The Partnership

About a month ago while in my boss's cabin for a conference call, I somehow gathered the audacity of asking to borrow the book he was reading "The Partnership: A History of Goldman Sachs". A decent read. So, I went to return the book to him today and as is practice we started talking about the book and practices at Goldman, he being an ex-GS took pride in it. At the end of it I was asked to write a one page summary of the book. No amount of verbal strafing could get me out of it.

Now, I have never ever tried to review a book, nor do I think compression technologies have become so advanced as to be able to compress 700 pages into one. As I am supposed to leave for Benaras tomorrow, I decided to finish this tonight. I know this will neither do justice to the firm nor the book but here goes:

How did Goldman Sachs become the premier firm on the Wall Street, revered by budding bankers and respected by seasoned ones? The book did not endeavor to answer this question, but to tell the story of its ascension to the top. Starting out with Marcus Goldman and its humble beginnings selling commercial paper to underwriting deals which premier financers of the time JP Morgan and George Baker called “Jewish Enterprise” and would not touch, Goldman slowly made its path to the top. As a competitor once described “They are driven. On this they are consistent and unrelenting”.

The book traces the leaders of the firm and how each left his indelible mark on the firm. Sidney Weinberg who used his wide network of friends at the War Commission to gain investment banking clients for the firm to Gus Levy and his aggressive selling to clients and insistence that Goldman Sachs be part of every major transaction on the floor. After these two, the ascension of John Weinberg and John Whitehead would put into practice one of the most highly valued qualities at Goldman; teamwork.

It is the culture of Goldman Sachs that differentiates it from the rest of the investment banking community. Set in stone by John Whitehead, the 14 principles form the basis of its culture while the 10 commandments form its ethical boundaries. Success starts with hiring the right people, people who fit into the vision of the company. The common factors in most Goldman employees sound like the summary of a self help book but they devote considerable time to hiring and the results do not lie. Ambition is paramount, humility or at least the appearance of it is important, teamwork is highly valued and they all share a tenacity that binds them. Employees come to the office earlier than at other firms because they want to be there. The firm is their first love. John Whitehead, recognizing the importance of hiring the best people, was the first Wall Street leader to hire MBAs straight out of college as client representatives and himself frequented Harvard to seek out the best talent. Each hiring had to go through numerous interviews so that every partner could judge the candidate for himself and the candidate came to know the firm.

Retention is equally important. Goldman Sachs was structured as a meritocracy. If you showed ability, you would be given a chance to excel. As part of its push to expand globally, GS sent its most talented young employees to Europe to set up operations. As Robert Rubin once told Frank Brosens “If you do right by the people, they win and you win. Always go out of your way to share credit.” Delegation is a major part of leadership. Every task delegated is an opportunity for the younger people to excel at GS.

Being a partnership till 1999, the partners always looked at the long haul and took each decision with total conviction. Being smart people, they also made mistakes with conviction. Not always was the picture so rosy. GS had numerous failures while it tried to establish itself, most notably, GS Trading Corporation, Penn Central, dealings with Robert Maxwell and the turmoil following Steve Friedman’s departure soon after Robert Rubin quit, taking up the position of Treasury Secretary. Goldman Sachs learned from each mistake and instituted processes and checks whereby, such mistakes would not be repeated. This being the hallmark of not only a great individual but also of a great firm.

So what gives Goldman its edge?