0:05

Wall Street is many things. It's

0:08

an actual street in New York City. It's

0:10

a symbol of American finance. And

0:13

it's also a thing of lore. Just think about

0:15

the movies. Pick

0:17

up the phone and start dialing. I

0:19

want you to deal with your problems by

0:22

becoming rich.

0:24

And among Wall Street firms, there's

0:27

one that stands out from the rest. Goldman

0:30

Sachs is the most

0:32

elite Wall Street

0:34

institution, period. That's

0:37

our colleague, Anna Maria Andriotis. She

0:40

covers Goldman. It reaches

0:42

into not only the biggest companies

0:44

in the U.S. and in the world, it

0:47

reaches deep in governments. Goldman

0:50

Sachs is the institution

0:52

where companies and governments go

0:54

to when they need help, be

0:57

it raising capital, doing bond

0:59

deals. That is what Goldman is.

1:02

And big picture, what's

1:04

going on at Goldman Sachs right now? The

1:07

big picture is that not all is

1:09

well at Goldman Sachs. There

1:12

is disagreement about

1:15

the direction of the firm and whether

1:17

it's made some strategic

1:19

mistakes in recent years.

1:23

At the center of the debate is Goldman

1:25

CEO David Solomon. Under

1:28

Solomon, the stock price of Goldman has

1:30

gone up. But some of the firm's top

1:32

executives have been privately

1:34

complaining about Goldman's direction.

1:39

These disagreements and debates are

1:41

about what is Goldman Sachs right

1:43

now? What is it trying to become? What

1:46

is our strategy? Why did these mistakes

1:49

occur? And is this largely

1:51

the fault of the CEO

1:53

or no?

2:00

about money, business, and power. I'm

2:02

Kate Leimbaugh. It's Wednesday, June

2:05

21st. Coming

2:11

up on the show, the war inside

2:14

Goldman Sachs.

2:25

Looking for another great podcast? Check out

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exchanges, the Goldman Sachs podcast,

2:29

each week, exchanges answers your burning

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questions about money, markets, and where the world

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and perspective to help you navigate the global

2:47

economy. Follow and listen to exchanges, the

2:50

Goldman Sachs podcast now. Every

2:55

Wall Street firm runs a little differently. For more than 100 years,

2:57

Goldman Sachs was

2:59

run as a private partnership. If

3:02

you worked there, you wanted to make partner, which meant

3:04

investing your own money in the firm and

3:07

getting a say in how it was run. Effectively,

3:11

it was we're all in this together as partners. Our

3:17

interest in the world is that we're all in this together. We're all

3:19

in this together as partners. Our

3:21

interests are largely aligned because

3:24

we're all invested in this firm together and

3:27

we move together as one. Now,

3:30

there wasn't a CEO, but

3:33

there was somebody called the senior partner, which

3:35

was effectively the CEO, the head of the firm.

3:39

But that individual didn't rule by decree.

3:43

I am senior partner, Hearmeeror. It

3:46

was really

3:46

working together with the

3:49

other partners to make decisions.

3:52

And were partners given a lot of autonomy

3:55

in their own business units? They

3:57

kind of ran their own show. They

3:59

knew their business.

3:59

the markets that they were working in, that they

4:02

specialized in the best, sometimes

4:05

better than the senior partner, and

4:07

they made decisions on their own. The

4:09

other thing was that the senior

4:12

partner was often overruled

4:15

by partners if they didn't agree. And

4:18

some people have remained partners for

4:20

decades. Others go

4:22

on after a few years of being partners to do

4:26

their own thing somewhere else. And

4:28

Goldman has historically looked

4:29

at even its alumni,

4:32

the partners who have left, as

4:34

really important stakeholders and maintain

4:36

close connections to them. Because you never

4:38

know where that partner will end

4:41

up. They could end up at a firm that might be a client

4:43

of Goldman's or that Goldman might want as

4:45

a client. Or they could end up as the chairman

4:48

of the SEC. That's right. Or they could

4:50

end up in Treasury Secretary, chairman

4:52

of the SEC, in an important

4:55

position within the EU. Correct.

5:02

In 1999, Goldman

5:04

went public. And as part of that,

5:06

the company's ownership and structure changed.

5:09

Goldman could now have the public as outside investors.

5:12

And instead of a senior partner, Goldman

5:15

now had a CEO. And

5:17

one of the jobs of Goldman's CEO was

5:19

maintaining the partnership culture. So

5:22

now, basically, the challenge

5:25

is how do you balance that? How

5:27

do you balance a publicly traded company

5:29

and one that is both a publicly

5:31

traded company and a partnership? And

5:34

that's where a lot of the friction

5:36

has rested in recent years.

5:39

The current person trying to strike that balance

5:41

is David Solomon. Solomon

5:43

became CEO in 2018. He's 61 years old, bald, brash, and

5:49

he's known for having an unusual

5:51

hobby. David

5:56

Solomon in the world of

5:58

EDM.

