Some awkward questions about that letter…

A day after Greg Smith set off a small bomb inside Goldman Sachs with his excoriating resignation letter in The New York Times, here are a few questions for everyone involved.

For Greg Smith:

Dear Mr Smith,

Congratulations on what must have been a very difficult decision to resign so publicly with THAT letter. Whatever else, it was a very brave thing to do and you have triggered an important debate about conflicts and ethics in the securities industry. Until you changed the settings on your Facebook page, it was clear that you had the support of your friends. I have a few questions.

  • At what point did you first become concerned about the change in the culture at Goldman Sachs, and what did you do about it between that point and your decision to resign so publicly?
  • You seem to be suggesting that when you joined Goldman Sachs in 2001, it was a touchy-feely sort of place that always put the interests of its clients ahead of its own profits. Why did you join Goldman Sachs in the first place? And, in retrospect, do you think things were genuinely different under Jon Corzine or Hank Paulson? Or is it more a case that your perspective has changed?
  • Do you think that the ‘morally bankrupt’ culture you describe at Goldman Sachs is unique on Wall Street, and do you think your experience would have been any different had you worked at any of Goldman Sachs’ rivals over the past 12 years?
  • Were you explicit with your clients on every transaction about how much money Goldman Sachs would make on the trade?
  • Did you at any stage seek to raise your concerns with senior management before deciding to go public with them, and if not, why not? Did you warn the bank in advance that you were about to go public?
  • According to the New York Times, you earned around $500,000 last year. Given that you have been well-paid by the firm whose practices you have excoriated, do you plan to give back any of the pay and bonuses that you earned off the back of these practices, perhaps by giving them back to your clients or to charity?
  • Is it a coincidence that you resigned after bonuses for 2011 had been paid? How much stock and options do you have in Goldman Sachs, and do you expect to be allowed to hold on to it?
  • After 12 years at Goldman Sachs and six years as a vice president, were you upset or angry not to have been promoted to managing director in the last promotion round? Did any frustration over your career development play any role in your decision to resign so publicly?
  • What do you plan to do next? Have any publishers, speaker agencies, media companies or universities been in touch about some form of deal?

For Goldman Sachs:

Dear Mr Siewert,

Welcome to your new role as global head of corporate communications at Goldman Sachs. Your timing is impeccable – almost as good as the former PR at Salomon Brothers who started work on the day the Treasury auction-rigging scandal broke in 1991. While the bank yesterday publicly rejected the allegations in Mr Smith’s letter, here are a few questions about his comments and your reaction.

  • If Goldman Sachs were to corroborate the claims that ‘five different managing directors referred to their own clients as muppets’, would that be grounds for dismissal of those managing directors?
  • Goldman Sachs has said it will investigate Mr Smith’s claims. What form will this investigation take and will Goldman make the results of any such investigation public?
  • Do you see the allegations by Mr Smith as a) an angry outburst by a disgruntled employee b) raising genuine questions over ethics and conflicts at Goldman Sachs or c) an existential (and possibly terminal) moment for the firm?
  • How would you characterise the culture at Goldman Sachs a) under Lloyd Blankfein since he took over in 2006 b) under Hank Paulson between 1999 and 2006 and c) before the firm went public in 1999? How has it changed over that time?
  • Is Goldman Sachs explicit with its clients over the risks involved in any particular trade and over the fees, spreads or commissions that the bank will make on the deal? Does Goldman Sachs ever directly or indirectly trade against its clients?
  • How many clients have reduced their trading activity with Goldman Sachs in the past few years? And how many have withdrawn their business altogether?
  • What percentage of revenues from sales and trading comes from a) agency execution b) trading on principal as a marketmaker and c) taking longterm proprietary positions?
  • Lloyd Blankfein was described by one managing director as a ‘millstone around our necks’. When would be the appropriate time for Mr Blankfein to step down? Might it now be appropriate for the bank to split the role of chairman and chief executive and bring in a wise head to settle investor and clients nerves?
  • The bank has said that 89% of its staff think Goldman Sachs offers exceptional service to its clients. What did the other 11% think?
  • Was Mr Smith considered for promotion to managing director in the last class promotion in 2011? If not, why not? And if so, why was he not promoted?
  • Does Mr Smith have any deferred stock or options tied up in Goldman Sachs, and will you release them to him? Was there a ‘non-disparagement’ clause in his contract?
  • Do you now wish you had taken the other job on offer at PepsiCo?

