The Jury Is out on Culture Change at Goldman Sachs

Financial News, February 22, 2004 | Go to article overview

The Jury Is out on Culture Change at Goldman Sachs


Byline: Sarah Butcher

When Ashish Nanda, an associate professor at Harvard Business School, discusses Goldman Sachs' transition from partnership to public company with his MBA students, it is in the context of a rare event: the successful flotation of a professional services firm.Nanda said: "Goldman Sachs made a good job of going public. It has done a lot better than plenty of others. Pre-initial public offering (IPO) concerns that the bank would become slow, lazy and bureaucratic have proven unfounded, and it has done a good job of maintaining its bottom line."

In contrast, he points to management consultants such as Arthur D Little, for which going public ended more than 30 years later in 2002 with bankruptcy and a return to private ownership.

Given that it will be five years in May since Goldman relinquished its partnership status, comparisons with Arthur D Little may be premature. But Nanda said the bank took a long-term view from the start. While Accenture, the management consultant, distributed money from its 2001 IPO only between existing partners, he points to Goldman's decision to distribute gains between past partners and present non-partner employees.

Nanda said: "One of the impressive things about Goldman Sachs is that even as it went public it was extremely sensitive about maintaining a partnership culture." This helped to provide long-term motivation to stay.

Not everyone is convinced. One former managing director said the culture had nose-dived since 1999. He said: "When the IPO took place we had a partnership that had been around for 137 years. Most of the partners had been with the firm for at least 25 years and people felt affiliated to the partners and to each other.

"After the IPO many partners left and what remained were a lot of inexperienced leaders in a tough economic environment. They have done an extremely bad job of keeping the culture glued together."

He said matters were made worse by the fact that the bank grew dramatically. In 1986 headcount was 6,000 and by the fourth quarter of 2003 it was 19,476, having reached 25,000 in 2001. As new staff were recruited, existing staff became disaffected. "Two or three years ago it became like a revolving door. People saw new leaders coming in on huge golden hellos and started to question the point of sitting around on relatively low pay and left," said the former partner.

Goldman no longer inspired the degree of loyalty it used to, he said. Some headhunters agree. One in London said: "Goldman has become a ticket move. …

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