What Happened to Goldman Sachs: An Insider's Story of Organizational Drift and Its Unintended Consequences Read Online Free Page A

principles of the financial system is that risk
     is rewarded. Exactly how well Goldman partners were rewarded—what
     they earned or owned—had been a closely guarded secret, but it
     became public information in the filings for the IPO. Some might even say
     that it was in everyone’s face. When I joined Goldman as an
     analyst, a list was published by a finance magazine of the one hundred most
     highly paid people on Wall Street, and it was passed around among the junior
     people in great secrecy. I was told that I would be in deep trouble if a
     partner caught me with it. The list contained so many Goldman partner names
     that, except for a few top partners, the names were listed at the bottom of
     the page, with no bio or background, unlike the non-Goldman partners, each
     of whom got a short description.
    The general reaction of the public disclosure of wealth within
     the firm was envy stoked by self-interest, and that, when coupled with
     freedom from personal liability, translated into greed and lack of
     restraint. (Bear in mind that this was during the dot-com and equity market
     booms, when many people were becoming extremely wealthy. And even some of
     the partners would privately question why people who they didn’t
     feel were nearly as smart or hardworking or as committed to the long term
     were making more money than they were.)
    I cannot emphasize strongly enough the impact on the organization
     of the resentment stemming from knowing who was gaining how much at the IPO;
     there was a reason many partners did not like Goldman’s financial
     information being disclosed, and Jimmy Weinberg argued in 1986 that this was
     one of the reasons the firm should not go public. 10 The average partner received around $63 million at the IPO price, an
     amount that became $84 million after the first day of trading. In the class
     of 2000, of those who just missed making partner before the IPO, some
     received a fraction of that amount. The discrepancy was enough to cause a
     great deal of resentment, especially among those who were hired at the same
     time as members of the class of 1998 but were not nominated for partnership
     until after the IPO. 11 (See appendix D for a
     table showing percentages, shares, and value of partners’ shares
     at the IPO.)
    I remember working with an MD-lite who had just missed making
     partner before the IPO. Upon finding out the difference between her payout
     and that of those who were elected in 1998, she did not come to the office
     or return calls or voicemail for days. It was like a “mini
     strike,” and it worked: the shares she received were increased.
     It sent a strong message about how one needed to act to get what one
     believed was promised, fair, and/or justifiable.
    Some of the tensions were eerily similar to many of those who
     were around in 1994, when so many partners retired, when the prevailing
     sentiment was that the retirees were “sellouts,”
     leaving to save themselves. After 1999, MD-lites and VPs, like the partners
     who remained in 1994, wondered whether they had been sold
     “motherhood and apple pie” or principles of
     brotherhood, only to realize that there was a limit to the values and the
     bond. I was also surprised that some nonpartners mentioned they felt that
     the retirees who stayed in 1994 but left before the IPO, and even those who
     really built the firm but had retired, were being treated unfairly.
    Weinberg and Whitehead’s ideas about being custodians
     of the firm for future generations of partners seemed to be less of a
     priority. For those who believe that greed was always prevalent at Goldman,
     imagine that if the earlier partners had decided to go public
     sooner—they would have received multiples on their capital
     instead of book value when they retired. In particular, interviewees
     estimated that John L. Weinberg and Whitehead each owned about 5 percent of
     the firm, which would represent billions of dollars today.