Greg Smith, the former Goldman Sachs Group Inc. (GS) salesman who publicly accused the firm of ripping off its clients, was denied a raise and a promotion in the weeks before he resigned in March, documents provided by Goldman show.
Smith, 33, told one of his managers in a December 2011 meeting that he expected to earn more than $1 million a year, about double what he was making at the time as an executive director in London, according to a summary of Goldman Sachs’s investigation into Smith’s claims. He also said in the meeting that he wasn’t advancing up the corporate ladder fast enough and expected to win the promotion to managing director he had repeatedly stated as a goal in self-evaluations.
His bosses were incredulous. New York-based Goldman Sachs, the fifth-largest U.S. bank, was about to book its second-lowest profit in a decade and that year had eliminated almost a tenth of its workforce -- 3,400 jobs. The equity-derivatives desk Smith worked for in London had been told that compensation would be down “significantly,” according to the firm’s summary.
“Greg Smith off the charts unrealistic, thinks he shld [sic] trade at multiples,” one of Smith’s managers wrote in a January 2012 internal e-mail after informing him that his raise request and demand for promotion had been turned down.
Two months later, Smith made one of the most public exits in Wall Street history, announcing his resignation in a scathing op-ed in the New York Times entitled “Why I Am Leaving Goldman Sachs.” He called the environment at the firm “toxic and destructive,” said senior staff referred to clients by the derogatory term “muppets” and blamed Chairman and Chief Executive Officer Lloyd Blankfein and President Gary Cohn for “a decline in the firm’s moral fiber.”
Smith has since documented his views and experiences in a 276-page book, “Why I Left Goldman Sachs.” Published by Grand Central, it’ll be available for purchase Oct. 22.
Seeking better compensation is “the American way,” according to John Farrell, JPMorgan Chase & Co.’s former human- resources chief. “I don’t think there’s anything wrong with trying to earn more and be promoted.” He added that any writing by former employees about their old workplaces should be taken “with a grain of salt.”
The sudden and public nature of the departure caught Goldman Sachs off-guard. Smith was one of 13,000 vice presidents. Blankfein and Cohn had no idea who Smith was or why he decided to go public with his resignation, according to two people familiar with their thinking at the time.
“It makes me ill how callously people talk about ripping their clients off,” Smith wrote in the Times on March 14.
That day, Blankfein, 58, set in motion a soul-searching mission that would become a months-long investigation into Smith’s allegations. According to two people close to the CEO, he indicated he and the board wanted to know why Goldman Sachs’s radar failed to detect Smith’s dissatisfaction.
Among Wall Street firms, Goldman Sachs was dragged most publicly through Congressional inquiries over its role in the financial crisis, and it paid $550 million in a settlement with regulators. Now Goldman Sachs would have to defend its conduct again.
Jake Siewert, a Goldman Sachs spokesman, says all of the firm’s attempts to talk to Smith after his resignation were rebuffed. Jimmy Franco, director of publicity at Grand Central, said in an e-mail that Smith would not be making statements at this time. The Financial Times reported details of the bank’s internal review last week.
The firm hired forensic specialists to troll through e- mails and taped conversations, according to four people with direct knowledge of the probe. It also conducted interviews with 125 employees who had contact with Smith, going as far back as his summer internship in 2000.
The results of that investigation were shared with Goldman Sachs’s board and regulators including the Washington-based Financial Industry Regulatory Authority and the U.K.’s Financial Services Authority, according to one of the people familiar with the probe.
A nine-page summary was provided to Bloomberg News. While it includes excerpts from Smith’s self-evaluations and quotes directly from internal e-mails, much is excluded. The summary does not, for example, show the context in which some of Smith’s remarks were made, leaving open the possibility of misinterpretation.
Still, the documents paint a picture of Smith that is at odds with the image he fashioned for himself in the op-ed: an altruistic kid from Johannesburg, out of place in the rapacious, wealth-obsessed world of American high finance.
Smith wrote in the Times that Goldman Sachs “has veered so far from the place I joined right out of college that I can no longer in good conscience say that I identify with what it stands for.”
Goldman Sachs’s document shows Smith as a striver, eager to make more money and frustrated when he didn’t advance. In his 2010 self-evaluation he made clear he wanted to stay at Goldman Sachs, saying, “it is my goal to get promoted to managing director.”
“It creates some doubt, some question about his credibility and whether in fact he had an axe to grind,” said James Post, a professor at Boston University’s School of Management who focuses on corporate governance and ethics.
Smith, a graduate of Stanford University in Palo Alto, California, joined Goldman Sachs full-time in 2001 as an analyst in the equities division in New York. He was promoted to associate in 2003 and then vice president in 2006. In his book, he describes being disappointed with his $500,000 bonus at the end of that year.
“By any measure, I should have felt exceptionally lucky and grateful,” he writes. “But by the warped logic of Goldman Sachs and Wall Street, I was being screwed.”
He transferred to London in 2011 to take a position supporting the desk that sells U.S. equity derivatives to European clients.
By 2012, Smith had fallen behind his peers. According to Goldman Sachs, he was the lowest-paid among the VPs who started in the same training class. A third of his classmates had become managing directors.
In the op-ed, Smith said he’d advised some of the world’s largest money managers and that his “clients have a total asset base of more than a trillion dollars.” According to Goldman Sachs’s investigation, that description is a stretch.
While Smith did work for some of the firm’s biggest clients, including AQR Capital Management LLC, Government of Singapore Investment Corp., T. Rowe Price Group Inc., Vanguard Group Inc. and the asset-management units of Morgan Stanley and Deutsche Bank AG, he had no direct responsibility for those accounts and didn’t perform an advisory role.
At the same time, Smith had, in Goldman Sachs’s assessment, an overgenerous view of his own performance. The documents say he placed in the bottom half of the firm in regular evaluations from 2007, while giving himself scores that were “significantly above” those he received from others.
When his request for a promotion to managing director was denied in January, Smith asked to be moved to a different sales desk. The investigation report says he wanted to generate revenue and cover clients, a step up from the support role he was providing as a marketer and one with a better shot at a bigger paycheck.
Goldman Sachs put a different managing director in charge of Smith as it considered giving him a sales job. The report says he “found the transition difficult” and considered the female MD who ran the desk a peer and not his boss.
In February, Smith told a colleague he was concerned that the move he wanted to a different sales desk might not happen, according to Goldman Sachs’s account. A month later, he was gone.
The investigation exonerated Smith’s managers, saying they had not missed warning signs. When he had formal opportunities to raise concerns or criticize individuals, such as performance reviews, he gave his colleagues top marks.
According to Goldman Sachs, Smith never let on that he was disenchanted or resentful until March 12, two days before he resigned. At a regular meeting with a Goldman partner he “expressed vague concerns” about the firm’s direction and complained that its focus was on making money, not serving clients.
Goldman Sachs executives now say they believe Smith had submitted his op-ed by the time that meeting was held.
Taken together, the materials provided by Goldman Sachs challenge the storyline Smith has presented in his op-ed and excerpts from his forthcoming book. Only Smith knows if his public denunciation of the firm was motivated by loathing for what it had become, or instead resentment upon realizing that his career was stuck and a promotion unlikely.
What Smith didn’t know: His future at Goldman Sachs might have been short-lived anyway. The investigation report says Smith’s managers “discussed the possibility of Greg’s departure from the firm.”