Genius or Sucker? The Dilemma of Being a Goldman Sachs Client

So there you are - a bazillionnaire. Or, possibly, someone responsible for overseeing the bazillions of others. Like the investment manager of a pension fund.

You're always being approached by the Big Boys - from investment banks to private equity houses. They want your money. And why wouldn't they? After all, their job is to turn your money into more.

But for whom?

That's the big question - now more than ever - if your bazillions ever touch the corporate shores of Goldman Sachs.

All because of Greg Smith.

If you've missed the excitement, Mr. Smith resigned from Goldman in a big way. Fifteen minutes after emailing his resignation to management, his NY Times Op-Ed piece was published.

That one little piece of personal journalism led to media hordes over-crowding outside Goldman's portals, innumerable articles being written on every conceivable platform and medium and commentators of all kinds (yours truly included) talking about the lessons learned and yet to be learned.

Which brings us back to our bazillionnaire Goldman client - because, let's face it, Goldman only deals with bazillionnaires. Even the low end of the 1% isn't that interesting to them.

The question for this person, based on all the media coverage, is: So? Are you a genius or a sucker for doing business with these guys?

Why that has become just as compelling a question as the hue and cry that Mr. Smith's writing raised is because it makes one wonder.

Here's a company that has been indicted and settled with the Government (to the tune of $550 million) as a result of their 'questionable' practices toward their clients. Like selling an investment instrument to their clients that another client developed specifically to bet against the suckers who were doing the buying.

Nothing like having your cake and eating it, too - especially because Goldman was making money on all sides of the deal.

And that's just one case. There are others still pending.

Because what everyone learned is that rich people are just as big suckers as everyone else when they get just the right pitch from just the right person. Or company.

Which leads us to the clients - anonymous and otherwise, individual and institutional - who are telling anyone who's willing to listen that they know what Goldman is doing. That they've known it all along. That there's no surprise there.

And that means, of course, that even as they were doing business with Goldman, they didn't trust them as far as they could throw them.

Or so one hopes - especially if that client is a fund manager who has just dumped a good portion of what will be your retirement into Goldman's - or, to be fair, most any other investment bank's or broker's - hands.

Where does that leave us?

The answer is: With a system that is gamed by the institutions that pay big bucks to hold the cards by pushing legislation exactly where they want it to be. On their side. With no accountability in sight.

Until that changes, all the Greg Smith's and unhappy bazillionnaire clients will just have to take it as it comes.

As suckers.

[This article was published on Technorati.]

Goldman Sachs' Culture: When Making Money Isn't Enough

You know you've hit a nerve when not only are the Twitter stream and blogosphere overrun with comments and links - but the originating publication has to close its comments on your article because the volume has become too much...and run a live blog on the commentary that has ensued.

Normally, you'd think that this is a Lady Gaga announcement about her new Foundation getting her Little Monsters going. Or Justin Bieber doing something Justin Bierber-ish. Or something.

But no. This is Greg Smith's doing.

Who's Greg Smith? You might well ask - because, until today, unless you knew who he was there was no way you'd know his name. Or need to. Or care.

Mr. Smith is - until tomorrow - an executive director of Goldman Sachs and head of their US equity derivatives business in Europe, Middle East and Asia.

Now, because he's written an Op-Ed piece for the NY Times taking the lid off of Goldman so that we can all see what he's been seeing - and what has led him to decide to resign - there's no stopping the commentary. For the business and finance types - and everybody who's still angry at all the banks and investment houses that caused the 2008 crash - he's the ultimate celebrity.

It's better than who the contestants are for this round of "Dancing with the Stars" a long shot.

In fact, as interesting as what Mr. Smith has to say - and he doesn't pull his punches - the reaction from within and outside Goldman is just as compelling.

First, let's start with what Mr. Smith wrote about his soon-to-be former employer. Then we'll take on what his well-written rant has wrought.

Integrity and Disillusionment

When Mr. Smith joined Goldman twelve years ago, it was an organization that respected its clients.  Now, not so much.  In fact, from what he describes, not at all.

How could they be respected when it's acceptable for staff to refer to them as "muppets" and the best way to move up Goldman's corporate ladder is by:
  1. Persuading clients to invest in stocks or other products Goldman is trying to "get rid of" because they don't have a lot of potential profits
  2. Getting your clients to trade "whatever will bring the biggest profit to Goldman" and
  3. Trading any "illiquid, opaque product with a three letter acronym."
What he describes - and is the basis of his decision - is that any integrity attached to selling clients a product that is in their best interests is gone.  That's because the culture has shifted so that the only focus is on making money for the organization, itself.  Not its clients.  For Goldman.

Which makes its clients roadkill.  Institutionalized roadkill.

He puts the blame for this directly on the current CEO, Lloyd C. Blankfein, and President, Gary D. Cohn.  As far as Smith is concerned, the two titans leading the organization lost sight of what had been the culture long ago - and this is the outcome.

