Not even banks go from nice to nasty in a decade

Things happen so quickly these days. Yesterday morning Greg Smith was a brave whistleblower, after his extraordinary piece in the New York Times attacking his employer Goldman Sachs. By the evening, UK time, the backlash had started with ad hominem attacks and articles questioning his motives.

It is certainly a very unusual thing to do. I can’t think of anyone else from the banking world who has resigned so publicly. Unless he is very stupid, which I doubt, Greg Smith must already have decided that he was going to change career. He will almost certainly never get another job in investment banking. (It’s funny, isn’t it, that bankers who totally destroy their banks seem to find other senior level jobs with relative ease but those who merely slag their banks off in public are toast.)

Perhaps Greg Smith had already decided to follow that well-trodden path where people make piles of money in the financial sector then jump ship and re-invent themselves as critics of the system. Maybe he already has a book deal in the pipeline. Or maybe he was just fed up and wanted to go out with a bang.

Whatever his motives, there are some bits of his article that ring true and others which don’t. No doubt some of Goldman’s investors will find it all too believable that executives sat around trying to think of ways to shaft their clients. Thanks to the bank’s settlement with the SEC, we will probably never know whether, or for how much, clients were shafted.

As for clients being routinely referred to as ‘muppets’, that’s not unique to Goldman Sachs or to investment banking. I have seen similar attitudes in a number of organisations.

What I find less easy to believe is that this culture has suddenly appeared in recent years. Greg Smith’s it-used-to-be-great-but-now-it’s-crap story is at odds with most of what we know about how companies change.

As I often say to people, all organisations’ cultures change over time. You might think your corporate culture is the same as it was a decade ago but it almost certainly isn’t. As the great Edgar Schein told us, culture is based on unconscious shared assumptions and beliefs. However, organisations are also microcosms of society. If social norms are changing in society, as new people join your company, these shared assumptions and beliefs will gradually change too.

But this change is slow and almost imperceptible, which is one of the reasons why it is so difficult to spot. It’s like looking at a clock. However long you stare at it you can never see the hands moving but, five minutes later, it’s clear that they have. What organisational cultures don’t do, though, is suddenly and radically change. They don’t jump from o’clock to half past without some major corporate trauma or deliberate and far-reaching management intervention.

And, from what I can see, Goldman Sachs hasn’t had such an upheaval. Sure, the financial crisis rocked the banking world but Goldman’s share of the TARP bailout was relatively small and soon paid back. The three most senior executives are still the same as they were before the financial crisis. The COO and President was in post before Greg Smith arrived.  Outwardly, not much at the bank seems to have changed.

Did the “morally bankrupt” people who “callously…talk about ripping their clients off” appear from nowhere? Are they really so counter-cultural?

Says Smith:

Today, many of these leaders display a Goldman Sachs culture quotient of exactly zero percent.

No, Greg, these leaders are the Goldman Sachs culture now – at least, they are if their behaviour is as all-pervasive as you claim.

Nothing comes from nowhere. If this really is how the organisations’ leaders now behave, the seeds of that culture must have existed in the organisation for some time. Perhaps Greg Smith just chose not to notice in his early days. Could it simply be that a subtle shift has occurred and that people feel more confident now about saying what they really think?

On the other hand, it could just be that Smith has become tired of the organisation and started to see the faults that his enthusiasm blinded him to before. Sometimes, when you have been in an organisation a long time, it starts to feel like a student party in the small hours of the morning. All the decent booze has gone, all the interesting people have left or copped off and you suddenly realise that you should have gone home hours ago.

At that point, you start to amplify your organisation’s faults and play down its good points; the exact opposite of what you did when you first arrived. Maybe this was the stage Greg Smith had got to.

Even so, a bit of organisation fatigue is hardly enough to make you go and spill your guts to a national newspaper. Something more than this must have happened to make him do something so drastic. Yet I can’t buy the story about a rapid change in the company’s culture. Corporate cultures don’t go from nice to nasty in just ten years. Some of that change must be in the eye of the beholder.

Whatever the culture is like at Goldman’s now, it must have been like that for some time. Slight differences in emphasis might have evolved over the past few years but it is very unlikely that the assumptions that underpin the firm’s culture and behaviours have changed that much. No firms, not even banks, go from honourable customer-focused institutions to cynical and rapacious robber gangs in the space of a decade.

Update: Earlier this week, a former Google employee went public about his reasons for leaving his employer, in a similar way to Greg Smith, albeit on his blog rather than to the New York Times. James Whittaker claims that the company has changed radically in 3 years. That said, he seems to put most of the blame for this on the firm’s new CEO. (Hat Tip: Phil Kirkham in the comments thread below.)