For clients of Goldman Sachs:

Dear client of Goldman Sachs,

No doubt you have read the letter from Greg Smith alleging that Goldman Sachs sets out to rip off its clients. You have probably also received calls and emails from rival investment banks soliciting your business. Here are a few questions…

  • Why do you trade with Goldman Sachs? Is it because they have the smartest people, the best prices and volumes, or the most sophisticated systems and structuring? Do you ever feel under pressure to trade with them?
  • Has Goldman Sachs always been explicit with you about the risks involved in any trade, and the fees, spreads or commissions they expect to make from it? Have you ever / always requested this information?
  • Do you expect when dealing with Goldman Sachs or any other bank that they will always put your interests ahead of their own? Is this inherent conflict in the securities industry any worse or better at rival investment banks on Wall St?
  • Have you noticed whether the alleged approach to clients at Goldman Sachs has deteriorated or improved over the years?
  • Have you decreased or withdrawn your trading business with Goldman Sachs over the past few years? And if so, why? In the wake of Mr Smith’s letter are you now considering withdrawing or decreasing your business with the firm?
  • As a client of Goldman Sachs, you probably also have clients of your own, such as pension funds, charitable foundations or wealthy individuals. Do you always put their interests ahead of your own?
  • Do you consider yourself a sophisticated investor or a muppet? Who is your favourite Muppet?

For the New York Times:

Dear Mr Rosenthal,

As editor of the opinion pages at the New York Times, congratulations on publishing such a provocative op-ed by Greg Smith yesterday. Here are a few questions about the piece:

  • Did you inform Goldman Sachs in advance of publication that you were going to run such an incendiary article? If so, when? And if not, why not?
  • Have you offered or will you offer Goldman Sachs a right to reply with the same prominence as Mr Smith’s original letter? If not, why not? Has Goldman Sachs requested a right to reply?
  • Were you aware before publication that Mr Smith was a relatively junior employee at Goldman Sachs (one of 12,000 vice presidents), and did your ‘checking him out’ (as you described yesterday) involve asking him about any potential ulterior motives such as disappointment over his pay or promotion prospects?
  • Can you confirm that – at least until yesterday – Goldman Sachs is the retained financial adviser to the New York Times Company? (h/t to @cgasparino)
  • What do you think of the article in Breakingviews this week that the executive pay structure at the New York Times is ‘not fit to print’
This entry was posted in Conflicts, Ethics, Investment banking, Sales & Trading and tagged , , . Bookmark the permalink.

9 Responses to Some awkward questions about that letter…

  1. Duncan says:

    Another awkward question: Are you aware that “alterior” is not a word? I’ll bet Mr. Rosenthal is.

  2. William says:

    Thank you Duncan. I have changed the piece accordingly.

  3. Brian Finch says:

    A smart, witty piece, but in its smartness does it miss a point? That point is the massive attention attracted by Smith’s letter. That attention, quotation, comment and republication has arisen not because the writer is untainted but because previous reporting on Goldman Sachs leads large numbers of people to believe the criticisms are plausible.

    Of course Goldman Sachs clients stay with the firm because they believe it is only other clients who are fools who will be outsmarted by clever salesmen. Nonetheless, and although other Wall Street firms also probably suffer from weak moral compass, unless Goldman Sachs can demonstrate an improvement in theirs the business will see a gradual (or not so gradual) exodus of clients. See, for comparison, what happened to Gerald Ratner when he joked once too often about the poor quality of the products sold by his jewellery firm. The firm promptly lost $750m of its market capitalisation.

    The lesson? Smith is right, long-term business success does arise from respecting your customers and dedicating yourself to provide them with value while making a fair profit for yourself.

    • William says:

      Brian,
      Thank you for your comment.
      I completely agree that Greg Smith has taken a brave step, and that it has helped refocus the debate on conflicts and ethics at Goldman Sachs and on the rest of Wall St. And I agree that his op-ed has very serious implications for Goldman Sachs.
      My concern is merely is that it can be all too easy to jump straight in and take what he wrote at face value: instead it raises serious questions for lots of different constituencies.
      William

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  7. K says:

    Quick question – was Greg Smith a Vice President (as reported here) or a Senior Vice President (as reported elsewhere)?

    Big difference between the two, especially as the article makes reference to him being passed over for promotion to Managing Director. You don’t go from VP to MD in one swoop. A decent Front-Office person should get VP within a couple of years, then SVP within 7 after that. MD can take longer, or less if they are particularly good/make huge amounts of money and are very well regarded.

    Just trying to get a handle of where this fella was in the hierarchy.

    • William says:

      I understand Smith was an executive director in London, which is the rung below managing director (I don’t think exec director exists as a title in the US?). So I suppose he was at the senior end of the VP pool.

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