5:59

Electronic dance music was

6:02

previously known as DJ

6:05

D. Soul.

6:06

D for David, Soul SOL

6:08

for Solomon. He's performed

6:11

at nightclubs, at music

6:13

festivals like Lollapalooza.

6:16

It's more than just a hobby then. It

6:19

is much more than just

6:21

a hobby. We're not talking about

6:23

DJing Sweet Sixteens, you

6:26

know, or Bar Mitzvahs. Right. This is not what this

6:28

is. Think about some of the top DJs

6:30

and music acts out there that

6:33

draw thousands of people

6:35

at outdoor festivals. This is the

6:37

world where David also exists.

6:40

Solomon

6:42

was the first CEO at Goldman who hadn't

6:45

been at the company when it was a private partnership.

6:48

He joined from Bear Stearns. It

6:50

was clear from when he took over as

6:52

CEO that he was there to

6:54

impose corporate discipline on

6:58

what was a freewheeling structure. What

7:01

was that freewheeling structure? It was that partners

7:03

were accustomed to little oversight

7:06

and they weren't thrilled that

7:09

somebody was coming in and was prioritizing

7:11

the

7:12

fact that Goldman wasn't

7:14

as a publicly traded company over

7:17

prioritizing that, over partners

7:20

and their desires of whatever it was they

7:22

wanted to do with

7:22

regards to their own business units. His

7:25

style was different and

7:28

people, including partners,

7:30

there was a level of discomfort with what

7:32

they viewed as this is not

7:35

somebody who is as approachable as

7:37

his predecessor. This is not somebody

7:40

who you can engage in with a debate,

7:42

in particular if you're on the other

7:44

side of that

7:45

debate.

7:49

One of Solomon's big gamut was

7:51

to further Goldman's bet on consumer

7:54

banking. Under the previous CEO,

7:56

Goldman had gotten into personal loans

7:58

and partnered with Apple. on a credit card. But

8:02

Solomon wanted to go further. And

8:04

people Anna Maria spoke with told

8:06

her that that sparked disagreement.

8:10

David pushed and directed

8:12

his deputies to push further into

8:15

consumer. They were out there, they were

8:17

very aggressive, trying to get more

8:19

partnerships. And he started

8:22

talking about how they needed to make a big

8:25

acquisition, a big splash, something

8:27

that would cement their status

8:30

as a consumer lender.

8:33

And he set his sights on this company called Green

8:35

Sky. What is Green Sky? So

8:38

Green Sky arranges

8:41

for loans to be given

8:43

to consumers. In

8:47

most cases, those loans are related

8:49

to home improvement. So you're

8:52

replacing the windows in your home, the company

8:55

that you're looking to buy

8:57

the windows from says, oh, we

8:59

offer financing via Green Sky.

9:03

There's many reasons why Green

9:05

Sky could be seen as a

9:08

smart acquisition.

9:10

Many of these borrowers have very high

9:12

credit scores. So you don't really

9:14

have a delinquency risk. But

9:17

not everyone was on board. Several

9:19

Goldman partners told Anna Maria they

9:22

didn't think Goldman should buy Green Sky.

9:24

They thought the price of the acquisition was too

9:27

high for a company that didn't have

9:29

a direct relationship with consumers.

9:32

There were a lot of partners who

9:34

thought this was a very bad idea, who

9:37

told David not to move

9:39

forward. The deal

9:41

went through. I mean, this was something that David

9:43

really wanted to do, period. Goldman

9:47

paid about $1.7 billion for Green Sky. But

9:51

the deal would deepen the rift

9:54

between Solomon and the Goldman partners.

9:59

That's... Coming up.

10:27

The

10:30

business $130 million in year one.

10:45

Every year, Goldman holds a gathering

10:47

of senior leaders where it's roughly 400

10:49

partners get together and talk about the business.

10:53

This past February, the meeting was

10:55

in Miami Beach. What

10:57

I was told is that the

10:59

former CEO, Lloyd Blankfein, was

11:02

there at one point. He had

11:04

a dinner with some partners

11:06

and then went to a hotel bar

11:09

and kind of let it rip.

11:12

What do you mean when you say Blankfein kind

11:15

of let it rip? He

11:18

talked about how he felt

11:20

that David was spending too much time

11:22

away from his day

11:25

job that he was DJing. And

11:29

the DJing was not something that Lloyd was a fan

11:31

of. You know, this idea that like, you're

11:34

a CEO of Goldman and you should be focused

11:36

on Goldman, but you've been out there DJing at festivals,

11:39

nightclubs and jetting around

11:41

on Goldman's private plane. Lloyd

11:44

also let it rip about the consumer business

11:46

and how he wouldn't have let it

11:47

expand to the level that David did.

11:49

It wouldn't have let it get to the

11:52

level of losses that Goldman had

11:54

just recently actually disclosed in

11:56

the billions of dollars losses. The

11:59

partners who.

