Author Charley Ellis on Goldman Sachs
You’re writing fresh material for a paperback edition of The Partnership that’s coming out in the fall. What’s new that you’re focusing on?
First and most important, the larger business environment in 2008–2009 has been completely different. Second, and not important, Goldman is now a bank holding company. Most people think that will change the firm, but it won’t. It gives Goldman access to the Fed window which is very useful for liquidity management and, on the other hand, it reduces the amount of leverage they can use in trading operations, which reduces the magnitude and rate of increase of profitability. But those changes have made a level playing field for everyone; there’s no competitor of size that is not now a bank holding company.
Goldman Sachs is always changing its various businesses — often greatly — but the fundamental characteristics of the firm will not change. That means recruiting the very best people and sorting them out as to who is the most effective, then empowering them, and watching closely while they run like hell for victory and achievement.
As mentor and protégé, what drew Sidney Weinberg and John Whitehead together?
They were both remarkably talented individuals who knew hard times growing up. Weinberg was pure Brooklyn and flaunted the fact that he dropped out of school in junior high. Whitehead’s father lost his job and sold porch furniture door-to-door in New Jersey during the Depression, so he lived through a tough time. They both were self-made men and that made for a strong connection.
Both had very high expectations and insisted they be met. If they said, “Take that hill by 6 a.m.” and you reported back that the hill was taken at 6:15, they’d say, “You’re 15 minutes late.” They would convey that message in their own manner, Weinberg quite rough sometimes, Whitehead always as smooth as silk.
In 2006, Goldman paid more than 50 of its employees $20 million or more. Wasn’t that a tip-off to the firm that the economy was totally unmoored from business fundamentals?
John Whitehead, for one, said he thought the compensation was outrageous. Others would argue that these are exceedingly high-skilled talents working brutal hours in an extremely demanding and competitive environment, that the firm was risking its own capital and doing things that the world as a whole needed, and that the market was what it was. So the compensation was earned.
For his part, CEO Lloyd Blankfein said to the firm words to this effect: “Every one of our businesses is doing really well. Some of you will misunderstand what that means and say that’s good. I know what it means and I say that’s bad because there’s only one way to go from here.” That was at the economy’s peak and he was proven right.
What makes Goldman special?
All other firms on the Street are very good and proud of what they do, but if they are candid, they’ll admit Goldman is the best organized and has the best people because they consistently do the best recruiting and drive to get the very best people. It’s a lateral organization, not hierarchical, so everybody’s in the information network equally. The commitment of its employees is unsurpassed, and the intensity, pace, and speed at which they work is something that other firms can’t match. There is no other organization where people are as frequently and swiftly in communication with each other; the whole firm is like a large, unified organism.
