torches and pitchforks were massing just around the corner. (In 2011, the Occupy Wall Street protest movement would begin.) The public and politicians grew particularly upset at Goldman as allegations surfaced that the company had anticipated the impending crisis and had shorted the market to make money from it. (Goldman denies this.) In addition, there were allegations that the firm had prioritized selling its clients securities in deals that it knew were, as one deal was described by an executive in an e-mail, “shitty”—raising the question of whether Goldman had acted unethically, immorally, or illegally.3
Particularly agonizing for some employees were accusations that Goldman no longer adhered to its revered first business principle: “Our clients’ interests always come first.” That principle had been seen at the firm as a significant part of the foundation of what made Goldman’s culture unique. And the firm had held up its culture of the highest standards of duty and service to clients as key to its success. A partner made this point as part of a 2006 Harvard Business School case, saying “Our bankers travel on the same planes as our competitors. We stay in the same hotels. In a lot of cases, we have the same clients as our competition. So when it comes down to it, it is a combination of execution and culture that makes the difference between us and other firms … That’s why our culture is necessary—it’s the glue that binds us together.”4
Some critics asserted that Goldman’s actions in the lead up to the crisis, and in dealing with it, were evidence that the firm’s vaunted culture had changed. Others argued that nothing was really new, that Goldman had always been hungry for money and power and had simply been skillful in hiding it behind folktales about always serving clients, and by doing conspicuous public service.5
Meanwhile, many current and former employees at Goldman vehemently assert that there has been no cultural shift, and argue that the firm still adheres as strictly as ever to its principles, including always putting clients’ interests first. They cite the evidence of the firm’s leading market share with clients and most-sought-after status for those seeking jobs in investment banking. How, they ask, could something be wrong, when we’re doing so well? In fact, while in Fortune’s 2006 list of America’s Most Admired Companies, Goldman placed eighteenth, in 2010, after the crisis, it placed eighth,6 and in 2012, Goldman ranked seventh in a survey of MBA students of firms where they most wanted to work (and first among financial firms).7 And even with all of the negative publicity, Goldman has maintained its leading market share with clients in many valued services. For example, in 2012 and 2011, Goldman ranked as the number one global M&A adviser.8
So has the culture at Goldman changed or not? And if so, why and how? It strains credulity to think that the firm’s culture could have changed so dramatically between 2006, when the firm was so generally admired, and 2009, when it became so widely vilified. Once I decided that these questions were worth investigating—whether Goldman’s culture had changed and, if so, how and why—I chose to start from 1979, when John Whitehead, cochairman and senior partner, codified Goldman’s values in its famous “Business Principles.” As many at Goldman will point out, those written principles are almost exactly the same today as they were in 1979. However, that doesn’t necessarily mean adherence to them or that the interpretation of them hasn’t changed. What I’ve discovered is that while Goldman’s culture has indeed changed from 1979 to today, it didn’t happen for a single, simple reason and it didn’t happen overnight. Nor was the change an inexorable slide from “good” to “evil,” as some would have it.
There are two easy and popular explanations about what happened to the Goldman culture. When I was there, some people believed the culture was changing or had changed because of the shifts in organizational structure brought on by the transformation from private partnership to publicly traded company. Goldman had held its initial public offering (IPO) on the NYSE in 1999, the last of the major investment banks to do so. In fact, this was my initial hypothesis when I began my research. The second easy explanation is that, whatever the changes, they happened since Lloyd Blankfein took over as CEO and were the responsibility of the CEO and the trading-oriented culture some believe he represents.
I found that although both impacted the firm, neither is the one single or primary cause. In many ways, they are the results of the various pressures and changes. The story of what happened at Goldman after 1979 is messy and complex. Many seemingly unrelated pressures, events, and decisions over time, as well as their interdependent, unintended, and compounding consequences, slowly changed the firm’s culture. Different elements of its culture and values changed at different times, at different speeds, and at different levels of significance in response to organizational, regulatory, technological, and competitive pressures.
But overall, what’s apparent is that Goldman’s response to these pressures to achieve its organizational goal of being the world’s best and dominant investment bank (its IPO prospectus states, “Our goal is to be the advisor of choice for our clients and a leading participant in global financial markets.” Its number three business principle is “Our goal is to provide superior returns to our shareholders.”) was to grow—and grow fast.9 Seemingly unrelated or insignificant events, decisions, or actions that were rationalized to support growth then combined to cause unintended cultural transformations.
Those changes were incremental and accepted as the norm, causing many people within the firm not to recognize them. In addition, the firm’s apparent adherence to its principles and a strong commitment to public and community service gave Goldman employees a sense of higher purpose than just making money. That helped unite them and drive them to higher performance by giving their work more meaning. At the same time, however, it was used to rationalize incremental changes in behavior that were inconsistent with the original meaning of its principles. If we’re principled and serve a sense of higher purpose, the reasoning went, then what we’re doing must be OK.
Since 1979, Goldman’s commitment to public service has ballooned in both dollar amounts and time, something that should be commended. But this exceptional track record prevents employees from fully understanding the business purpose of this service, which is expanding and deepening the power of the Goldman network, including its government ties (the firm is pilloried by some as “Government Sachs”). Some at Goldman have even claimed that having many alumni in important positions has “disadvantaged” the firm.10
For example, a Goldman spokesman was quoted in a 2009 Huffington Post article as saying, “What benefit do we get from all these supposed connections? I would say we were disadvantaged from having so many alumni in important positions. Not only are we criticized—sticks and stones may break my bones but words do hurt, they really do—but we also didn’t get a look-in when Bear Stearns was being sold and with Washington Mutual. We were runner-ups in the auction for IndyMac, in the losing group for BankUnited. If all these connections are supposed to swing things our way, there’s just one bit missing in the equation.” The spokesman added that government agencies have bent over backward to avoid any perception of impropriety, explaining that when the firm’s executives would meet with then-Treasury Secretary Paulson, “it was impossible to have a conversation with him without it being chaperoned by the general counsel of Treasury.”11
The vast majority of the employees, who joined Goldman decades after the original principles were written, do not really know the original meaning of the principles. Always putting clients’ interests first, for instance, originally implied the need to assume a higher-than-required legal responsibility (a high moral or ethical duty) to clients. At the time, the firm was smaller and could be more selective as it grew. However, over time, the meaning slowly shifted (generally unnoticed) to implying the need to assume only the legally required responsibility to clients. As the firm grew, the law of large numbers made it harder for Goldman to be as selective. A legal standard allowed Goldman to increase the available opportunities for growth.
In accommodating this shift, those within Goldman, including senior leaders, increasingly relied on the rationalization that its clients were “big boys,” a phrase implying that clients were sophisticated enough to recognize and understand potential risks and conflicts in dealing with Goldman, and therefore could look out for themselves. And in cases when the firm was concerned about potential legal