11:59

were present there were in agreement

12:02

about it. They were also complaining

12:04

about the money losing expansion

12:07

into consumer. What did you

12:09

make of that? That you have the

12:11

former CEO trashing the current

12:14

CEO at a Goldman sponsored event? That

12:16

gathering, I think, was

12:19

the ultimate reflection of

12:22

the tension that exists at

12:24

the highest levels of Goldman,

12:28

where the former CEO feels completely

12:29

comfortable just

12:32

letting it rip about his successor.

12:39

Those tensions went beyond drinks in

12:41

Miami. Solomon has clashed

12:44

with partners over everything from bonuses

12:47

to the way certain businesses are structured.

12:49

Even his side gig as a DJ has come

12:52

under fire.

12:53

One longtime partner told Solomon

12:55

that DJing wasn't a good look for

12:58

a Wall Street CEO. A spokesperson

13:00

for Goldman said differences of opinion

13:03

reflected healthy debate at the firm. And

13:06

quote, the reality is smart

13:08

people can have disagreements. Does

13:12

David Solomon need the partners or can

13:14

he run things on his own? I mean, he

13:17

is the CEO. That's

13:19

a great question, Kate. He

13:22

needs the partners. And he's realized

13:24

that because what occurred is

13:27

in not giving the partners

13:30

as much time as they were used to getting, in

13:32

not listening to some

13:34

of the advice from partners, partners

13:37

started leaking. They started

13:39

leaking negative stories to the

13:41

media. Sure, yes. And

13:44

then David had a problem on his hands. Is

13:47

this a crisis for David Solomon?

13:51

I think it could develop into a crisis. I

13:53

think the green-sky situation is an example

13:56

of how it could develop into a crisis. Because

13:58

it's one thing to be like, oh, he's dead.

13:59

he's mean, he's rude, he

14:02

doesn't listen to me. Yeah, but that's not a business

14:04

thing, right, in the end. But when

14:06

an acquisition is made,

14:08

that they're now looking at potentially taking a

14:10

pretty big loss on, when they

14:12

sell it, okay, so

14:14

now that's a loss to Goldman. In

14:17

April,

14:18

Solomon said Goldman is now trying

14:20

to sell Green Sky,

14:22

roughly a year after buying it.

14:24

Basically, Green Sky is no longer

14:26

a strategic priority for Goldman.

14:29

Meanwhile, Solomon is going on a charm

14:31

offensive, trying to get partners

14:33

in his corner. So

14:36

what's been happening over the last few months

14:38

is an effort by David to get closer

14:41

to the partners.

14:42

He's inviting them over his apartment in the city

14:45

for drinks and food, them and their spouses. He

14:49

and his deputy, John Waldron, have been

14:52

going on these small retreats,

14:54

this is new,

14:55

with partners, upstate

14:58

New York, in Texas and California,

15:01

elsewhere.

15:02

Why is this all happening?

15:04

Well, okay, so one

15:07

person said to me, part of this has to do

15:09

with, you know, when there was COVID and

15:11

we weren't in the office, there wasn't as much interaction

15:13

between the partners and David. But yeah,

15:16

there's also an element of this, the element

15:18

of making clear to the partners that

15:21

David does care what they

15:23

have to say and does want to hear from

15:25

them, and really doesn't like the

15:27

fact that they keep describing him as

15:30

not being approachable, not being as easy

15:32

to talk to as Lloyd.

15:36

Are there

15:37

any leadership lessons that can be taken

15:39

away from this? The leadership

15:41

lessons are, when things were going

15:43

really

15:43

well at Goldman, 2021 being

15:46

one example of that, a booming

15:49

year for investment banking, could

15:51

David afford to be brash and kind

15:54

of do his own thing and not listen to what

15:56

others there were telling him about strategic

15:59

decisions?

15:59

or things that he was doing on the side

16:02

on his personal life. Yeah, he could, because

16:04

everybody was getting paid massive bonuses,

16:08

and the firm was doing fantastic. But

16:10

the tide always turns. And if

16:12

you don't have enough people on your side, especially

16:15

in what is still a partnership

16:17

or quasi-partnership, however you can call it, that's

16:20

going to become a problem for the CEO. Whoever

16:24

the CEO of Goldman is, now and

16:26

in the future, will not only

16:29

need to continue

16:29

paying attention to the shareholders,

16:33

but will also need to be devoting a lot

16:36

of their time to the partners.

16:39

Because despite the partners owning

16:41

a really small share, a really

16:44

small piece of the company, they

16:46

have demonstrated through their displeasure

16:50

that they are actually quite powerful.

17:03

That's all for today, Wednesday, June

17:06

21st. The Journal is a co-production

17:08

of Gimlet and The Wall Street Journal. If

17:10

you like our show, follow us on Spotify or

17:12

wherever you get your podcasts. We're out every

17:15

weekday afternoon.

17:17

Thanks for listening. See you tomorrow.