05. January 2013 · Comments Off on Reviewing Why I Left Goldman Sachs by Greg Smith · Categories: Uncategorized

Greg Smith’s book should be on your reading list if you want a behind the scenes look at the modern organizational culture of one of the most successful financial firms in the world. I found that the book was easy to read and a page turner. The most valuable aspects of this book are the ways in which Smith gives the reader advice as to how he was able to enter the industry and his sharing what ultimately lead to his disenchantment with his career.

Making it into the company was no small feat and I loved Smith’s recounting of his internship experience. One thing that the author did to increase his chances of getting an internship at Goldman was to get an internship after his sophomore year at Stanford. Smith landed an internship at Paine Webber in Chicago before his junior year and then was able to get the Goldman internship after his junior year. Getting the internship after his sophomore year probably gave him a leg up over his competition.

The Open Meeting was a question/answer forum that in which the Goldman managers running the internship grilled the interns on several important topics. The three most important topics were knowledge of the market, knowledge of Goldman Sachs history, and understanding of the business. Interns needed to have answers to whatever question was asked. Interns would be expected to find an answer immediately if they admitted not knowing the answer. Often interns had to scramble to find someone knowledgeable enough to help them out with these questions. Smith talks about how this allowed the interns to build up their relationships with current employees. Interns needed allies/mentors within the organization in order to be able to thrive at the internship. These helpful people were deemed “rabbis” by the author.

The most important part of the internship according to Smith was the intern’s ability to attract the interest of a company manager that wanted to hire them, a “rabbi”. On page 22 Smith notes, “Many interns labored under the misconception that if they did a good job over the summer, they’d be hired. You got hired because you found someone who wanted to hire you: it was as simple and as cruel as that.” Smith’s internship experience was particularly grueling and only half of the interns are given the opportunity to obtain a full time job once the internship is over.

I liked how Smith was able to become a Goldman recruiter and his manner of interviewing as explained on pages 114 to 115 gives one an insight as to what kind of person the financial services is looking for.  Student knowledge of finance and GPA were considered secondary to their judgment and enthusiasm for the business. Smith reasoned that new hires could learn the ins and outs of how finance worked, but they could not be taught judgment and awareness. Also the person had to have a pleasant personality and the ability to get along with others.  As Smith notes, “Arrogant budding finance gurus did not often make it through the Goldman interview process.”

A central dilemma for Smith is the fact that as time went on he began to see his company as a hedge fund instead of a financial institution devoted to serving its clients. In Chapter 8 the author describes the four types of clients. These are the Wise Client, the Wicked Client, the Simple Client, and the Client Who Doesn’t Know How to Ask Questions.  The Client Who Doesn’t Know How to Ask Questions, a simple and trusting investor, was deemed the most vulnerable to invest in exotic assets without knowing what exactly they were doing . On page 163 Smith informs us that top clients were determined by how much fees could be generated off of them.

The author came to see advancement at the company only based on how much business an employee brought in. While Smith had thought this was always important what he saw that was lost in the process were other qualitative measurements. Namely, there was a failure to promote based upon whether the person had leadership abilities, could set good examples for younger employees, was a team player, and had the ability to turn away business that could damage the firm in the long run. Readers will want to learn about Bonus Day, a day when employees would learn what their compensation was. It was not uncommon for workers to work 85 hour weeks and many saw the Bonus Day meeting as a time when they would learn their total self worth.

The author’s work experience in London seems to have set the final stage for disillusionment. It was in this post that Smith would break his silence by publishing his thoughts in the New York Times. In London younger workers no longer embodied the organizational values that had made Smith passionate about his work for many years. Clients were referred to as “muppets” as in effect they were viewed as incompetents that could be manipulated into carrying out trades that were not to their advantage or could cost them plenty of money. On the other hand when Smith tried to create a small U.S. derivatives based business he was told that he shouldn’t do that as the trades would not be lucrative enough to merit the effort. In essence the author saw this as a way in which his firm was turning away business. Finally, Smith did not get a warm reception from his supervisor, the “Black Widow”, a master of corporate assassination. On page 225 Smith sends his supervisor an email about some of his meetings. The reader will want to take note of the supervisor’s response which was, “I don’t typically talk to my employees more than once a month. The only time I want to hear from you is in the form of a one-line email that states how big the trade was and what the GCs (gross credits) were.”

The book leaves the reader grappling with the economic big picture and author’s calls for the political will to hold banks accountable and for an end to abusive practices. As Smith notes the reforms put into place at the end of 1929 allowed for decades of calm in the financial system. Right now the money that is being played with is that of teachers, pensioners, and retirees. Smith concludes that asymmetric information is what is causing the problem. As he notes, “The playing field is not even. The bank can see what every client in the marketplace is doing and therefore knows more than everyone else. If the casino could always see your cards, and sometimes even decided what cards to give you, would you expect it ever to lose?”