The Goldman Sachs wunderkind are not looking so vunderful. More three stooges than wisemen, Hank Paulson, Robert Rubin, and John Thain are the leaders in what can only be called the great Goldman Sachs Drain Trust. Each is responsible for the destruction of $100s of billions of value in the last year. Now, you have to be really smart to dissipate so much capital so fast. In fact, they could be honorary Nobel laureates.
The question I pose: How could the Three Wisemen turn foolish so quickly? The answer, I believe, is that the culture they came from was designed to make the somewhat above average to the superior look even better than they were. Goldman Sachs promoted a culture of individual discipline focused on the greater good. In his excellent NYTimes Magazine piece on risk management, Joe Nocera outlines how the fabled Goldman committee structure helped to limit the firm’s exposure to risky mortgage securities. The Epicurean Dealmaker elaborates:
Speaking from my long experience as a competitor and collaborator with GS on many deals, I rarely met anyone from its investment bank who ranked better than a B+ player in terms of intelligence, transaction skills, or client management capabilities, no matter what his or her resumé might lead you to believe.1 But those boys (and girls) were disciplined, and they communicated the hell out of each other all the time. They were fierce about protecting and burnishing their firm’s reputation, and they arguably spent more time managing and massaging their clients’ perceptions about Goldman’s performance than they did actually serving them. This, plus the firm’s no-star culture, gave most clients a tremendous sense of security and institutional competence that assuaged any doubts they might have had about the individual bankers on their own deal.
But once you take the wunderkind out of the vunderful culture, performance is likely to decline. The Titanic Triumvirate didn’t understand just how badly they depended on the culture to keep their judgment in line. They acquired a SuperHero mentality without the native strength. They didn’t understand that the girders of their intellect and acumen came not just from their DNA but from the scaffolding intrinsic to the world they inhabited. The Goldman guardrails kept them in line. Even though some of their senior lieutenants were part of that world, once extracted, they too lost the essence of what set them apart.
Head hunters see this happen time and again: Executives can excel, be even brilliant in one context, but fail miserably when set in a new corporate culture. Most of us are hothouse plants that require the right set of circumstances to thrive. Change the light or water or temperature, and we wilt.
NB: If possible, I would really like to make Tim Geithner an honorary member of the Goldman Sachs Drain Trust. He really merits the nomination.