Critics blast firm’s response to very public resignation
An executive director at investment giant Goldman Sachs resigned via a scathing op-ed in the New York Times on Wednesday, decrying the “toxic and destructive” environment at the firm where clients are derided as “muppets” whose only purpose is to generate more wealth for the company.
Greg Smith’s firebomb is certain to renew debate in the United States about how much Wall Street has truly changed four years after shady lending practices by investment firms resulted in a widespread financial meltdown that brought the country to the brink of a depression.
“I attend derivatives sales meetings where not one single minute is spent asking questions about how we can help clients,” writes the London-based Smith, head of the firm’s U.S. equity derivatives business in Europe, the Middle East and Africa.
“It’s purely about how we can make the most possible money off of them. If you were from Mars and sat in on one of these meetings, you would believe that a client’s success or progress was not part of the thought process at all. It makes me ill how callously people talk about ripping their clients off.”
He added he’s seen five different managing directors over the past year describe their own clients as “muppets,” sometimes over company e-mail.
“I don’t know of any illegal behaviour,” writes Smith, whose clients have total assets of more than a trillion U.S. dollars. “But will people push the envelope and pitch lucrative and complicated products to clients even if they are not the simplest investments or the ones most directly aligned with the client’s goals? Absolutely. Every day, in fact.”
Smith, who’s been with Goldman Sachs for 12 years, added: “The firm has veered so far from the place I joined right out of college that I can no longer in good conscience say that I identify with what it stands for.”
He pointed the finger of blame at the firm’s top managers.
“When the history books are written about Goldman Sachs, they may reflect that the current chief executive officer, Lloyd C. Blankfein, and the president, Gary D. Cohn, lost hold of the firm’s culture on their watch,” he wrote.
“I truly believe that this decline in the firm’s moral fibre represents the single most serious threat to its long-run survival.”
Goldman Sachs released a statement in response to Smith’s explosive allegations.
“We disagree with the views expressed, which we don’t think reflect the way we run our business,” the company said.
“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.”
Smith’s op-ed resulted in an almost immediate call for a house-cleaning at Goldman Sachs.
An editorial on Forbes.com dismissed the company’s tepid response to the allegations.
“That can’t be nearly enough,” Frederick E. Allen wrote. “Goldman Sachs must take drastic action to restore its reputation, and that action must start at the top.”
How much impact will this have on Goldman Sach’s business? It’s brand? How should it respond? Post your thoughts in our comment section.
