What Happened to Goldman Sachs: An Insider's Story of Organizational Drift and Its Unintended Consequences
This is the story of the slow evolution of Goldman Sachs--addressing why and how the firm changed from an ethical standard to a legal one as it grew to be a leading global corporation.
In What Happened to Goldman Sachs, Steven G. Mandis uncovers the forces behind what he calls Goldman's "organizational drift." Drawing from his firsthand experience; sociological research; analysis of SEC, congressional, and other filings; and a wide array of interviews with former clients, detractors, and current and former partners, Mandis uncovers the pressures that forced Goldman to slowly drift away from the very principles on which its reputation was built.
Mandis evaluates what made Goldman Sachs so successful in the first place, how it responded to pressures to grow, why it moved away from the values and partnership culture that sustained it for so many years, what forces accelerated this drift, and why insiders can't--or won't--recognize this crucial change.
Combining insightful analysis with engaging storytelling, Mandis has written an insider's history that offers invaluable perspectives to business leaders interested in understanding and managing organizational drift in their own firms.
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Community Reviews
The author examines how Goldman Sachs changed from a firm that principally provided advice to its clients and regularly placed client’s interests ahead of its own, at least short-term, interests to a firm that principally makes markets and invests its own capital and focuses on fulfilling its legal obligations while maximizing returns to its shareholders.
To analyze this change, the author uses a concept from sociology called ‘organizational drift’, which seems to describe a process in which an organization’s purpose gradually changes over time, without most members of that organization realizing that has happened, hence the “drift”. He convincingly notes that from within the organization many things remain the same: employees use the same words, such as “putting the client’s interest first,” the people are often the same, but the behaviors that are encouraged and rewarded has changed, the purpose has changed. Several rewarding longitudinal studies show how behavior at Goldman changed over time. In the most striking, Goldman employees changed what they meant by “putting the client’s interests first” from doing what financially benefited the client, regardless of impact to doing what was legally required for the client, while acting as their mature counterparty. To prove this point, the author mines correspondence and interviews from partners at various points in Goldman’s history, noting strikingly how similar these cohorts sound and yet how different they think.
So how does the author suggest this happened? As with the best sociologists, he begins by challenging a simple cause effect relationship that most of his readers will already have in their heads. Specifically, that Goldman’s culture eroded when it changed from a closely-held private partnership to a widely-held public company. In the place of this simple explanation, the author substitutes a complex bundle of forces that together served to change Goldman’s culture. In particular, he points out that (1) the firm’s external environment changed from advisory services, where alignment with a client’s interest is a smart long term strategy, to market-making services and investing services, where that relationship is less clear; (2) the firm’s need to grow both quickly and internationally challenged its ability to socialize new employees based upon old norms; (3) a specific experience with near bankruptcy in 1994 and how partners preserved their financials over the firm in that instance dramatically affected the average employee’s perception of culture; and many others which are impossible to fully recount.
Perhaps the most interesting part of the book is not the dynamic the author sought to describe, but the history and how unfamiliar the Goldman of the 1980s appears to a professional only 30 years later. In the 1980s, partners voluntarily left most of their wealth in the capital of the firm, managed by committee, avoided ostentatious behavior or lavish displays of wealth, treated peers equally and averred a ‘star system’, and prized hard work and a particular ethic over monetary success. Modern professional services firms celebrate the opposite of almost all of those values.
If the book has a failing, it is that the author tacitly answers a question that ought to be approached head on, namely: was this change at Goldman inevitable, an output more of the environment in which they operated, or contingent, an output of that environment as well as specific personalities, decisions, and choices. The author seems to conclude the latter, that without all of the things he is describing, you don’t wind up with the degree of drift that Goldman has experienced. But this tacit conclusion side-steps two more interesting questions: (a) would any elite firm that grew as Goldman did necessarily experience this kind of organizational drift; and (b) would any elite firm that operated in the markets Goldman did, and experienced the changes that they did, necessarily experience this kind of organizational drift. These questions are hard to answer, but are the sort that actually allow leaders of professional services firms to make the core decisions upon which culture succeeds or founders, questions like: “should we grow beyond a certain point or not” and “should we expand into a new market or retain in the one in which we have developed our culture?”
