The Bloomberg Move

The decision by New York City’s Mayor Bloomberg to stand behind Goldman Sachs (GS) — in the wake of the negative news commotion raised when former GS employee Greg Smith damned the firm's culture in a major New York Times op-ed piece — was neither unexpected nor inappropriate.
The question is: was it handled properly? And did the mayor best serve all of his constituencies?

He had to show some solidarity with GS, a major taxpayer and possibly one of the biggest customers, globally, for his company’s terminals (which dispense critical financial information by the minute). Further, Michael Bloomberg is himself "part of Wall Street" ... it's where he made his fortune. Goldman, as The Times has reported, citing a variety of sources, has been “down-on-its-luck." Bloomberg went to the GS offices to do a “pick-me-up” and shake hands with the CEO and others. He intended to make them feel better. He did. But that was only the half the job.

Where did Bloomberg go wrong? He quite properly made a statement supporting the importance of GS as an employer and taxpayer.

But he then clearly expressed his contempt for employees who chose to leave an employer, and particularly long-term employees. Was this comment necessary in the very free society in which we live and work? Obviously, he could not support, nor should he, an employee disparaging his or her former employer publicly. But I felt Bloomberg erred in not explicitly acknowledging the reciprocal obligations which employers have in maintaining a strong and vibrant culture for their employees — which is at the heart of any business! That is what attracts and keeps clients. When people and clients start leaving and saying nasty things, it is not a good sign for any business; particularly one like Goldman that has faced an extraordinary level of public scrutiny.

Since the financial crisis, the culture at GS has become a focal point for critics. There is a growing popular concern about the values that Greg Smith — a 10-year insider — expressed in his op-ed piece, which caught the popular fancy, as his were charges that have been leveled against Wall Street time and again. The Mayor of New York represents these folks, who represent a wide range of backgrounds, including disaffected Wall Street employees and shareholders. In my opinion, Bloomberg should at least have acknowledged the legitimacy of their concerns as well.

Perhaps if he had made his statements from City Hall, rather than at Goldman Sachs itself, Bloomberg might have felt freer to objectively address the topic, appealing to both Wall Street and the other 99%. After all, cultural strength is an important issue for all of a company's stakeholders.

Goldman, Wall Street and A Culture Crack-up

Andrew Goldberg, EVP and Head of the Change Management Practice at Makovsky + Company is today’s guest blogger.

The recent allegations of a mid-level banker at Goldman Sachs, Greg Smith, that the firm relegates client needs to its search for quick profit is only the latest in a number of events since before the financial meltdown that highlights a culture of greed. For Goldman, what seems to be the expression of heartfelt emotional pain of a long-term employee conflicted over ethics, this places it at a reputational crossroads.

Goldman has weathered and rather successfully survived outside criticism from regulators and the media, even as it fends off legal challenges from the SEC and others. But when your own people, occupying critical positions in your core trading business, begin to lose faith or react in anger against the firm, it is an indication that the internal system is cracking. And when your people lose confidence in your business model, your clients will also. The survival of the firm is then put at risk.

The question for Goldman now is how to contain its reputational damage.

The first step was a letter from CEO Lloyd Blankfein and President Gary Cohn to their employees which was on its face self-contradictory. The letter first makes the critic and his claim seem unimportant—as just one of thousands of employees rather than one who worked his way up over twelve years with long-term client relationships—and his experience unreflective of the larger culture of the bank. But then it goes on to say that the senior Goldman executives would now examine Smith’s claims of callousness toward client interests. This indicates the claims might have some credence. These language contortions raise doubts as to how thoughtfully Goldman is addressing what could be similar concerns on the part of others at the bank. Nor does it seem that Goldman was considering how outsiders, including the media, would interpret the letter.

Such an ambivalent approach cannot work easily, given the pounding Goldman has already taken. A clearer direction is needed:

First—the company should avoid acting in a punitive way toward an employee who on the face of his claims actually has the interest of the firm at heart. Although it is reported that the company has tried to reach Smith, it is not clear how and under what circumstances. Instead, he should be publicly invited in to meet with top management and speak frankly regarding his concerns—along with the knowledge that the company will hold him harmless from legal action arising from his open letter to the Times.

Second—and a much bigger challenge to address, is creating internal structural barriers to the embedded conflicts that face many trading houses. One step would be contracting with a prominent outsider such as a former Justice Department executive, who can dispassionately assess potential conflicts and has the ability to go directly to the Board of Directors with any findings of abuse.

Finally—the Goldman board itself needs to take an activist role in sustaining its reputation. Since the financial meltdown and subsequently the recent boom years of record profits, Goldman’s board has played a quiet role despite continued reputational hits. Taking the lead in a thorough audit and correction of cultural risks and conflicts at Goldman is an essential role for Goldman’s board at this critical time.

What happens now is a test-bed not only for Goldman, but for Wall Street. As the biggest player, how it handles its suggested cultural crack-up will be benchmarked by its peers. It can be hoped that Goldman will act with the health and integrity of its industry in mind.

New Business: Looking Beyond Borders

The yellow pages used to define our markets. Unless you were in a major hub — like Tokyo or New York — your clients were mostly confined to the city or region in which you operated. Today, although many firms still have a geographic focus, it’s possible for anyone, anywhere to seek out your company.

I believe this trend will accelerate.

First, there’s still tremendous potential for growth in terms of global internet usage, whether by conventional computers or mobile devices. While more than 78% of North Americans are wired to the web, less than one in four Asians and only 36% of the people in South America and the Caribbean are currently connected to the internet.

Second, the number of cross-border investments is expected to rise. Among the most important sources of potential leads for our industry, according to Goldman Sachs, are likely to be companies from the BRIC economies: Brazil, Russia, India and China.

Keep in mind that, according to the IMF, the real GDP growth rate for the U.S. last year was only 2.8 percent.

Over the past ten years, the BRICs were responsible for more than a third of the total rise in GDP worldwide. Goldman Sachs predicts that the BRICs will become an even larger force in the world’s economy … which means even more opportunity for us.

So we should be considering how our companies can build relations with these countries — if we’re not already doing so.