Update 2: An interesting take on the ‘burning bridges’ aspect of this from what appears to be a brand new HR blog. As its author Robert Boot says don’t try to copy Greg Smith. Well, not unless you have already made a shedload of money and/or have a book deal that enables you to throw stones at the filthy running-dogs of the blood-stained capitalist system from a safe distance.

Update 3: A class-based analysis from the ever-excellent Heidi Moore. This is, she says, about the tension between the haves and have-nots; the seriously rich bankers versus the only slightly well-off ones. As the bonus pots shrink, the class war intensifies. Greg Smith was, apparently, one of “the underclass of younger bankers and traders stymied by a lack of career mobility”. Gotta watch that restive underclass, eh? No telling what they might do. It’s a longish but brilliant piece. Read the whole thing.

Update 4: The ballad of Greg Smith from Felix Salmon at Reuters. (Hat Tip: Luis Enrique in the comments.)

Smith has been in this business for 12 years, and he’s done extremely well by it. And to a certain extent, if the people who work for him are constantly asking how good a deal is for Goldman, rather than how good the deal is for Goldman’s clients, then that’s because of the example he set. What’s missing in his op-ed is any sense of mea culpa, any sense that he was at all part of the problem.

It’s a question I sometimes ask when people are talking about their organisation’s culture: “What role did you play in creating and reinforcing this culture?” It’s funny how it often doesn’t occur to senior people that they are at least partly responsible for sustaining the cultures they disparage.

Update 5: JP Morgan boss Jamie Dimon has told staff to go easy on ‘Muppetgate’ and not to use it to gain any advantage.  There but for the grace of God, perhaps?

This entry was posted in Uncategorized. Bookmark the permalink.

11 Responses to Not even banks go from nice to nasty in a decade

  1. Tom M says:

    An interesting post, although I have a few points which came to me as I was reading this:

    1. It doesn’t have to be that Greg ignored any shift that happened. It could be that Greg Smith didn’t realise there was a shift at first (much like the hands of the clock example that you make) and it was only by comparing now to ten years ago that he realises the difference.

    2. Note that Greg only really talks about the part of the business he knows. He can’t really be talking about the culture of Goldman Sachs as a whole as he wasn’t in daily contact with Goldman Sachs as a whole. It’s more than possible that the subsection of Goldman that he did have regular contact with experienced some kind of culture shift. He then projects the experience he has to the whole firm. E.g. “The dozen people I have regular contact with are less consumer focussed than the dozen people I had regular contact with five years ago. Therefore Goldman Sachs has gone downhill.” This could mean that either the people he knew five years ago were exceptions to the rule or that the people he now knows are the exceptions.

    Essentially, his experience is local. It’s difficult to draw wide inferences from that experience. But there could be a smaller, local culture change.

    3. Greg wasn’t in the position he resigned from for his whole career. It’s inevitable that a young, freshly recruited graduate will have a different perspective of the firm than someone in Greg’s position. Perhaps he has just never realised that when management spoke of customer service it was all fluff; it was only as he became closer to those people that he’s realised that customer service is, to senior management, a by-product of chasing higher returns.

    Interesting however you look at it, I think.

  2. Phil Kirkham says:

    Coincidentally the tech ( geek) world has also been debating this issue after a very public resignation from Google by a well known figure

    He’d only been there for 3 years so maybe culture changes more quickly in the IT world than banking ? Or do the same points as you make in this post apply ? ( I think they do )

  3. Luis Enrique says:

    did you read Felix Salmon on this?

    much you’ll agree with there I expect

  4. Pingback: Not even banks go from nice to nasty in a decade - Rick - Member Blogs - HR Blogs - HR Space from Personnel Today and Xpert HR

  5. Pingback: On Greg Smith « Carnival Boy

  6. Possibly. As Greg says, Goldmans is a much more connected and consensually oriented organisation than most, including banks. And since culture is largely conversation, this could mean that it’s ‘culture’ could change more quickly than most organisations too.

  7. Indy Neogy says:

    On the one hand, I think your scepticism is justified, others have posted lots of reasons, the one that I’d most agree with is the “rose-coloured glasses” one – Goldman have always been a firm that inspired analogies to the great white shark, restless, ruthless and very self-centred. Or as Matt Taibbi christened it – the vampire squid…

    On the other, as a culture specialist, there is plenty of evidence that corporate cultures can change a lot in 10 years. And yes, often trauma is involved, but not always. Further, I’d argue that Goldman has in fact suffered a couple of major traumas.

    The first, which is just outside the 10 year time-span, but actually fits very well to Smith’s contention is the IPO of 1999. The change from internal partnership to quoted firm (despite low public ownership) has been fingered as a driver of changed incentives by plenty of financial commentators and even some academics.

