Goldman's Quiet Man Gets His Shot

Hank Paulson takes over at a crucial time

March 16 was a glorious day at 85 Broad Street, the New York headquarters of Goldman Sachs Group LP. That's when the venerable Wall Street investment bank filed its long-awaited registration statement with the Securities & Exchange Commission to go publiC.

Buried inside was the juiciest aspect of the deal. A mere 221 partners will divvy up $11.8 billion, assuming the firm sells for $24 billion, the high end of the anticipated price range. Partners will not be able to sell their stock for as long as five years. Still, the numbers are mind-boggling: junior partners will get $15 million in stock, while a few top partners are expected to get about $200 million.

One of those will be Henry M. Paulson Jr., Goldman's new CEO, whose payday represents 17 years at the firm. Paulson may have the toughest job of any leader in Goldman's 130-year history. He must hold the firm together as it makes the difficult transition from a private partnership to a public company. At the same time, he will lead a major expansion of Goldman. Once the firm goes public, it is expected to acquire money managers and other financial institutions, plus move into the retail brokerage business by using the Internet to distribute stocks.

Despite his big new job, Paulson is not well known on Wall Street. In fact, in the upheaval following the abrupt ouster of Jon S. Corzine on Jan. 11, Paulson's heirs apparent, John A. Thain and John L. Thornton, got more attention than the nondescript Paulson did.

But after four years in Corzine's shadow, Paulson is ready to take the helm. He is an old-fashioned, customer-oriented investment banker. Within Goldman Sachs, he is seen as a "culture carrier," someone who epitomizes the Goldman way. But instead of an Armani-clad, cell-phone-toting, smooth-talking investment banker, Paulson is a modest dresser who wears penny loafers and a plastic Casio watch and has an unpretentious, Midwestern manner. He lives in a 1,200-square-foot apartment on New York's Upper West Side, near Lincoln Center. "He's a straight shooter. He doesn't mince words. He will articulate his views with great ferocity and often," says Edward M. Liddy, the chief executive officer of Allstate Insurance Co.

Paulson and his partners are also going against the grain by sharing the wealth more broadly. The partners acted out of pragmatism, not altruism. By taking $5 billion out of their pockets and distributing it to every single one of the firm's 13,000 employees, the partners hope they can keep the firm together, make sure people keep working hard, and retain their best staff. Employees will get stock worth half of their last year's compensation, plus a bonus for the most-valued employees. "It certainly is something that has never been done on the Street before," says Joan Zimmerman, a Wall Street headhunter with G.Z. Stephens.

GRID STAR. Paulson was born in Barrington, Ill., a Chicago suburb, and he still has a house there built on land he bought from his father, who owned a wholesale jewelry business. Paulson was a star football player at Dartmouth College, got an MBA from Harvard, married his college sweetheart, Wendy, and has a grown son and a daughter. After Harvard came a stint at the Defense Dept. Paulson then worked for the Nixon White House as an aide to John Ehrlichman. In 1974, he started in Goldman's Chicago office to avoid the rat race of the New York investment-banking world.

Ultimately, Paulson moved to New York. In 1988, he became co-head of investment banking. He was anointed as the firm's No. 2 in 1994, with the title of president and chief operating officer, after Stephen Friedman abruptly stepped down as senior partner. In June, 1999, he became co-CEO with Corzine.

Paulson couldn't be more different from Corzine, his bearded, personable predecessor. "He's not a warm and cuddly guy," says one employee. Paulson is also said to have a bigger ego than either Corzine or Robert E. Rubin, the U.S. Treasury Secretary who was Goldman's senior partner. A Christian Scientist, Paulson is also an outdoorsman who birds and fly-fishes. Such leisurely pursuits, though, will likely be off his calendar for some time.

Before it's here, it's on the Bloomberg Terminal.