Published March 14, 2012
An outgoing Goldman Sachs (GS) employee unleashed a scathing Op-Ed on Wednesday that criticized the Wall Street firm as full of self-interested people who care little about the interests of their clients.
The employee, Greg Smith, resigned from a position he described as an executive director and head of Goldman’s U.S. equity derivative business in Europe, the Middle East and Africa.
In a 1,270-word Op-Ed in The New York Times, Smith took the unusual step of ripping the firm he worked at for almost a dozen years.
“I can honestly say that the environment now is as toxic and destructive as I have ever seen it,” Smith wrote. “I knew it was time to leave when I realized I could no longer look students in the eye and tell them what a great place this was to work.”
In a statement released to the media, Goldman pushed back against Smith’s allegations.
“We disagree with the views expressed, which we don’t think reflect the way we run our business,” a spokesperson 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.”
Additionally, Goldman said Smith's role is actually a vice president, which is a relatively junior position held by almost 12,000 others. A source, presumably tied to Goldman, told Dow Jones Newswires that Smith was the only employee in the division he said he heads.
Goldman is no stranger to controversy as the investment bank has been criticized by lawmakers, members of the media and others over its role in the financial crisis and housing bubble.
In a scornful 2010 Rolling Stone article, Goldman was dubbed a “great vampire squid” that jams “its blood funnel into anything that smells like money.”
Smith blamed a failure of leadership at Goldman, which is led by Blankfein. He said whereas leadership at the firm used to be about setting a good example, today employees will be promoted if you “make enough money for the firm (and are not currently an ax murderer).”
The result, Smith said, is a culture that cares too little about protecting the interests of the client. The criticism jives with regulatory and Congressional allegations of misleading investors during the lead-up to the bursting of the housing bubble.
“I don’t know of any illegal behavior, 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 wrote.
In a memo to employees, Goldman CEO Lloyd Blankfein and Gary Cohn, its president and chief operating officer, portrayed Smith as disgruntled and expressed regret about the Times story.
"Needless to say, we were disappointed to read the assertions made by this individual that do not reflect our values, our culture and how the vast majority of people at Goldman Sachs think about the firm and the work it does on behalf of our clients," the executives wrote.
Blankfein and Cohn pointed to regular feedback and independent, public surveys that paint a better picture of Goldman, which earlier this year was named as one of the best places to work in the U.K.
"Our firm has had its share of challenges during and after the financial crisis, but your pride in Goldman Sachs is clear. You’ve not only told us, you have told external surveys," the executives wrote. "We are far from perfect, but where the firm has seen a problem, we’ve responded to it seriously and substantively."
Additionally, Blankfein and Cohn said they "aren't aware" that Smith "expressed misgivings" about working at Goldman through a mechanism that allows workers to speak anonymously about their concerns.
The PR blemish creates an early headache for Richard “Jake” Siewert, the former aide to Treasury Secretary Tim Geithner who took over Goldman’s communications operations on Tuesday. Siewert is replacing former public relations chief Lucas van Praag.
Smith said he hopes his Op-Ed can serve as a “wake-up call” to Goldman’s board of directors.
He wrote, “Make the client the focal point of your business again. Without clients you will not make money. In fact, you will not exist.”
Shares of Goldman slid 3.05% to $120.76 Wednesday afternoon, underperforming a 1.5% rally in the KBW banking ETF.
While Goldman passed the Federal Reserve’s stress tests that were released late Tuesday, the company didn’t follow JPMorgan Chase (JPM) and others by unveiling plans to hike its dividend, though it did say it is considering such a move.