What Happened to Goldman Sachs: A book review by Bob Morris

What HappenedWhat Happened to Goldman Sachs: An Insider’s Story of Organizational Drift and Its Unintended Consequences
Steven G. Mandis
Harvard Business Review Press (2013)

An insider’s account of the decline and fall of a once great firm that was “greedy, but long-term greedy”

Those who share my high regard for John Whitehead and have read his classic, A Life in Leadership: From D Day to Ground Zero, An Autobiography, were probably as excited as I was when learning that Steven Mandis had written an “insider account of the organizational drift and its unintended consequences” at Goldman Sachs, a firm with which Whitehead had been associated from 1947 after he received an MBA degree from Harvard Business School until 1984, years during which he became Goldman’s chairman and was serving as co-chairman and co-senior partner when he retired. After reading Whitehead’s book, I wanted to work for him and with him. He plays a significant role in this book. More about that later.

Mandis biefly recalls how and why he joined the firm, then shares his thoughts and feelings about what happened in and to the firm during and following his years of association (1992-2004). With regard to organizational drift, it is a process whereby an organization’s culture, “including its business practices, continuously and slowly moves, carried along by pressures, departing from an intended course in a way that is so incremental and gradual that it is not noticed. One reason for this is that the pursuit of organizational goals in a dynamic complex environment with limited resources and multiple, conflicting organizational goals, often produces a succession of small, everyday decisions that add up to unforeseen change.”

That is precisely what happened at Goldman.

These are among the dozens of business subjects and issues of special interest and value to me, also listed to indicate the scope of Mandis’ coverage.

o Goldman Sachs: A Little History (Pages 15-22)
o Subtle Changes Made Obvious (34-37)
o Goldman Sachs’s Shared Principles and Values (45-51)
o Devotion to Client Service (63-66)
o Productive Dissonance (83-89)
o From Partnership to LLC (101-110)
o Key Signs of Organizational Drift (123-151)
o The Effects of Wall Street Models (168-172)
o Chinese Walls (175-180)
o Conflicts of Interest (182-187)
o Communicating the Signals: Transparency at Goldman Sachs (204-206)
o Why Do Clients Stay? (223-229)
o A Sense of Higher Purpose (232-235)
o Lessons Learned (247-251)

It should be noted that John Whitehead led the formulation of Goldman’s Shared Principles and Values. That was in 1979. “Whitehead had said that committing the firm’s values to words on paper was his greatest contribution. More than anything else, it was a statement about the perceived power of the codified values to nourish and support the partnership culture.” (Pages 45-51)

“Thought the partners had strongly indicated at the time of the IPO that they didn’t want to undermine the firm’s core values, the changes in business practices and policies, as well as in the business mix, clearly indicate Goldman’s organizational drift.” According to Mandis, the key signs include representing hostile raiders, renewed involvement in asset management, advising companies in the gambling industry, changing underwriting standards, the emergence of stars and “super league” clients, rehiring people and making counteroffers, changing compensation and promotion practices, lateral partner hires, changing recruitment and hiring policies and practices, and staple financing. (Pages 45-51) None of these was sufficient to cause the decline and fall of a once great firm but together, in combination….

o “Shared values, whether codified or uncodified, tie an organization together. A firm should determine its own basic set of nonnegotiable values, the minimal constraints.”

o “Organizational exceptions [re nonnegotiable values] may address short-term issues but may cause long-term ones.”

o “Firms must think about long-term greed and what it means. Through actions and training, leaders must explain the pressures on short-term thinking and how the form resolves the conflicts of short- and long-term goals.”

o “An organization’s structure, incentives, and values last longer and have more impact than those of individual leaders…It is the duty of leaders and board members to examine what is responsible, not who is responsible.”

As Steven Mandis explains so well in this volume, one of the most challenging issues when guarding against organizational drift is that adaptation is critical to the survival of an organization, as well as to a species. Moreover, the difference between healthy adaptation and organizational drift — as Goldman Sachs clearly demonstrates — “is very, very difficult to discern.” Therefore, leadership requires a “curiosity that borders on skepticism” and that “questions are answered with action.” He fully understands and appreciates how difficult such scrutiny can bed, especially when short-term results are so positive. “Examining your own organization will be messy, but I hope the observations from the sociological analysis outlined in this book will provide useful guidelines and inspire the risk taking required to tackle the challenges.”

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