For Mr. Smith, who had real pride in having gotten a job at Goldman, moving up the ranks and, most particularly, pitching the company as the go-to answer for best-of-the best graduating students, his own integrity was on the line.  His disillusionment with this company he loved - and which had treated him so well - was complete.

Which leads us to what the rest of the world has to say.

From Within and Without

Not unexpectedly, Goldman is doing its best to counter the arguments that Smith put forward.  Citing everything from employee surveys to their own personal commitment to clients, Blankfein, Cohn, et al are doing their best to make it seem as if:
  • what Mr. Smith describes is a surprise to them
  • there's no basis for his comments and,
  • he never said anything about it to them anyway - so  there was no way they could have known of his perception or his disillusion...
...which, of course, is wrong.  So they say.

As for the rest of the writing/blogging/Tweeting/commenting world, the reaction depends, in part, on which side your bread is buttered.

For those who want to stay in good with Goldman (which, after all, is still one of the largest, most successful investment banks in the world), the tendency is to demean Smith.  That's typical and to be expected.

Among the financial types, there's a lot of skepticism with not a lot of support for Mr. Smith or his position.  Of those, though, the most surprising to me came from Joshua Brown on his blog, The Reformed Broker.

Brown is a Vice President at Fusion Analytics and the author of Backstage Wall Street - an expose of how Wall Street really works.  So, while he states, quite correctly, that there's nothing new in financial service companies like Goldman being out for themselves - to the point that he cites Goldman's complicity in moving the 1929 Crash forward after they had protected their assets - given his intolerance for the behaviors of his Wall Street brethren, his impatience with Mr. Smith's Op-Ed was unexpected.  At least to me.

Which leads us to the leadership lessons learned from this very big and public debacle for Goldman.  If you're the leader of your organization:
  1. Make sure you're clear about what you want your organizational culture to be, and
  2. Make sure your employees know - and are rewarded - for perpetuating that culture.
Most important, if the culture of your organization is not something you'd want discussed by everyone and their cousin on the front page of every newspaper, blog and Google News search, either do something about it or find a way to rewrite your employee handbook's section on proprietary information, non-disclosure and confidentiality.

Because, if you don't, one day you may find yourself with a Greg Smith on your hands.  And it's not pretty.

Just ask the boys at Goldman.

[An earlier version of this article appeared on Technorati.]

AT&T and Corporate Values: Throttling Your Customers, Suppliers and Society

AT&T is "throttling" five percent (5%) of their customers. Their word. Throttling.

Now, if you're a pilot and you're thinking takeoff - then you throttle up.

If, on the other hand, you're an AT&T customer, they're using the other definition of "to throttle." It means to choke. Like asphyxiate. Like to kill - which, in some ways, seems to be their goal.

What they're throttling is their data use. You see, the customers in question took advantage of an unlimited data plan that AT&T offered - which is no longer available.

Much to AT&T's dismay, these customers are actually using what they paid for. Since that's not okay with the company, AT&T is slowing their connection speed to the equivalent of a dial-up. Yes, a dial-up.

Think your very first AOL connection - modem sound effects and all - and you'll relive the nightmares that these AT&T customers are now experiencing (granted, without the sound effects).

Why? What is driving AT&T to throttle their customers?

Revenues and profits.

AT&T doesn't have the infrastructure to support unlimited data plans. Moreover, they evidently don't want to build it. They'd rather their customers buy the 'tiered' plans that are still available - and far more costly to every user.

There are two other impacts of this heinous decision that are just as important - and have nothing to do with AT&T's customers. In this case it's all about their Apple...and the role of the corporation in society.

On the supplier side, the reason that AT&T's customers bought the unlimited data plans (or the tiered ones, for that matter) is because they bought smartphones. Like the iPhone. And the more that the iPhone is capable of doing - from downloading maps so you can get to where you need to go based on the app you purchased to watching the cute kitties gambol about on YouTube - the more data access you need. And the faster you need to get it.

As well, because iPhones, along with iPads (which also have AT&T data plans), are the fastest growing equipment purchases for businesses, that data access isn't just for fun. It can be the make or break of small businesses that can't afford to buy into one of AT&T's 'business' plans.

Now, let's take a look at society. AT&T is doing just fine, thank you. Because of their relationship with Apple (among other decisions) they've got the money to invest in building the infrastructure required to allow unlimited data plans for all. But they don't want to spend it. Which means that they get to keep their money - and, of course, their shareholders benefit - but the jobs that the company can justifiably create are simply not being created. Not by them.

And that means that they are complicit in holding back the progress of the American economy. Their "throttling" policy is also killing job creation that they could, should and need to be driving.

Worse - because it does get worse - on the same day that the news media picked up on the extent to which the "throttling" policy was impacting AT&T's customers, the company put out a press-release-like, fake "news story" which was, embarrassingly, picked up by a number of papers as if it was news.

