The Firm: Inside Goldman Sachs

It's City bonus season, when a lucky few pick up an outrageous wad of cash - on top of their already huge salaries. But at one investment bank the pay-outs dwarf all others. So what makes Goldman Sachs so special? Who works there? How do they generate such riches? And can they really justify heading home with an extra few million quid in their pockets? Dan Gledhill reports
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The Independent Online

The City bonus season is traditionally a time of goodwill - but not to all men, as I learned first hand. After a (fairly) successful year trading US Treasury Bonds for an American investment bank a few years ago, there I was, quietly hoping for a vast payout which would facilitate early retirement and a life of luxury. Unfortunately, once dollar profits had been translated into sterling (at an unfavourable exchange rate), deductions made to cover losses made by lean-year colleagues, and having absorbed the usual guff from management about the need to re-invest that year's profits, what remained was rather less than I had expected (and not much more than I had spent in anticipation).

It's safe to say that such concerns will not be weighing too heavily on the minds of staff at Goldman Sachs as they await news of their annual, one-off windfalls. It emerged this week that the bank, which has enjoyed a record year, would be paying bonuses of unprecedented magnitude to its 4,500 employees in the capital. With £9bn to share around the world - an increase of 40 per cent from 2005, itself an exceptional year - the average employee here will receive £319,000. And that average includes everyone. Many will receive at least £1m, and the real stars several times that.

"Bank pays out big bonuses" is hardly front-page news. But the scale of Goldman's success this year - and the degree to which its staff are to share in it - is off the scale even by City standards. There have been predictable cries of outrage. Much of the money will immediately be recycled in the London property market, inflating prices even further beyond the means of anybody unblessed by such a generous employer. Then there is the apparent inequity of it all. Outraged at the largesse, cleaners at the bank's Fleet Street offices are threatening to strike.

But before your mind wanders off to thoughts of millionaire bankers having to clean up their own rubbish, it's worth remembering that this is money that Goldman's workforce has earned in competition with the other leading banks - not just in London, but around the world. And still they have made enough to foot an annual bill for wages and bonuses that would meet the cost of the London Olympics. So, the question perhaps is not so much whether they deserve it, but ratherhow on earth they do it.

The cover on the secretive world of the investment banker was apparently blown in the 1980s with the publication of two books. First came Tom Wolfe's The Bonfire of the Vanities, whose anti-hero, Sherman McCoy, was as affluent as he was amoral. Then came Liar's Poker - by Michael Lewis, himself a former investment banker in London - which dealt more with the competitive mentality of a group of (mostly) men who brought the ethics of the bare-knuckle boxing ring to their offices.

Clearly there is some truth in Wolfe's depiction of McCoy's opulent Manhattan lifestyle. Michael Sherwood, the 41-year-old co-chief executive of Goldman Sachs in Europe, will surely be able to afford something even more spacious than McCoy's 14-room Manhattan townhouse after this year's bonus round (assuming he couldn't already). Little wonder that Goldman's workforce is famously said to consist of "the haves, and the have-yachts".

But many of the other elements of investment banking excess - be they behavioural or financial - were either the products of Wolfe's fertile imagination or consigned to the excess of the Eighties which Lewis chronicled. Goldman Sachs is not like that now, if it ever was. And that may explain why it is so successful.

The entrance to Peterborough Court, 133 Fleet Street, the bank's London office, is impressive enough. An in-and-out driveway allows visitors to leave behind the hustle of the busy City thoroughfare when they enter Goldman's reception. Up a flight of escalators is the trading floor, where much of this year's record profits were made.

"I was expecting it to be manic," recalls one former employee, "but actually it was very quiet." Which makes for something of a contrast with the million-pound games of chance that are played out on the trading floor in Lewis's (non-fiction) workplace.

But don't confuse lack of noise with lack of industry. Most of the 700-odd chairs are occupied before the rest of us are awake. The incentives are clear: basic salaries even at the highest level are capped around the £300,000 mark. This may sound a lot to most of us, but given the opportunity to multiply that so many times in performance-related bonuses, it is hardly surprising that its staff exhibit such a Stakhanovite work ethic.

The bank makes no secret of the commitment it expects: on its website, Mitesh, a foreign exchange analyst describes a working day starting at 6.30am and ending at 6pm. Perhaps it's no coincidence that the average age in this workplace is probably a several years lower than in most areas of corporate life, although this may be a consequence less of burn-out than of the fact that many staff earn enough to retire before they turn 40.

So far, so typical of the City stereotype. But there is another reason why Goldman can justifiably claim to be the most successful investment bank in the world: it knows how to look after its staff - and not just when it comes to bonus time.

