M & A Law Prof Blog

Editor: Brian JM Quinn
Boston College Law School

Wednesday, March 14, 2012

Goldman guy's Jerry Maguire moment

Following close on the heels of the El Paso opinion and the discussion at Tulane last week, one Goldman Sachs employee just had a Jerry Maguire moment- and in a big way - on the New York Times opinion page. Greg Smith, now a former director at Goldman Sachs, authored his own "mission statement" on his way out the door of Goldman. And he didn't hold back:

To put the problem in the simplest terms, the interests of the client continue to be sidelined in the way the firm operates and thinks about making money. ...

How did we get here? The firm changed the way it thought about leadership. Leadership used to be about ideas, setting an example and doing the right thing. Today, if you make enough money for the firm (and are not currently an ax murderer) you will be promoted into a position of influence.

What are three quick ways to become a leader? a) Execute on the firm’s “axes,” which is Goldman-speak for persuading your clients to invest in the stocks or other products that we are trying to get rid of because they are not seen as having a lot of potential profit. b) “Hunt Elephants.” In English: get your clients — some of whom are sophisticated, and some of whom aren’t — to trade whatever will bring the biggest profit to Goldman. Call me old-fashioned, but I don’t like selling my clients a product that is wrong for them. c) Find yourself sitting in a seat where your job is to trade any illiquid, opaque product with a three-letter acronym. ...

Integrity? It is eroding. I don’t know of any illegal behavior, but will people push the envelope and pitch lucrative and complicated products to clients even if they are not the simplest investments or the ones most directly aligned with the client’s goals? Absolutely. Every day, in fact.

Sounds like the traders have taken over Goldman.  But, we knew that, right?  Isn't that what 2008 was all about? Anyway, there was a lot of talk last week about Chancellor Strine perhaps going over the line with his rhetoric of shaming in El Paso. After reading this op-ed, it's hard to say he was far off the mark.





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