The Partnership: A History of Goldman Sachs
Charles D. Ellis
Review by Jonathan Foreman
Every financial-services firm pays homage to the importance of ‘teamwork’, regardless of the reality behind the rhetoric. When I was a lawyer on Wall Street, it was almost a truism that the people who talked most about the importance of being a ‘team player’ were those most out for themselves and the most likely to stab you in the back.
At Goldman Sachs, however, at least for most of the firm’s 170-year history, teamwork was more than a watchword, it was rigorously promoted, and arguably the secret of the institution’s survival.
From early days, even the firm’s biggest stars were expected to avoid using ‘I’ in favour of ‘we’ when reporting a success. Most of the partners’ income was retained by the firm as part of a strategy of ‘greed but long-term greed’. Lateral hiring was rare. Ego was seen as the greatest threat to the firm’s future.
This meant that by the mid-1980s Goldman Sachs had an internal culture that was in stark opposition to the heady spirit that had hold of Wall Street and then the City of London.
By the 1990s this firm that also prided itself on its intellectual and ethical superiority to other investment banks was arguably the most powerful investment bank on Wall Street. It is at least as powerful today.
Charles Ellis’s 700-page history of Goldman Sachs is remarkably well timed. When the last wave of Goldman Sachs books came out a decade ago, the firm had just gone public and was arguably first among equals.
Today, in the wake of the sub-prime mortgages disaster, it occupies a uniquely powerful position, one that reinforces its mystique as the world’s smartest, most discreet and most profitable investment bank.
Almost alone among its competitors, Goldman Sachs began to get out of sub-prime mortgages and collateralised debt obligations at the end of 2006. As a result, it has survived, intact and independent, while rivals Lehman Brothers and Bear Sterns have vanished, and Warren Buffett has shown his belief in the firm’s viability by investing in it heavily.
How Goldman Sachs came to be such a force in finance is a fascinating story that begins in 1869 in New York, where Marcus Goldman, an immigrant who had fled Germany in 1848, founded a firm that dealt in commercial paper.
His one-man operation was joined in 1884 by his son-in-law Samuel Sachs, who sold his small dry-goods business to buy into the partnership. By 1896 the firm was invited to join the New York Stock Exchange and, after breaking into the underwriting business with the help of Lehman Brothers, played a key role in the initial public offerings of Sears Roebuck in 1906 and FW Woolworth in 1912.
However, Goldman’s subsequent rise was far from smooth. Indeed, The Partnership is in large part a tale of resilience and survival. One disaster after another brought Goldman Sachs to the brink of destruction.
During the First World War the founding families fell out because Marcus Goldman’s son Henry was an ardent Germanophile who supported the Kaiser even after America joined the Allies, and Samuel Sachs’s sons were on the Western front.
When Henry left the company and moved to Germany he took his capital with him, capital that took the firm years to rebuild. Then the firm barely survived the Wall Street Crash, thanks to the recklessness of Waddill Catchings, its first non-Jewish managing partner.
Goldman Sachs really only became a powerful force on Wall Street after the Second World War under the leadership of Sidney Weinberg, who dominated the firm from 1930 to 1969. Weinberg was a social genius who made the most of connections developed while serving as FDR’s ‘body snatcher’, recruiting executives for the war effort.
By the time of his greatest coup, the taking public of the Ford Motor Company in 1956, he could count every major industrial CEO in America as a friend and was nicknamed ‘Mr Wall Street’ by The New York Times.
Easily the most colourful figure in the firm’s history — he was said to have scars on his back from youthful knife fights — Weinberg had a policy of hiring only top Harvard MBAs, which all but ensured that future leaders would be less exotic but more polished and better educated.
If the adroit use of connection was key to the firm’s success in mid-century, by the 1970s it was the partnership’s brainpower, relative caution and internal culture that gave it an edge over competitors. It wasn’t just that the firm refused to do hostile takeovers (instead it developed a speciality in takeover defence) — Goldman Sachs people worked much harder than other Wall Streeters. Starting salaries for graduates were never the highest on Wall Street: the firm didn’t want to recruit the sort of man who would leave for a slightly larger pay packet.
It doesn’t help that one of the flaws of Ellis’s book is the author’s inability to define the firm’s culture. Too often he seems to confuse the corporate culture of Goldman Sachs with the personality and habits of the senior partner at any one time.
(As a result you don’t get a sense of whether the consistently prevailing ethos at Goldman was courtly or vulgar, quiet or dominated by ‘screamers’ — though Ellis does mention the firing of a top young partner in the 1980s for having called a typist a ‘stupid c***.)
At the same time Ellis fails to grapple with some of the more fascinating questions about Goldman Sachs. He shies away from an assessment of the role of Jewishness in the firm’s trajectory and culture (arguably surprisingly small after World War I), and he doesn’t mention Goldman’s unusual tendency to appoint former lawyers — such as Robert Rubin or current CEO Lloyd Blankfein — to the top job.
At times The Partnership has an antiquarian feel, as if the amassing of facts and stories has overwhelmed the author’s discretion. Indeed, it is almost as if Goldman Sachs, famous since Weinberg’s day for its aversion to publicity, overloaded Ellis with material in order to keep him from asking the most interesting questions about the company’s workings.