior executives.
Yesterday critics including Business Secretary Vince Cable weighed in on the controversy sparked by London-based Mr Smith.
Mr Cable said at a British Chambers of Commerce conference in London: ‘This letter has inflicted severe reputational damage on Goldman Sachs and they will pay the price for it.’
Mr Smith, announcing his resignation in an open letter in the New York Times on Wednesday, blamed two of the bank’s top bosses for the ‘decline in the firm’s moral fibre’.
Shares in the bank fell 3.4 per cent in New York trading as the shockwaves hit, although it still left the company worth an estimated £36billion.
Mr Smith, 33, an executive director, was praised for his moral courage after quitting his £3million a year job in despair at the company’s dubious ethics.
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Success: Stanford graduate Smith had worked for the company for 12 years and was based in London, but had passed over for a bonus at the last round of pay-outs, it was claimed
A male friend, who declined to be named, said: ‘He’s thrown his career away for his principles. I admire the man and I admire his courage, but there is no way I’d do it myself.’
But some inside the company claimed he actually left because he was disgruntled about not getting a promotion.
It has been suggested he had argued with his supervisors over the size of his bonus, which would have been paid out in February.
His clients are believed to have included some of the world’s largest hedge and wealth funds.
Whatever the reasons for his resignation, in his letter he revealed that staff have so little respect for clients they called them ‘muppets’ and talked of ‘ripping eyeballs out’.
‘I can honestly say that the environment now is as toxic and destructive as I have ever seen it,’ he wrote. ‘It makes me ill how callously people talk about ripping their clients off.’
Goldman’s management claimed his views represent a minority opinion at the firm.
Mr Smith also found himself ridiculed on Twitter for claiming success at table tennis. He wrote in his letter that his ‘proudest moments’ in life included ‘winning a bronze medal for table tennis at the Maccabiah Games in Israel, known as the Jewish Olympics’.
One Twitter user said: ‘Bragging about winning a bronze? In ping-pong? Really?’, while a website for table tennis enthusiasts said it had ascertained that the success had been only at junior level in 1993. Mr Smith was born in South Africa and won a scholarship to study economics at Stanford University in America.
In a statement to the bank’s employees, Mr Blankfein and Mr Cohn said: ‘We were disappointed to read the assertions made by this individual that do not reflect our values, our culture and how the vast majority of people at Goldman Sachs think about the firm and the work it does on behalf of our clients.’Enlarge
'Greedy': In the letter, Smith claims the money-obsessed attitude will be the downfall of the investment bank
A Goldman Sachs source told the Daily Telegraph that Smith was on the second tier of five in the company hierarchy.
The top staff could expect to reach the third rung, managing director, by 30, the source said. Those that didn't would never make it, they added.
Other reports suggested he had argued with his supervisors over the size of his bonus.
The company had cut its pay and bonus payments for 2011 to $12.2bn (£7.4bn) - down more than 20 per cent on 2010.
Profits for the last quarter of 2011 had fallen by half on the same period in 2010.
Despite some criticism Mr Smith, who was born in South Africa and won a scholarship to Stanford University in the United States, was being described as a ‘legend’ by friends on Facebook.
One wrote: ‘Wow – courageous stuff Smithers!’ Another said: ‘I am very proud of you, Greg. You are showing the world their higher selves.’
But many comments on Twitter were less supportive with one person tweeting: ‘Greg Smith isn’t a whistleblower, he’s just a Goldman Sachs executive having a midlife crisis.’
The company's two top executives released a statement saying: 'It is unfortunate that an individual opinion about Goldman Sachs is amplified in a newspaper and speaks louder than the regular, detailed and intensive feedback [employees] have provided the firm.'
In his letter Mr Smith said that in sale meetings, his colleagues spend every minute talking about how to make money off people, rather than how to help them.
And, he added, this environment is not conducive to modelling employees interested in integrity rather than their bonus.
He adds: 'I truly believe that this decline in the firm’s moral fiber represents the single most serious threat to its long-run survival.'
He claims it is a far cry from the company he joined - a place where integrity ruled, and his pride led him to appear in recruitment videos and at job fairs.
But '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'.
He has some advice for the company's bosses: 'Make the client the focal point of your business again. Without clients... 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.'
In a statement, Goldman Sachs, which employs 33,000 around the world, said it disagreed with the way Smith suggested it ran its business.
It said: 'In our view, we will only be successful if our clients are successful. This fundamental truth lies at the heart of how we conduct ourselves.'
In a statement to employees, Cohn and Blankfein added: 'We were disappointed to read the assertions made by this individual that do not reflect our values, our culture and how the vast majority of people at Goldman Sachs think about the firm and the work it does on behalf of our clients.
'It is unfortunate that an individual opinion about Goldman Sachs is amplified in a newspaper and speaks louder than the regular, detailed and intensive feedback you have provided the firm.
'Our firm has had its share of challenges during and after the financial crisis, but your pride in Goldman Sachs is clear. You've not only told us, you have told external surveys.
'We are far from perfect, but where the firm has seen a problem, we've responded to it seriously and substantively. And we have demonstrated that fact.'
GOLDMAN: AN ETHICAL HISTORY
This is not the first time the integrity of Goldman Sachs has been called into question.
It was widely implicated in the global financial crisis.
In a civil lawsuit, the US Securities and Exchange Commission claimed that in 2006 Goldman created and marketed a product based around doomed sub-prime mortgages and sold it to investors, earning $1 billion.
The company was accused of failing to disclose to investors key information on the product - including thatit had bet against it -and its worrisome risks.