The storyline? It was all about the amount that AT&T has invested in the New Jersey area infrastructure. Only it takes a while to realize that that's all they're talking about - and that the investment was from a few years ago. Not now. Not when their customers and the broader American economy need it.

Just for fun, let's put the two together.  Frankly, if I were in the Apple senior executive team, I'd be seriously rethinking my relationship with a company whose decisions are adversely impacting our reputation - as well as, potentially, our sales.

AT&T has existed, in one form or another, since Alexander Graham Bell - with a history rich in innovation and success. It's time that today's executive management recognize their responsibilities to the wider world they're supposed to be attracting and supporting.

[This article appeared on Technorati.]

Business Leaders, Weenies and the Question of Confidence: The Lessons of a Root Canal

Yesterday I had a root canal - and it got me thinking all about business confidence and the complaints that so-called "business leaders" are making about their lack of confidence in the economy.

What do a root canal and business confidence have to do with one another?  Everything.  Because in both cases, it's all about fear and paralysis or, conversely, the willingness to trust yourself and those around you to achieve success.

This all occurred to me at two different points in the process.

The first was when I realized that the procedure was going to take place in a foreign language.  No, not the language of endodontics, which would have been bad enough.  This was going to be done in French.  I was having a root canal done in Paris - and that meant that the endodontist and his assistant would be speaking rapid-fire and technical French to one another - which definitely left me out of the loop.

The second point was when, contrary to the assurances of my endodontist that I wouldn't feel anything, I felt something.  Not pain.  But something.  Most important was that the 'something' made me even more worried about what had the potential to happen.

Not what was actually happening - but what could.

And it was that realization that stopped my fear.  Because I realized that it wasn't what I was experiencing that was making me afraid.  It was what might happen - which was purely a product of my own imagination.

Sure, there was logic involved.  Let's face it, when you've got someone poking around with drills and metal probes in an area that is designed to hurt, there's a fair expectation that hurt will occur.

But that doesn't mean that it is or it does or even that it will.  It's simply something to be aware of and ready for.  And to have your resources lined up to help should that occurrence manifest.

Which I did.  Because I had a talented and accomplished endodontist doing the work.  I didn't have to worry about my decision to have the root canal or the resource I had selected to do the work.  I had already created success.

And that's what led me to start thinking about those business leaders.  Because they, too, are in a foreign situation operating within a global economy the likes of which they've never seen before.  As well, even with the amazing war chests of cash they've built up, they're so convinced that there's going to be pain that they're reacting as if it's already there.

Which led me to a simple and straightforward conclusion:  They're weenies.  They're allowing their fears to drive their decisions rather than taking the steps that would help the economy - global and local - to recover.

They'd rather be afraid and wait for someone else to take the big steps, instead of taking their courage and their smarts in hand and driving success forward.  For everyone.

What all of that says is that these aren't "business leaders."  By definition, weenies can't be leaders because they don't lead - and who'd want to follow them anyway?

So, as you look at what you're doing with your business, ask yourself:

  • Do I have trusted resources surrounding me?
  • Are there things I want to do and steps I want to take with my business that I think can succeed?
  • Am I not taking those steps because I'm afraid?
  • If so, where is that fear coming from?  Within or without?
Depending upon the answer to that last question, you'll know what to do.  If you're generating the fear from within, take your courage in hand and go forward.  If it's coming from those around you, the media or anyplace else, lose them.  

They're weenies.  You're not.

James Paulson, Global Opportunity and the Entrepreneurs' Challenge

Watching CNBC today (and, yes, I'm a near-addict), it was heartening to hear James Paulsen's optimistic perspective on the economy and its direction - particularly for the developed nations.

If you're not familiar with Paulsen, he's the Chief Investment Strategist for Wells Capital Management (you can read his bio here) and has been providing his Economic and Market Perspective commentary for over twenty-five years at no cost.

(Reading Paulsen is much like reading Warren Buffett's annual Letter to Shareholders - a must-read for both information and perspective.)

There was a lot Paulsen took on but the biggest takeaway for entrepreneurs is that we should think of the current trade deficit as our investment in creating new markets in emerging countries.  Now, as they have and continue to build their countries into consumer-driven, middle class economies, it's time for us to reap the benefits of that investment.

He thinks we can see at least a 1% GDP growth in the developed countries simply by expanded export into the emerging economies.

Your challenge is to figure out what you have to offer and how to make your way into those economies.

If he's right (and he's got quite the track record of success), you'll see a win in both your foreign and domestic sales - because, at that point, all economies will be growing.

As for the slow build we've been experiencing?  Not a worry, according to Paulsen.  This is typical of the long-term recoveries we've seen after other major downturns.

The biggest obstacle we face is fear - and it's up to us to face it down by doing what entrepreneurs do best.  Create new worlds.

So go - now - and do what you do best.  Figure out how you're going to create your global success.  It's what's next.