Smith's point is simple. Goldman's leaders may express good intentions in the shape of their Business Principles, but according to Smith, reality is different.
Internal incentives implicitly encourage Goldman teams to exploit the firm's clients to Goldman's benefit. According to Smith, you become a leader at Goldman by:
- persuading clients to buy products that Goldman wants to be rid of;
- getting clients, sophisticated or not, "to trade whatever will bring the biggest profit to Goldman"
- trading "any illiquid, opaque product with a three-letter acronym"
Making it clear that he does not accuse Goldman of anything illegal, Mr Smith concludes:
"It astounds me how little senior management gets a basic truth: If clients don't trust you, they will eventually stop doing business with you. It doesn't matter how smart you are."
If Smith's narrative is right, Goldman is losing the moral compass that once inspired its alumni whilst its board claims good intentions but sets incentives driving amoral behavour. If so, what does this say of Goldman's leaders?
The most obvious options are that they are, to use their own terminology, "muppets" who don't know what is going on in the Goldman engine room; or that they are somewhere between amoral and dishonest. Neither is an attractive characterisation.
Survival for the long term becomes harder if people think you are untrustworthy or incompetent - the more so if you are untrustworthy or incompetent. The toxic track record listed by Smith makes Goldman more vulnerable to a new crisis turning into a catastrophe. And that's before thinking how angry, influential alumni, seeing their once valuable Goldman pedigrees transformed into an embarrassment, could seal Goldman's demise should they run into trouble in the future.
The question for clients is no longer "Can we do without Goldman?" It's become "Can we risk using Goldman?" If clients (or their customers) think "Goldman Sucks", it could become as risky to hire Goldmans as it is for a retailer to sell products made with slave labour.
Goldman is one crisis away from oblivion. It could reform, but does it have the will to do it properly? Their last attempt doesn't seem to have gone well.