Via The Browser, here is a long, detailed, absorbing response to that notorious op-ed by Greg Smith, the departing Goldman Sachs executive. It’s by a woman named Jacki Zehner, who was also a high-level Goldman exec, though one who left in 2002. She writes critically of Smith’s op-ed — not entirely dismissively, but skeptically. She says that he could be telling the truth, 100 percent, in which case he’s a hero, and the things he dishes about Goldman need to be made public, so the institution can change. But he might not be telling the truth, she says. If he is, though, then the firm she left has changed significantly since 2002, and for the worse. The reason she thinks Smith might be onto something is because Wall Street and its business have changed, and no, not for the better.
This essay teaches you more than you may want to know about how the finance business works, and how it has changed. The key, though, is this:
This I know to be true: If you promote people into leadership roles who are bad people, the outcomes will be bad over the long term. If you promote people who are all about their paycheck, the culture will be all about the paycheck. The opposite is true as well. Has Goldman become full of bad people who really only care about money, money, money? I will leave that to the board of directors to figure out. I sure hope not.
That seems so obvious: the leadership elite within an organization will set the cultural tone for the organization, for better or for worse. But it seems so often ignored. Longtime readers know I am fond of citing one of the few things from political theory class that my abused brain cells retained: Schumpeter’s observation that over time, elites will come to believe, falsely, that the interests of the organization or institution that they lead are identical with their personal interests. (Was that Schumpeter? Professor Arango, where are you to help me remember?). Anyway, it makes sense when you consider the bubble that any elites live in.
My go-to example will always be the Catholic bishops, but I’ve seen the same thing in newsrooms where I’ve worked, and I’ve heard friends in academia and other lines of work say the same thing. People wonder why the bishops allowed things to get so bad within their dioceses, re: the abuse scandal and related corruption. In some cases, it was deliberate, conscious corruption, or so I believe. But in most cases, I’m convinced, it was a more subtle thing. You are surrounded by yes-men, people (not all of them men, by the way) whose livelihoods and prospects for advancement depend on your favor. At the lower levels, when you interact with folks, chances are they are going to be polite and respectful, and never tell you anything that might trouble you. What’s in it for them, anyway?
Moreover, you may come to think of yourself as being a better (wiser, more moral, etc.) man because, hey, you’re in leadership, aren’t you? When and if you do hear complaining from down the ranks, perhaps it’s okay to downplay or ignore it, because the complainer may be nothing more than a crank with his own agenda, and not a team player. If Mr. Whiner is so smart, why isn’t he in leadership, like you? And you may come to believe that only those at your level really understand the burdens of leadership, being superior people like yourself. Naturally you’ll want to promote the sort of employees who can be trusted to carry the corporate culture that you embody, so you select for people like yourself.
And so it goes. Again, I think this is human nature. The ties that bind us within organizations also blind us to our limitations, keep us from knowing things, and, most crucially keep us from wanting to know things that threaten the system over which we preside. When any institution — academic, governmental, business, religious, what have you — comes to be led by a class of people who a) behave as if the mission of the organization is to perpetuate themselves, and b) fail to establish effective mechanisms for holding themselves accountable to the real mission, then corruption is bound to take hold. It’s got to be very, very difficult to avoid its stain, too. Think of the reformist Congressional class of 1974. Think of the reformist Congressional class of 1994.
UPDATE: This just in. I edited it for clarity and to protect the correspondent’s identity:
What made me think of this reading your entry was the way nobody can talk about this issue at our office. Senior management has made its diversity priorities very clear. If you bring news to them that contradicts what they want to believe, you are taking a really stupid risk. At my level, we have had to come up with various work-arounds to accommodate this policy, but that only gets you so far. At the top level, the managers have insulated themselves from hearing anything negative about diversity, because they have sent the message that if you are not on the team on this issue, you are probably a sexist/racist, and not to be promoted.
Just so you understand what I’m getting at, the system here is designed to promote people who can show “progress on diversity goals.” Our overall business has been declining for a while, and we have suffered layoffs — it’s the recession, I get that. You can’t blame diversity. However when you see co-workers who were good at their jobs getting pink slips, but others who aren’t very good holding on to their jobs, and they just happen to be “diverse,” you can’t NOT notice that. It saps your morale, because you know that however good you are at your job, you could be next on the chopping block, because you are not diverse. You know that it doesn’t matter how objectively successful you have been in building the company’s business, because the people who run the company have defined a major component of success as a factor that has nothing to do with actually increasing our business and selling more product. Talking to some of my friends who work in [the same industry — RD], I know that it’s the same damn thing in other offices. There’s no getting away from it.
This will sound like whining to your readers, if you publish this, but the point I want to make is about leadership and accountability. It is crystal clear in our company that diversity is a huge deal, and that the top level management does not want to hear anything that contradicts it. No matter how bad our revenues get, diversity can’t fail. I don’t want to give the impression that our business has been off because of diversity. That would be false. I just think it’s real interesting that, to use your example, you could have every one of our top-level managers and ask them to analyze the Catholic Church’s problems from a purely managerial standpoint, and they could put those MBA’s to work taking the issue apart and identifying the blind spots, etc. They can’t do it here, because from a perspective of the internal dynamics of our company and its corporate culture, which is set from the top of the company, what they’re doing makes sense in the short run. In the long run, it is hard to forecast how any company can sustain itself over the long term by ignoring certain data sets that could impact the bottom line. If the thing we can’t talk about wasn’t diversity, but the subpar performance of the CEOs relatives working in the company, it would be the same thing. When a category of relevant information is declared officially or unofficially to be off-limits for analysis, the company will suffer. How can it not?
If I want to get ahead here, I’m going to have to play the game too, even though I know it’s rigged. If I stay here and move up the leadership ladder, will I start believing what I know from my experience at this level is a lie? How will I know that I’ve drunk the kool-aid? I’m still relatively young in my career, but I can see the compromises I will have to make if I want to get ahead in my company. It makes me ill, but I also want to have a family one day and be able to support them. I know this is nothing new. In a former era, this company overlooked the slacking by white males who were socially connected — that’s a big reason we have this diversity stuff today, and I think it’s too easy for conservatives to forget that. In 2012, however, my industry faces hardcore competition we didn’t have in the past. The margin for putting up with second-rate performance is razor thin. Before long I’m going to have to make a decision about if I want to stake my future on a pretty good company whose leaders don’t realize how much the business environment has changed, and who insulate themselves from information, incentivize promoting certain values and practices over others, and penalize paying attention to certain things and acting on that information.
I understand this perspective. An even greater challenge, though, is the kind of thing that Jacki Zehner, the ex-Goldmanite, identifies, and that I talked about in the “How to Become a One-Percenter” entry: how to succeed in an environment that doesn’t penalize failure, and rewards short-term, cutthroat thinking? Zehner’s entry indicates that Goldman Sachs built its sterling reputation on ethical dealings, but the business environment changed so much that Goldman may have begun cutting ethical corners to maintain its success. In the long run, that’s likely to be fatal. But we are so focused on the here and now, the quarterly results, that we don’t seem to factor in these things. Can an honest, straightforward, truth-telling man or woman succeed at Goldman Sachs? Can he or she succeed in any industry? Put another way, what kind of company or industry can thrive if it doesn’t value and reward truth-telling (even when it’s about things the management doesn’t want to hear) and the highest standards of ethical behavior? As Zehner remarks about the culture of high finance and investment, trust is everything. You lose trust, you’ve lost it all.