"The firm fosters a tremendous regard for family life," another former employee says, perhaps surprisingly. "Most of the staff seem to be married by the time they turn 25. And they all have pictures of their children on their desks." Holiday entitlements are generous - the offices empty out in August when most staff go away (often to second homes abroad). An employee with a happy, stable family life is likely to be more productive, or so the thinking goes. Non-financial perks are also persuasive. Goldman has its own gym, where staff are provided not just with towels and toiletries but also with kit. Gigantic, communal bowls of fresh fruit are laid out every morning. Most staff are given private medical insurance.

And that's just for the masses. The really big-earners - Wolfe's "Masters of the Universe" - are supplied with their own personal assistants. One recalls her everyday tasks: picking up dry-cleaning; buying stamps; paying gardeners; buying Christmas presents, the list goes on. Clearly, a compensation for those Goldman Sachs widows who see less of their husbands than they would like, is that many of their household chores are taken care of. This former PA recalls even being asked to help out with her boss's children's school project.

The idea is twofold: to ensure that employees have nothing to worry about except their work; and to foster a corporate mentality in which the firm is not just paying a salary but also easing one's passage through life.

This corporate mentality - the idea of the lifelong "Goldman Sachs man" - is critical. It encourages staff to feel pride in working for the bank which consistently ranks above rivals in the various fields of investment banking. And it discourages them from leaving when rival employers come knocking, chequebooks in hand. When staff leave Goldman's, it is usual to retire rather than to work for another bank (although some, such as Gavyn Davies, the former chairman of the BBC, and Paul Deighton, the chief executive of the London 2012 organising committee, have subsequently gone into public life in Britain. In the US, Jon Corzine, a senior Goldman executive on Wall Street, won a seat in Congress as a Senator for New Jersey).

One former employee can testify to the bank's concern with pastoral care.

"While I was working there I witnessed a stabbing on the street and was very shaken up," she says. "When I told them about it in the office, they immediately took control. They arranged for me to go to hospital and the security staff contacted the police. They couldn't have been more helpful."

Of course, there is a flipside to this. "Once you've handed in your notice, that's it. Don't come back," she says of the attitude.

Goldman's may be primarily a money-making outfit - and a prodigiously good one at that - but it does its best to encourage its employees to think in the long-term. Even after its stock market flotation in 1999, long after most banks had sold themselves to investors, it continues to have a partnership structure which encourages people to think beyond this year's bonus. Beneficiaries of large pay-outs often re-invest their emoluments with the firm. Motto: it pays to stay with us.

It also does its best to create an altruistic atmosphere, if that is possible. Goldman's runs a number of charitable schemes and asks staff to get involved. And flaunting wealth in the office is a definite no-no.

"You wouldn't be able to tell from these people that they were multi-millionaires," says one source. "They dress like anybody else would." Divulging the size of one's bonus to another employee is frowned upon; technically, it's a sacking offence.

But, inevitably in an arena where some people will be paid vastly more than others, there is tension. A story told by a former employee confirms that the ship is not always as happy as it would like to claim.

"A few of the staff went away on a bonding weekend in the mountains," she recalls. "The trouble was that one of them was so notoriously aggressive and selfish that none of the others were willing to be up a mountain tied to him. So they had to come home." Certainly, the go-getting mentality can go (and get) out of hand. This year, a series of failed hostile bid attempts orchestrated by the bank prompted its then chairman and chief executive, Hank Paulson, reportedly to rein in some of the more aggressive elements in the London office.

And then there was Joyti De-Laurey. The former secretary at the bank was convicted in 2004 of stealing £4m from her bosses before spending it on hotels, flights and jewellery. "They made it so easy, they deserved it," she said at the time. "Their money was just left lying about: if it wasn't for me, it would have been someone else."

Clearly the case raised questions about the way senior Goldman staff allowed the role of their assistants to trespass on the personal. It also suggested that the carefully cultivated culture of teamwork and togetherness fostered by the company - and seen as one of the reasons for its success - was far from watertight.

Scott Mead, the senior Goldman banker from whom she stole, said: "Every day De-Laurey would sit opposite me, sending me e-mails about how I was the best boss in the world. And every day she was ripping me off."

The De-Laurey case was perhaps the low point in the history of a bank which was founded in New York by Marcus Goldman, a Jewish immigrant, in 1869 (Samuel Sachs, his son-in-law, joined later that century). But there have been others. It almost collapsed during the Wall Street Crash of 1929 because of its large trading risks. It was under Gus Levy in the 1950s that the foundations of its present dominance were built. But only in the age of global capital markets, which began in the 1980s, has the firm's profits come to assume national GDP proportions.

Still, 2006 has been something else entirely for Goldman Sachs. A number of factors have helped: low interest rates; resurgent stock markets around the world; frenetic mergers and acquisitions activity. Add to this the new weapon in the investment banking armoury - private equity - and you have an organisation that can afford to share £9bn between 30,000 staff dotted all over the world.

It may well be that this turns out to be Goldman's annus mirabilis. Stock markets go down as well as up; interest rates up as well as down. Profits may not return to these levels for years to come. But if any group of people has saved enough for a rainy day, it is the staff of Goldman Sachs.