Very little, he said in an Op-Ed article in The New York Times on Wednesday.
At meetings at Goldman on the other hand, “not one single minute is spent asking questions about how we can help clients,”
“People who care only about making money will not sustain this firm — or the trust of its clients — for very much longer,” he warned.
A Goldman Sachs spokesman responded to the piece early Wednesday, saying, “We disagree with the views expressed, which we don’t think reflect the way we run our business. In our view, we will only be successful if our clients are successful. This fundamental truth lies at the heart of how we conduct ourselves.”
Mr. Smith’s criticism, much more than stories about bonuses or brickbats from the likes of
The parade of senior Goldman executives who testified before
The shift in incentives has followed the evolution of the business itself, industry insiders and other observers said. Partnerships, where the leaders of the firm had their own fortunes on the line, became publicly-traded giants. Proprietary trading evolved into a Midas-like source of money, challenging investment banking and client relationships. And with a free hand thanks to
“When these firms changed from partnerships to public companies, the ethos changed dramatically,” said
With the rapid growth of proprietary trading beginning the 1980s, where firms used their own capital to make bets, a short-term mentality came to dominate firms, according to
Compensation followed. Before 1990, pay for the chief executives of financial firms were on par with those of chief executives of the largest traded companies, or even slightly lower.
By 2005 the pay was roughly 250 percent bigger on average, said
To be sure, longtime bankers say it is not like short-term greed was absent in the past. It has been around since traders gathered under a buttonwood tree and founded the
“I think there was plenty of skullduggery going on,” said
“When I first started on
Not everyone agrees with Mr. Kohlberg’s view. Anticipating arguments that are likely to be made in the coming days, one billionaire hedge fund manager who insisted on anonymity argued that conflicts have always come with the territory, and that clients should be sophisticated enough to know that. “These aren’t dumb people,” he said.
The key, he said, is to anticipate the conflicts, and if need be, use them to your advantage. “Find the one that has the biggest conflict and get him on your side,” he said. “You want somebody who understands both sides.”
“The guy on both sides of the equation will find a deal to get the deal done,” he added. “Is he getting his bread buttered on both sides? Who cares. Just get the deal done.”
Over all, the percentage of people who have little or no faith in the fairness of investment companies rose to 41 percent in 2011 from 26 percent in 2008, according to Yankelovich Monitor 2011. Only credit card companies, corporate chief executives, the federal government, and lawyers fared worse. Even banks and insurance companies did better.
Nor is the outrage a matter of populist revolt. The feelings were identical in households whether they earned
While Mr. Smith’s career at Goldman is over, he insisted it was not too late for his former firm and the rest of
“Make the client the focal point of your business again,” he wrote. “Without clients you will not make money. In fact, you will not exist. Weed out the morally bankrupt people, no matter how much money they make for the firm. And get the culture right again, so people want to work here for the right reasons.”
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