Outlook: Why Goldman's is right to float

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The Independent Online
IF IT ain't broke, break it. This thought-provoking reversal of the old adage was first coined by Richard Pascale, a former Stanford academic, who, as they do in the US, later became a management guru.

Not many businesses ever follow his advice, but those who do rarely regret it. The principle is simple enough. However successful you are at something, however state-of-the-art your methods, if you are not constantly adapting and changing, eventually someone will come along who does it better.

Investment bankers ought to know that better than anyone, but there was scarcely a soul in the City willing to say it yesterday as Goldman Sachs, the world's most successful investment bank, made the historic announcement that it would be converting from its 129-year-old partnership structure into a publicly quoted company. They're destroying themselves, they're cashing in, they're kissing goodbye to the very structure and culture that has made them so successful, everyone said.

But hold on a moment. Goldman Sachs is successful not because it is a partnership but because it is good at what it does. There is growing evidence that the partnership structure is undermining rather than supporting that success. This is partly because it is divisive - among employees there are owners and others - and partly because as a capital structure it is inefficient, costly and inflexible. This doesn't yet seem to have put Goldman Sachs at a competitive disadvantage, but it might well do so quite seriously on a 10 to 20-year view.

As a joint stock company, all employees will get a chance to participate in the firm's success, not just the partners, and the firm will be able to use its capital for profitable expansion. Goldman Sachs' path is fraught with dangers. But it at least gives itself a fighting chance of staying ahead of the wave, rather than slipping gently behind it.

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