Like many of you, I read former Goldman Sachs executive director Greg Smith's resignation letter last week in The New York Times. Here are a couple excerpts that struck me as relevant to risk managers:
"And I can honestly say that the environment now is as toxic and destructive as I have ever seen it."
"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."
"Over the last 12 months I have seen five different managing directors refer to their own clients as 'muppets,' sometimes over internal e-mail."
"...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."
What struck me most, however, was the context and the online comments thread (372 comments at last count, available online below the column).
Yes, Smith's details were eye-opening -- even cinematic. Heck, someone should make a movie out of this business culture and its impact. (Oh, wait, someone already did.)
While the severity and clarity of details may seem shocking, the core message hardly qualifies as a revelation for most. Michael Lewis' book Liar's Poker detailed the cutthroat and sometimes customer-unfriendly culture that exists in the investment-banking realm -- 22 years ago.
That's why context is important: What about Smith's letter resonates today (it has remained one of the top read and top e-mailed Times columns for a week)?
Have the organizational cultures at financial services companies become that much more toxic in the past two decades? Possibly -- but as Liar's Poker captures so wonderfully, those cultures weren't exactly customer-centric in the 1980s. Has Goldman's culture in particular taken a nose dive? Tough to tell from the outside, of course, but organizational cultures are more like slow-growth trees than invasive kudzu; they require time and hard work (i.e., healthy or toxic behavior and decisions) to change.
Did the external business environment and general sentiment about how business ought to be conducted change? Maybe. If so, I hope the general sentiment changed less in a reactive "Wall Street = Bad Guys / Main Street = Good Guys" way and more in a fundamental way. I hope society's general sentiment is something along the lines of: "Organizational culture and the decisions and behaviors it fosters truly matters."
This possibility has some credence in the context of how some other financial services companies conduct business today (at least how they claim to do so).
As I read Smith's letter, my eyeballs naturally drifted to the online advertisement next to his column. There, Texas-based Frost Bank promoted its own customer-service approach, which does not include referring to customers as muppets. Instead, the ad trumpets the notion that Frost "would never do anything with a customer's money that we wouldn't do with our own." Wow.
I am tempted to say that this principle probably did not make it into Goldman Sachs' mission statement. But I checked, and several similar principles certainly do, including the following three:
Our clients' interests always come first.
Our experience shows that if we serve our clients well, our own success will follow.
Our assets are our people, capital and reputation.
If any of these is ever diminished, the last is the most difficult to restore. We are dedicated to complying fully with the letter and spirit of the laws, rules and ethical principles that govern us. Our continued success depends upon unswerving adherence to this standard.
Integrity and honesty are at the heart of our business.
We expect our people to maintain high ethical standards in everything they do, both in their work for the firm and in their personal lives.
Although Smith's resignation letter raises some questions (for example, did the behaviors he points to only occur recently, or have similar incidents occurred for the past decade or longer? ), it's difficult to argue that Goldman may need a cultural realignment to ensure that its decision in the trenches are true to its stated principles.
On that note, Smith's parting advice may not be principle-worthy, but it sure offers some valuable guidance: "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."
As a company and a risk manager there come times when you may have to choose rules (which can be bent) and The Golden Rule (which cannot). My general sentiment tells me the latter approach is likely to be more sustainable and more valuable over the long term.