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When I Had All The Answers

There was a time when I was probably a lot like Greg Smith, the former Goldman Sachs trader now famous for his scorching resignation letter, which The New York Times published last week as an op-ed piece.

I did not get a scholarship to Stanford, or win a medal in the Maccabiah Games, or work my way from a college internship to a half-million-dollar-a-year job at the world’s pre-eminent investment bank, all of which are among the personal accomplishments Smith noted in his piece. But like Smith, I was pretty sure that, in any gathering that did not include saints or theoretical physicists, I might be the smartest and most ethical person in the room.

This surely made me insufferable sometimes, but I was lucky enough to work for, and with, people who were willing to put up with me. Overestimating one’s own abilities is not fatal to a career, as long as your actual abilities are reasonably good. Underestimating the talents of those around you can annoy your co-workers, but if they don’t suffer from inflated egos of their own, they may be willing to live with it. I suppose it helps if, underneath all the misplaced certainty and unwarranted arrogance, you truly care, as I did, about your organization and its work.

I was also fortunate that my bosses took the trouble to correct some of my sub-optimal behavior. At my first post-college job, as a newsman for The Associated Press, I wrote a note to my bureau chief pointing out all the errors that a co-worker was making, which I had to correct when I worked the shift after him. I figured my boss needed to know. He wrote back that it was his job to read the stories we put out, so he was well aware of everything that moved on our wires. He also noted that it was his job, not mine, to deal with quality control, and for good measure he told me he did not appreciate the “didactic tone” of my memo. (Once I looked up the meaning of “didactic,” his rejoinder made such a deep impression that I still remember his phrasing after more than 30 years.)

Not long afterward, I made a serious editing error, which required that we issue a “kill” bulletin to all the newspapers in our state. Kills were rarely used, and I was mortified. My boss did not throw my prior holier-than-thou attitude in my face. “Go in peace, and sin no more,” he told me. Many years later, I borrowed his quotation to comfort a very conscientious employee who was distraught over a mistake.

Some of the most talented young employees at any organization can be too inexperienced and arrogant to know what they don’t know. Smith clearly did not realize how immature he sounded when he wrote that Goldman Sachs “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.” Goldman has more than 30,000 employees, in dozens of business lines and in offices all over the world. At 21 or 22 years old, Smith could not have known what the firm “stands for” beyond the set of guiding principles that he reportedly kept on the wall near his desk.

At age 33, with a dozen years at the firm and in a midlevel position, in which he reportedly was still not responsible for managing anyone else’s career, Smith still seems not to know what he does not know. The firm appears to have evaluated him correctly by not promoting him to the more senior rank of managing director.

He bemoaned what he perceives as the loss of a culture that put the interests of Goldman’s clients ahead of those of the firm. “The culture was the secret sauce that made this place great and allowed us to earn our clients’ trust for 143 years,” he wrote. “It wasn’t just about making money; this alone will not sustain a firm for so long.” He blamed Goldman CEO Lloyd Blankfein and President Gary Cohn for having “lost hold of the firm’s culture on their watch.”

The “three quick ways” to advancement at Goldman today, Smith said, are to persuade clients to buy stocks or other products the firm wants to “get rid of” because they are not profitable; to sell more complex and high-margin products when something simpler and cheaper might better serve a client’s needs; and, finally, to “trade any illiquid, opaque product with a three-letter acronym” - which apparently was the precise definition of Smith’s job as a derivatives trader. Most such trades are made, not with unsophisticated clients, but with traders at other firms.

Smith is naïve and off-base, but he is not entirely wrong. Goldman does, in fact, claim to adhere to a “client-centered” business approach, and it argues that this distinguishes it from similar firms. Responding to Smith’s essay, Blankfein and Cohn repeated the company line in a statement: “Our response is best demonstrated in how we really work with and help our clients through our commitment to their long-term interests.” It may surprise these gentlemen that nobody else wants clients to fail, either. Among other things, it’s bad for business.

I doubt many financial professionals outside Goldman take such propaganda seriously. Goldman is in many businesses. It trades investments for its own account. It buys and sells investments on behalf of clients, all of whom are well-heeled, and most of whom use other advisers in addition to Goldman. It creates proprietary products and takes positions opposite its clients, often at those clients’ request.

Suppose, for example, I want to limit the downside exposure for a large block of stock that one of my clients is unwilling to sell right now. In return, I am willing to give up some appreciation potential, and I am prepared to pay fees. Goldman and I can enter into a hedging contract that gives my client the desired protection, which of course comes at a price.

In this case, I don’t need or want Goldman’s advice, other than technical expertise about the best way to structure the deal. Mostly, I want Goldman to be financially solvent, so I can be confident that it will pay my client if called upon to do so. And on that score, through the turbulence of the past five years, Goldman has excelled.

Smith went astray in two ways. First, he believes the Goldman of today is different from the Goldman of yesteryear, but he has no basis for this except his own limited experience. I find the assertion highly doubtful, at least to the extent that Goldman was in the same businesses in earlier times. Proprietary traders have never gone to charm school. Salespeople have always been salespeople. That does not make them dishonest or bad; it just means they are not - and never were - objective advisers. I treat the sales forces of Goldman and its competitors the same way I treat car salespeople. I am responsible for doing my own homework.

Second, Smith seems to think things may be different elsewhere, at least if he hopes to stay in the same line of work. This is likewise doubtful. Goldman is technically able, relatively expensive, and generally better managed than similar firms, but it is not fundamentally different from its peers. Smith has no professional experience outside Goldman. He has little way to know this.

If someone with the responsibility and perspective of Blankfein or Cohn had penned Smith’s essay, it would have been big news. Instead, my reaction is that the Times’ opinion editors ran the overheated venting of a professionally frustrated young man. The Smith flap generated some passing heat, very little light, and will leave the former investment banker with a lifetime to reflect on the false certainty of youth. Like me, he may discover that as you get older, you find you know less about everything than you thought you did.

Larry M. Elkin is the founder and president of Palisades Hudson, and is based out of Palisades Hudson’s Fort Lauderdale, Florida headquarters. He wrote several of the chapters in the firm’s recently updated book, Looking Ahead: Life, Family, Wealth and Business After 55. His contributions include Chapter 1, “Looking Ahead When Youth Is Behind Us,” and Chapter 4, “The Family Business.” Larry was also among the authors of the firm’s book The High Achiever’s Guide To Wealth.

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One Response to "When I Had All The Answers"

  • Sophia Wong
    March 21, 2012 - 1:57 am

    Thank you for making the time to write this post. I suppose the lessons in here are common sense to many of my peers. But it was the way you wrote it that made it relevant and enabled me to finally understand the reality. I am looking forward to reading and rereading this post to remind me to realign my perspective on things in all aspects of my life – especially professionally.