As many individual investors and pension funds had invested in the packaged products, risk was spread throughout the economy.
As it was not clear exactly what bad debts were being packaged and sold, banks became apprehensive about lending to each other in fear they would be lumped with a bad deal.
The government was forced to lend banks money to restore liquidity.
Goldman Sachs, which settled the civil suit for $550 million, was also accused of withholding information from clients in 2010.
The bank denied any wrongdoing and defended its practice of issuing conflicting research to customers.
The fact that many of Europe's leaders, including the head of the European Central Bank and Italy’s finance minister, have connections with Goldman or worked for the firm in the past remains controversial.
Goldman, which was bailed out with $12 billion by the U.S. government in 2008, has also come under fire for its eye-watering bonuses. In 2010, it set aside $15.3 billion for salaries and bonuses, while CEO Blankfein’s most recent bonus was $7 million.
It also rattled American taxpayers by announcing it would fire 1,000 U.S. employees and re-hire workers in Singapore.
But Smith's cutting words garnered support from commentators, who said they hinted at a larger problem.
Anthony Michael Sabino, fromPeter J. Tobin College of Business atSt. John's University's in New York, said: 'Greg Smith’s comments are well taken, but he didn’t have to limit them to his former employer.
'What he decried can be applied to much of Wall Street, which has lost its way in the last decade as it blindly jumped into risky subprime lending, overleveraging to the point of absurdity, and essentially leaving common sense locked in the closet for the duration.
'We can only hope that the Street, now properly chastised, has learned its lesson, and returns to sensible - instead of nonsensical - business practices.'
'Goldman Sachs must take drastic action to restore its reputation and that action must start at the top.'
Smith grew up in a middle class family in Johannesburg in South Africa before moving to the US.His father was a pharmacist and his mother is thought to have been a housewife. The two have now divorced but his mother still lives in Johannesburg.
He went to King David School in the Linksfield area of Johannesburg, which is a private school for Jewish families.
Jed Margolis, executive director of Maccabi USA, said: 'I’ve spoken to one of Greg’s good friends who volunteers with us and he said Greg is an exceptional person.
'He is very ethical and ethical issues are often something that he thinks about. He would not have done this lightly and would have given it considerable thought.'
Mr Smith’s former table tennis coach Rainer Sztab added: ‘He was a great guy and was clearly going somewhere.
'He came from a pretty ordinary family but really wanted to make something of himself and had said for some time he wanted to move to America. I’m surprised he has done what he’s done and I hope he is OK.'
Smith studied economics for four years at Stanford University and graduated in 2001. The college confirmed he was given a scholarship but was not able to disclose how much it was for.
Smith was one of 10 finalists but only four got a place - and he missed out.
A person familiar with the Rhodes application process said: ‘If he got that far academically he was brilliant.
‘It is not usual for people in such a position to take a job with a company like Goldman Sachs for a year or so between university and going on the Rhodes Scholarship. Firms like Goldman seek them out as they are the best.’
Friend Ahsan Malik wrote on his wall: ‘Ballsy stuff. I would expect nothing less from you.’
Friends said that he was aged around 33 and that even though he had been working at Goldman Sachs for 12 years, his future was far from certain.
A male friend, who declined to be named, said: ‘I’m guessing he’s got some money saved up but not millions.I can’t imagine he is going to get a job working for any of the big banks after this either.
Influential: Investment bank Goldman Sachs, founded in 1869, employs more than 30,000 people
‘He’s thrown his career away for his principles. I admire the man and I admire his courage, but there is no way I’d do it myself’.
It is not the first time Goldman Sachs, which was set up in 1869, has been described in a less-than-favourable light.
REACTIONS FROM EMPLOYEES
DealBook has collated reactions from former employees. They include:
- 'I think blaming the top alone is unfair. It’s largely conjecture, but I think Lloyd and Gary care very much about the firm, its people and its culture. The firm is their lives, identity, and legacy, right?'
- 'He has some really good points, and a lot of people feel this way. Maybe this will be a catalyst – him quitting truly validates [my leaving].'
- 'If Greg Smith had his eyes truly open, he would have had the same issues six years ago as he had last week. He just didn’t want to leave yet.'
- 'He took the words right out of my mouth. To add to one thing, I had never heard the term "rip someone’s face off" until I started working at Goldman Sachs. Unfortunately, that phrase was all too often used in the context of client transactions.'
Joshua Brown, a New York City-based investment adviser, pointed out on his blog on Wednesday: 'The "culture" of Goldman Sachs was, is and always will be about making money, often at the expense of a client.'
In Rolling Stone magazine in 2009, writer Matt Taibbi famously described it as 'a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money'.
It has also been at the centre of numerous controversies, including accusations of misleading investors, profiting from the 2007 sub-prime mortgage crisis and handing out eye-watering bonuses.
London-based trader Fabrice Tourre, the self-proclaimed 'Fabulous Fab', was accused by the SEC of selling the product, Abacus. A Michigan Democrat, Carl Levin, led the Congressional investigation.
Smith refers to the scandals in his letter: '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.'
The 'God's work' comment is a reference to Blankfein's claim in a 2009 interview with The Times in London that he was a banker just 'doing God's work'.
NO MORALITY, NO INTEGRITY... NO FUTURE? THE FULL RESIGNATION LETTER
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
Video: Gregg Smith's former headmaster talks about him as a schoolboy
Source : http://www.dailymail.co.uk/news/article-2115352/Greg-Smith-Goldman-Sachs-sees-2bn-wiped-market-value-trader-attacks-firms-toxic-culture.html