    The second is a technological shock – the technology in question not being silicon based, but the technology of increasingly complex derivatives and other financial instruments. (Although of course part of what has enabled these has been silicon computing technology.) These have changed the business model quite radically overall and the cultural impact is even greater because the “rocket scientists” have been making the most money. And of course we should recognise that this could also be classed as a regulatory shock as the complexity was previously regulated against, but now it wasn’t. 1999 could again be a significant date – the Gramm/Leachy/Bliley act – although you can also argue that the regulation changes started earlier.

    The third relates to the second – these technological changes brought in significant quantities of new kinds of people (which is often a shock to the culture.) These were people from different backgrounds and with different skills and interests. One result is the “class conflict inside the firm” that Heidi Moore points to. Another is that the new people bring a new sense of what’s important to the table and if there are enough of them, it has an effect.

    If I can use poetic hyperbole for a moment, the epitome of old-Goldman might be Mario Monti. He’s charming, intelligent, keen analytical brain. Politically very sharp. Did someone like him always do the best thing for clients, rather than Goldman? That would be too rose-coloured, but he worked in a craft, he would develop relationships with powerful clients and that restrained behaviour. New-Goldman are “quants” and they make the big money through market operations, hedging or through selling complex instruments to a whole swathe of clients. As such, the personal touch isn’t important. It’s like the difference between B2B marketers and B2C marketers… the distance from the customer and the singular vs more mass nature changes the relationship.

    New-Goldman are not so numerous, but their success makes them culturally powerful.

    The fourth shock relates to my poetic hyperbole. Goldman has always been powerful – they’ve always understood the need for influence, to know powerful people and send their guys out into the world to take on positions of power – from which they always help the firm… But in recent years… by virtue of being in the right place at the right time, by virtue of being more ruthless than most, by virtue of the financialisation of major economies, by virtue of leaping on to the new technologies more successfully than competitors… well Goldman became more powerful than it ever had been before… much more power to move markets on their own… That’s a big culture shock… fundamentally the story of the last few years at Goldman is the story of the discovery that when you control the leverage of other people’s money (and this has not been as possible as it is now since 1929 in all probability) then you can make money even when the client loses. And clients come to you because they see you making money and don’t ask how much money the last client made… at least for now…

    I think you could group this differently as just two shocks, the IPO and then technology/regulatory shock and it’s consequences. But they are two big shocks and it seems wrong to me to suggest that they could not have significantly moved the culture in 10 years.

    Finally to take up the point about Google from Phil Kirkham and Jon Ingham’s point about the configuration of Goldman, the resilience of a culture is a complex thing. Some cultures are very resilient to shocks, others less so. The common thread between Google (and other IT firms) and Goldman may well be a mythos of agility, which predisposes people to change in reaction to “shocks.” Compare some other kinds of firms – telecoms firms spring to mind – whose culture is perhaps all about resistance to external events – keeping the network running, no matter what (rain/snow/earthquake)… Of course Google is in fact a young firm, so culture is not so deeply rooted – but perhaps post-IPO Goldman is young in some ways too.

    • Rick says:

      Indy – I must admit the IPO thing occurred to me a couple of hours after I had written this post. As you say it was just before Greg Smith joined but the impact would have taken some time to work through and might account for some of the change in attitudes.

      The new technology and ‘class conflict’ stuff is fascinating. An influx of new people would change the culture over time. That said, as I remember it (which is admittedly a decade ago) it was the traders rather than the rocket scientists (or nerds as I remember people calling them) who were the most gung ho, so I’d be surprised if an influx of rocket scientists made the firm more callous and brutal to its clients. Also, even with an influx of new people, wouldn’t the bosses have transmitted some of the old culture to them?

      Your fourth point, about a huge power imbalance, rings true. I wonder, though, whether that changed the culture or just ‘liberated’ aspects of the culture that were already there. ‘Now we’re really big we don’t have to do all that customer care shit anymore’.

      But I’m speculating. You have certainly given me a lot of food for thought here. GS has been through more of an upheaval than I first thought, though I still wonder whether a firm could really change so drastically when it is being led by three people who are GS long-servers.

      On a wider note, the question of whether corporate cultures evolve and change more quickly anyway now is an interesting one. Perhaps one for a post in future.

  8. Dipper says:

    This was in Liars Poker years ago. Herman the German and AT&T bonds anyone?

    Next, a mid-level mafioso resigns, says he thought it was a social welfare organisation but it was just extortion and crime.

  9. nat says:

    “There but for the grace of God, perhaps?”
    You sure have gotten that one straight! That was my exact thought, as well, when I read about it!

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s