Lisa Endlich - Goldman Sachs: The Culture Of Success

THIS IS A BORZOI BOOK
PUBLISHED BY ALFRED A. KNOPF, INC.

Copyright 1999 by Lisa J. Endlich
All rights reserved under International and Pan-American
Copyright Conventions. Published in the United States
by Alfred A. Knopf, Inc., New York, and simultaneously in
Canada by Random House of Canada Limited, Toronto.
Distributed by Random House, Inc., New York.
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registered trademarks of Random House, Inc.

Owing to limitations of space, all acknowledgments for permission to reprint previously
published material may be found following the index.

Library of Congress Cataloging-in-Publication Data
Endlich, Lisa, [date]
Goldman Sachs : the culture of success / Lisa Endlich.
p. cm.
Includes bibliographical references
eISBN: 978-0-307-83299-3
1. Goldman, Sachs & Co. 2. Investment bankingUnited States.
3. Going public (Securities) I. Title.
HG 4930.5. E 53 1999
332.660973dc21 98-31139

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To Mark

Displayed proudly for many years on the wall of co-senior partner John Whiteheads office at Goldman Sachs was the official announcement of the Ford Motor Companys 1956 initial public offering. Goldman Sachs had masterminded the sale of stock and as the largest initial public offering to date it was one of the firms greatest triumphs. Below the ornate script announcing that the automobile manufacturer would be selling shares was a partial listing of the underwriters, a group that totaled an astounding 722. It was a veritable whos who of Wall Street, a roster of almost every major firm and most of the minor ones.

Whitehead had framed the tombstone without any glass, and over the years each time an announcement was made that one of these established firms had ceased to exist, had merged with a former competitor, or had been devoured by a conglomerate, with his red pen he would strike off another rival. First Hornblower & Weeks went, then firms like White Weld and Blyth & Co. Slowly, the page turned red as every other major firm on Wall Street relinquished its partnership. Goldman Sachs was the last one left standing.

The end of an era came in August 1998 when the firms 188 partners voted to sell a portion of their firm to the investing public. It was an admission that the private partnership, for centuries the model for all investment banking firms, was no longer relevant in the modern age. The change did not come about because Goldman Sachs could no longer find success as a private partnership; in fact in the first half of 1998 Goldman Sachs was having a record year and many partners vociferously argued that the partnership itself was the source of a great deal of the firms success. Rather, the change came about because the expansion plans of top management required publicly traded shares as the means for acquiring related businesses and many partners felt they needed public shareholders to help defray the risks inherent in their business. The competitive landscape was evolving at a breakneck pace and at the height of the longest bull market in history there had never been a better moment to sell. The decision was a difficult and agonizing one, steeped in conflict and controversy, and the events that would overtake the firm were entirely unforeseen.

Goldman Sachs began the century as a little-known family business with a minor reputation and a huge dream. It ends the century as perhaps the best-known investment bank in the world, one of the greatest financial success stories of the twentieth century. Yet it was anything but obvious that Goldman Sachs would emerge as the industry leader. At any point in its first hundred years, the firm could have become a dinosaur, marginalized by competitors with more capital and better established franchises. But in the 1970s, Goldman Sachss star began to rise. Slowly at first, gaining momentum all the time, the firm came to national and then international prominence, ultimately rising to the pinnacle of investment banking. This story is not one of a familiar rise and fall. At times the firm has stumbledquite badly a few timesbut it never relinquished its push forward. For more than a century and a quarter, Goldman Sachs thrived as a private partnership, becoming a major force on Wall Street and one of the most profitable organizations on this planet.

The firms success has rested solidly on three legs: its leadership, its people, and its culture. Great companies have great leadersmen and women who stand out in their own age and then go on to secure a place in history. Goldman Sachs has been run by men of extraordinary vision and ability. Each senior partner has stamped his world view on the firm in a way that fit remarkably well with the times. And whether speaking to partners, competitors, former employees, or clients, the conclusion is always the same: Goldman Sachs hires the very best people in the industry, seeking out the brightest and most ambitious recruits who will fit into the confines of its culture. That culture, widely emulated across the industry, has been the blueprint for the firms success and has remained unique.

While working at Goldman Sachs I was immersed in this culture, although I was entirely unaware of its long and colorful history. As a vice president and trader on the foreign exchange desk I had no inkling of the controversy that repeatedly enveloped top management as they grappled for over a decade with the notion of selling the firm.

For almost one hundred thirty years Goldman Sachs has been shrouded in mystery, its finances and operations kept secretthe prerogative of a private partnership. Those working within the financial industry may have caught glimpses of the inner workings of the firm from stories in the financial press over the years, while those outside the confines of Wall Street may know little about this very private firm. This book, I can only hope, will help fill the void.

Two important caveats: I spent my career at Goldman Sachs in one of the firms trading businesses. While I have endeavored to write about the banking side of the business, I must confess that my knowledge of this is less substantial.

Second, this book does not attempt to place a value on the role investment banking plays in our society. A debate has erupted in recent months about the part speculators and bankers have played in the world economy, particularly with regard to the many emerging economies that have recently faltered. While this is an important issue, it is outside the scope of this book.

November 1998

T H E R O A D L E S S
T R A V E L E D

O N W EDNESDAY MORNING , October 15, 1986, John L. Weinberg, the venerable senior partner of Goldman Sachs, had a long list of phone calls to make. Before the morning was over he needed to telephone thirty-six men and one woman. His conversations would be brief; good news travels fast.

He started early, hours before the official list would be published. Thomas W. Berry would be first and Garland E. Wood last; alphabetical order was the rule. This was the phone call each vice-president on his list had waited years to receive. Each would reach for the receiver hoping Weinberg was about to extend an invitation to the most exclusive club on Wall Streetthe partnership of Goldman Sachs. Weinbergs simple statement, I would like to invite you to join the partnership, was for most the reward for a decade of grinding hard work. No one had ever refused the honor. Thirty years earlier, Weinbergs own father, the legendary Sidney Weinberg, had issued him the same invitation.