Thursday, March 15, 2012

Goldman Sachs: About That Letter

Another PR headache?
Greg Smith, an executive director in equity derivatives, decided this week it was time to quit his career in finance after 12 years, even though he was on the doorsteps of reaching a Wall Street pinnacle--managing director/partner at Goldman Sachs.  He was frustrated, he said, by the culture, the norms and the behavior of colleagues at Goldman. He decided to share that frustration with just about anybody who participants in or follows global finance.  

Smith's op-ed resignation in the New York Times (Resignation Letter)  certainly rocked the finance world for at least a day or two. At least until mid-next week, executives, market-watchers, observers, and pundits will try to address the questions Smith raises about Goldman and Wall Street's approach with clients  

But will this issue be the talk of the Street two weeks from now?  Will those who have influence in the industry try to effect changes or rationally put Smith's complaints into perspective? Is his letter a clarion call or just a late-winter market distraction? Will these same issues be at the forefront of discussion a month from now? Or will all the banter, rebuttals, backlash, calls for change and attempts to humanize Wall Street culture quietly go away?

A few things to note: 

First, Goldman Sachs, guilty or not of what Smith accuses it, will survive this. It has tens of billions in capital, improved markets and a new public-relations executive who just started this week.

Second, it's no coincidence Smith resigned in February/March.  Bonuses for 2011 have been wired into personal banking accounts. Smith was not yet a managing director. He was perhaps a few years away from that venerable title. As a Goldman executive director, he was still relatively senior and well-compensated. 

If his track at Goldman was conventional, he spent three years as an analyst, about 4-5 years as an associate, 3-4 years as a vice president, and the past 1-2 years as an executive director. He enjoyed the monetary benefits of the period when compensation soared in the mid-late 2000s. Notwithstanding the financial crisis and fluctuations in sentiment about compensation, his bonuses the past two years were still lottery-like sums to those outside of Wall Street.

When he wrote the letter, he had a plan, including a financial back-up strategy, too.

Third, many say he can never work for a big-name Wall Street firm again. Who would hire him? Who might be willing to take a chance with his talents, experience and industry knowledge, knowing that he may call into question another firm's culture sometime later? Smith is aware he has limited opportunity at another big bank.  

He wrote his piece almost certainly having outlined plans for his next steps. What will he do? 

Maybe he'll explore doing something far away from the core of bulge-bracket banking and trading. Maybe he'll join an industrial company that uses derivatives and will help that company understand how banks sell the same products.  

Maybe a hedge fund or venture-capital fund, thrilled by his courage and daring and confident about his skills, will offer him a post (or has done so already).  Perhaps he'll join Stanford classmates and connections at a West Coast start-up. Maybe he's writing a book about his experiences.  (His letter screams for detail, amplification and examples.)

Or then again, maybe this is his definitive departure from finance, and he plans to dabble in music, theater, teaching or art collecting.  

Recall the late 1980s, when Michael Lewis wrote "Liar's Poker"--his scathing account of his entry-level experiences at Salomon Brothers. He was only a couple of years out of Princeton and eyeing a long career in fixed-income sales & trading. The book sold well. Extremely well, in fact. He knew he could never return to any bond-trading desk anywhere. But with the subsequent blazing successes of "Money Ball" and "Blind Side" and "The Big Short,"  he hasn't looked back.

Tracy Williams 

See also

CFN:  Goldmans Sachs and Its Facebook Investment, 2011

CFN:   The Culture at Goldman Sachs, 2010

CFN:  A University President on Goldman's Board, 2010

CFN:  Is I-Banking Still Hot? 2011

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