Business Book Of The Week: Goldman's recipe for success

Goldman Sachs: The Culture of Success

by Lisa Endlich

(Little Brown, pounds 20)

AUTHORISED CORPORATE biographies are generally taken to be a clear "sell" signal for the underlying business. The book by Lisa Endlich, while not authorised, is clearly not unauthorised either. Both past and present partners of Goldman have co-operated, no doubt considering Endlich, a former vice president at the firm, as a safe pair of hands.

As one might expect in these circumstances, it is difficult for the author to address the firm on an equal footing. She seems a little in awe of the current leadership - triumphs (of which there are quite a lot) are lauded, whilst problems (of which there are a few) are dealt with sympathetically.

In fairness to Endlich, it must be said that Goldman is a very good firm with very good people. It is difficult to find anything negative to say about many of those who have led the firm in the past, people such as John Weinberg, John Whitehead and Bob Rubin. There is reference to a personality clash among the partnership during the First World War, when Henry Goldman, supported the German side against the views of most of his partners. But the book is short on any personality clashes in more recent times, which is good for Goldman, but means the book lacks some of the conflict that marks the classic books on investment banking such as Barbarians at the Gate or Liar's Poker.

Also to Endlich's credit, whilst the difficult times may be dealt with sympathetically, she does not seek to gloss over them in a few short paragraphs. Goldman's relationship with Maxwell and the substantial dealings carried out by Eric Sheinberg, a senior partner, on his behalf are dealt with at some length. Similarly the book details the dealings of Robert Freeman, the partner who pleaded guilty to insider trading and spent time in jail.

Two themes of Goldman's culture are accurately caught by the book. The first is the importance of the partnership structure that allowed Goldman to get through some of the more difficult moments in its history, where other firms might well have faltered for longer. The second is the identification and promotion from within of succeeding generations of able leaders, earning their place through merit and the support of their partners. One of the characteristics of Goldman's leadership has been the regular choice of two partners to run the firm: John Whitehead and John Weinberg; Steve Friedman and Bob Rubin, and Jon Corzine and Hank Paulson. This has allowed the firm to pull together the often conflicting arms of the trading and corporate finance areas of the business. But Endlich does not speculate on whether this type of joint leadership is something which, while possible within a partnership, is more difficult to achieve in a company with public status, where outside investors want to know who is running the shop. It is noteworthy that in recent years the one really successful joint leadership of a City firm has been at Cazenoves (John Kemp-Welch and Anthony Forbes) which was also achieved in a partnership structure.

Of interest to British readers is the description of the growth of the London business and Goldman's increasing reputation in UK and Continental European markets. Endlich ascribes much of this to the import of US expertise in Mergers and Acquisitions in the mid-1980s. She writes that "the British merchant banks did not have separate M&A specialists, and the early deals had all the hallmarks of amateurs". This is a surprising conclusion for anyone who witnessed at the time the sophisticated deals run by specialists such as George Magan; or, for those with longer memories, the formidable reputation Charles Ball had built by the early 1970s as a defender of companies, long before Wall Street had specialist M&A departments. The growing importance of the US investment banks owed much more to the sheer importance of the US markets, both as a source of funding and as a pool of potential "white knights"; and also to the leadership the US houses held over their UK counterparts in the distribution of securities and block trading skills, an area of excellence at Goldman dating back to the time that Gus Levy was senior partner.

The book reaches its conclusion in late 1998, the decision having been taken to go public but postponed after the market disruption of the autumn. It needs a postscript to take it through to the public offering in April 1999; and it needs to be revisited in 10 years' time to see whether Goldman, shorn of the one thing which clearly distinguished it from its competitors, can be as good a firm as a public company as it has been as a partnership.

David Clementi is deputy governor of the Bank of England

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