“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 within 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.”