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Goldman Sachs: The Culture of Successby Lisa Endlich
Chapter 1: 1986: The Road Less Traveled
On Wednesday morning, October 15, 1986, John L. Weinberg, the venerable senior partner of Goldman Sachs, had a long list of phone calls to make. Before the morning was over he needed to telephone thirty-six men and one woman. His conversations would be brief; good news travels fast.
He started early, hours before the official list would be published. Thomas W. Berry would be first and Garland E. Wood last; alphabetical order was the rule. This was the phone call each vice-president on his list had waited years to receive. Each would reach for the receiver hoping Weinberg was about to extend an invitation to the most exclusive club on Wall Street — the partnership of Goldman Sachs. Weinberg's simple statement, "I would like to invite you to join the partnership," was for most the reward for a decade of grinding hard work. No one had ever refused the honor. Thirty years earlier, Weinberg's own father, the legendary
Sidney Weinberg, had issued him the same invitation.
John Weinberg, with help from the eight other partners who comprised the management committee, had vetted hundreds of vice-presidents in the biannual selection process. They had deliberated for two agonizing months while speculation among the troops grew. For the hundred or so in "the zone," the inside term for those actually in contention, everything was at stake — prestige, recognition, riches. As Weinberg traveled through the alphabet, some of the dozens passed over would shut themselves in their offices, while a few would storm out of the firm's headquarters. Envy and frustration would cause one or two people to resign, but the vast majority would take the disappointment in stride, hoping for another shot at a partnership two years hence.
Those telephoned that autumn morning were being offered not only vast wealth but virtual lifetime employment as well. John Weinberg himself had spent his entire career at the firm, beginning in 1950; Robert E. Rubin and Stephen Friedman, two of the more senior members of the management committee, had been with the firm for twenty years. Their tenure was not unusual. Moreover, few partners had ever been asked to leave; graceful and bittersweet departures almost always capped lengthy and prosperous careers. Barring any missteps, the young men and woman answering Weinberg's phone call could expect to retire with a nest egg worth tens of millions of dollars.
Yet those selected knew that after years of grueling sixty-, seventy-, or even eighty-hour weeks spent on trading floors, in clients' offices, or on airplanes, the real work was only now about to begin. The partners of Goldman Sachs in 1986 owned a $38 billion business, and running it was, and still is, an all-consuming job. Partnership meetings are held on weekends; vacations and sleep are routinely interrupted with conference calls whose participants span the globe. Partners felt free to call each other whenever they needed to know something about another's business. "When you made partner suddenly you had to return eighty other phone calls," says one retired partner. "Partners were much less respectful of your privacy than employees would be."
The partnership class of 1986 represented change. At thirty-seven, it was twice as large as any previous class. The all-white, all-male partnership had invited into its ranks the first African American and the first woman in its history. The pressure on Wall Street firms to become more diverse was considerable, and Goldman Sachs was one of the last to bow. Almost all partners had spent their entire careers with the firm, yet this class included two former managing directors from rival Salomon Brothers and a famous professor from MIT.
For the first time, existing partners had been unfamiliar with some of the candidates. The firm had grown and specialized. Its four divisions — equities (stock trading), investment banking, fixed income (bond trading), and J. Aron (currency and commodities trading) — had been separated into dozens of specialized departments, many members of which had very little contact with employees from outside their own department. Partners had been forced to trust the recommendations of their colleagues. Impersonality had crept into the process.
Perhaps the most atypical feature of the class of 1986 was the number of partners elevated from the ranks of salesmen and traders. Goldman Sachs's traditional strengths lay in the field of investment banking, in raising capital for large corporations or arranging mergers and acquisitions. Despite some areas of excellence, particularly in stock trading, Goldman Sachs did not have the trading prowess of a firm like Salomon Brothers. In 1986 top management determined that this would change.
Weinberg's anointed officially joined the partnership on Monday, December 1, 1986, the first day of the firm's new fiscal year. Only five days later, the management committee that so recently had bestowed this honor proposed to take it away. At the annual partnership meeting held in New York, Steve Friedman and Bob Rubin, who would be appointed co-vice chairmen the following year, announced that the firm was considering selling itself to the investing public.
In an abrupt break with one hundred seventeen years of history, the management committee was proposing that Goldman Sachs become a public corporation. No longer would the partners own their firm; no longer would they run it unencumbered by outside influences. Stockholders would own much of the firm's capital, and a board of directors, presumably with outside members, would rule on issues of policy. Partners would find themselves as employees, albeit extremely wealthy ones, of a large corporate entity. The management committee believed that in order to expand into new businesses, additional capital of a more permanent nature would be required. The pressure to sell the firm had only increased as each of Goldman Sachs's major competitors had undertaken a public sale or merger with a larger entity. Now the management committee unanimously recommended that the partnership vote for an initial public offering. Not one of the thirty-seven new partners, who had far less to gain than longtime partners from the windfall that would be created by such a sale, thought this sounded like a good idea.
The partnership had never before openly entertained the notion of a public offering, although behind closed doors the management committee had discussed and dismissed the idea many times. In the late 1960s, Sidney Weinberg had considered it briefly and sent his top lieutenant Gus Levy to canvass the partners. It would be the first time the idea was shot down. In 1971, the management committee had decided to incorporate, going as far as printing up new business cards before changing their minds and leaving the private partnership in place.
On the morning of December 6, the partners convened in the large meeting room on the second floor of 85 Broad Street, the firm's three-year-old headquarters in lower Manhattan. For days rumors had circulated but the official agenda had not been disclosed. The management committee members had been lobbying their partners, trying to line up support before the meeting. Many of the new partners were nervous; it was their first partnership meeting, and they had little idea of what to expect. Much was at stake; the future of Goldman Sachs would be decided in the next thirty-six hours.
The members of the management committee were seated around a table on a stage at the front of the room, while the ninety-five remaining partners sat facing them. Weinberg had positioned himself some distance away from his fellow members; this action sent out what many remember as a very strong signal. During the formal presentation he said almost nothing.
Most members of the management committee spoke, but when Rubin and Friedman, who
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