Instead of taking on these, perhaps unanswerable, questions the author supplies a list of ten best practices that leaders should consider to retain their culture. I'd like the author to say more about drift generally. That's hard to do in this sort of book. But I feel it's what the world needs to know. I hope he's working on something like this.
FOUR STARS. An insightful window into corporate values and how they change as companies age, change leaders, and respond to market forces.
To analyze this change, the author uses a concept from sociology called ‘organizational drift’, which seems to describe a process in which an organization’s purpose gradually changes over time, without most members of that organization realizing that has happened, hence the “drift”. He convincingly notes that from within the organization many things remain the same: employees use the same words, such as “putting the client’s interest first,” the people are often the same, but the behaviors that are encouraged and rewarded has changed, the purpose has changed. Several rewarding longitudinal studies show how behavior at Goldman changed over time. In the most striking, Goldman employees changed what they meant by “putting the client’s interests first” from doing what financially benefited the client, regardless of impact to doing what was legally required for the client, while acting as their mature counterparty. To prove this point, the author mines correspondence and interviews from partners at various points in Goldman’s history, noting strikingly how similar these cohorts sound and yet how different they think.
So how does the author suggest this happened? As with the best sociologists, he begins by challenging a simple cause effect relationship that most of his readers will already have in their heads. Specifically, that Goldman’s culture eroded when it changed from a closely-held private partnership to a widely-held public company. In the place of this simple explanation, the author substitutes a complex bundle of forces that together served to change Goldman’s culture. In particular, he points out that (1) the firm’s external environment changed from advisory services, where alignment with a client’s interest is a smart long term strategy, to market-making services and investing services, where that relationship is less clear; (2) the firm’s need to grow both quickly and internationally challenged its ability to socialize new employees based upon old norms; (3) a specific experience with near bankruptcy in 1994 and how partners preserved their financials over the firm in that instance dramatically affected the average employee’s perception of culture; and many others which are impossible to fully recount.
Perhaps the most interesting part of the book is not the dynamic the author sought to describe, but the history and how unfamiliar the Goldman of the 1980s appears to a professional only 30 years later. In the 1980s, partners voluntarily left most of their wealth in the capital of the firm, managed by committee, avoided ostentatious behavior or lavish displays of wealth, treated peers equally and averred a ‘star system’, and prized hard work and a particular ethic over monetary success. Modern professional services firms celebrate the opposite of almost all of those values.
If the book has a failing, it is that the author tacitly answers a question that ought to be approached head on, namely: was this change at Goldman inevitable, an output more of the environment in which they operated, or contingent, an output of that environment as well as specific personalities, decisions, and choices. The author seems to conclude the latter, that without all of the things he is describing, you don’t wind up with the degree of drift that Goldman has experienced. But this tacit conclusion side-steps two more interesting questions: (a) would any elite firm that grew as Goldman did necessarily experience this kind of organizational drift; and (b) would any elite firm that operated in the markets Goldman did, and experienced the changes that they did, necessarily experience this kind of organizational drift. These questions are hard to answer, but are the sort that actually allow leaders of professional services firms to make the core decisions upon which culture succeeds or founders, questions like: “should we grow beyond a certain point or not” and “should we expand into a new market or retain in the one in which we have developed our culture?”
Instead of taking on these, perhaps unanswerable, questions the author supplies a list of ten best practices that leaders should consider to retain their culture. I'd like the author to say more about drift generally. That's hard to do in this sort of book. But I feel it's what the world needs to know. I hope he's working on something like this.
FOUR STARS. An insightful window into corporate values and how they change as companies age, change leaders, and respond to market forces.
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