The Leadership Factory

Paulson is just the latest product of Goldman's public service culture

The President called, and like so many of his predecessors at Goldman Sachs Group Inc., Henry M. Paulson Jr. said yes. The lanky, 60-year-old Illinois-bred Republican, now headed for Washington as the next Treasury Secretary, joins a surprisingly long list of Goldmanites who have found power an irresistible coda to money. For both Democrats and Republicans looking for smart advisers, the firm at 85 Broad St. has been an unequaled hunting ground.

To a degree unique among its Wall Street peers, Goldman has churned out leaders in the public sphere: cabinet members, advisers, Federal Reserve and trade officials, and other honchos. The legacy dates at least to President Franklin D. Roosevelt's era, when senior partner Sidney J. Weinberg helped run the War Production Board during World War II. Credit "a pattern of leadership that was reinforced by how we hired people and how people were encouraged by the firm," says Jon S. Corzine, another senior partner who left Wall Street in 1999, first to serve as a U.S. senator and, since January, as governor of New Jersey.

Why has Goldman, which ranked No. 15 on this year's BusinessWeek 50 list of the top corporate performers, been such a remarkably productive leadership factory, a farm team for Washington and business? Part of it is money: Corzine built a fortune topping $233 million, letting him spend some $100 million on his electoral campaigns. But a bigger part is the firm's cultural legacy. Since the days of Weinberg and his successor, Gustave Levy, Goldman has consciously attracted and developed bankers who define success beyond monetary terms, or, as Levy put it, are "long-term greedy." Young recruits grow up at the firm constantly hearing about the many leaders who went on to bigger things. Corzine still recalls his first partners' meeting in 1980, when senior partner John C. Whitehead exhorted everyone there to do more than just make money. "In business terms, as opposed to religious terms, he said, 'of those to whom much is given, much is required,"' the governor recalls.

Certainly Whitehead, a Republican, proved to be a role model. He left Goldman a few years later to serve as Deputy Secretary of State under President Ronald Reagan. Afterward he chaired the board of the Federal Reserve Bank of New York, and he has just wrapped up 4 1/2 years as head of the effort to rebuild New York's financial district at the Lower Manhattan Development Corp. "You didn't miss the point when his praises were sung," says Lisa Endlich, author of Goldman Sachs: The Culture of Success and a former trader there. "To be Deputy Secretary of State was considered a higher calling."

For a sense of how deep the tradition goes, just scan the alumni list. Former Chairman Stephen Friedman advised President George W. Bush as assistant for economic policy until 2004, and he now chairs Bush's foreign intelligence advisory board. Reuben Jeffery III, a former managing director at the firm, chairs the Commodity Futures Trading Commission. A former executive director, Joshua B. Bolten, recently took over as White House Chief of Staff.

As Corzine, a Democrat, shows, the draw has been bipartisan. Other Dems on the roster include former co-senior partner Robert E. Rubin, who served as President Clinton's Treasury Secretary. On May 15, the former co-head of Goldman's investment management unit, Philip D. Murphy, was nominated to be the next fund-raising chief for the Democratic National Committee. And some veterans have gone on to areas where business and politics intersect: Dealing with Washington is a big part of the job for New York Stock Exchange Chief Executive John A. Thain, a former Goldman president.

Key to the firm's culture has been choosing the "long-term greedy" from the ranks of the bright and ferocious who compete for spots at top investment banks. Like many others, Endlich had an MBA, but two years of professional fund-raising experience with Walter Mondale's 1984 Presidential campaign set her apart. Her foray into politics didn't help her trade any better. But while other Wall Street firms saw her political experience as an irrelevant detail, Goldman thought it marked her as a more interesting colleague. "It's not just the job, but who you do your job with," says John F.W. Rogers, Goldman's chief of staff, who joined the firm in 1994 after a long career in D.C. Paulson himself joined Goldman after serving in the Nixon White House.


Once the recruits are in the door, Goldman grooms them in ways that later can prove useful in politics. The firm, more so than other Wall Street banks, has emphasized teamwork and leadership development. Forget the star system. Goldman "insists on minimizing the use of the first-person pronoun," says Bush adviser Friedman. To make sure that the most promising recruits serve all constituencies, the firm uses a "360-degree" performance review process, soliciting evaluations from supervisors and underlings alike, as many as 15 per review.

Those lessons have served Friedman well in Washington, where he says managers whose egos are "under control" are far better at leading people. He says they also tend to be better listeners, a key skill at Goldman since clients soon grow cool to someone who pays them too little mind. That's why Goldman insiders argue that Rubin had a smoother path in Washington than did Donald T. Regan, the Merrill Lynch & Co. veteran who, plagued by the fallout of the Iran-contra scandal, resigned as chief of staff for President Reagan.

Still, ever since the firm scrapped its partnership structure and went public in 1999, Paulson has labored to keep Goldman's legacy alive. In pre-IPO days, partners would usually cash out in their mid-50s with a more-than-tidy sum. Thus government or public life seemed a logical second act. But nowadays hedge funds and private equity shops have become premier talent lures. And every quarter, Goldman must mollify demanding shareholders who are the very picture of short-term greedy. In recent years rivals such as Lehman Brothers Inc. and Bear, Stearns & Co. have wooed and won Goldman bankers. And well-regarded rising stars such as Eric Mindich and Dinakar Singh have left Goldman not for government posts but for hedge funds.

In response, Paulson, a self-styled "culture carrier," has tried to formalize much of the focus on team and leadership development that was innate to the old partnership. He wants managers to attend programs that range from short classes on how to deal with difficult people to multiday workshops at Harvard on how best to serve on nonprofit boards. He even brought in a chief learning officer, longtime General Electric Co. training guru Steven Kerr, to codify the firm's values through the Pine Street Leadership Project, Goldman's executive education center.

Of course, Paulson's latest and perhaps most important attempt to cement Goldman's legacy as a leadership engine is his own move to the Treasury Dept. Now the job of cultural preservation falls to his likely successor, Goldman trading veteran Lloyd C. Blankfein, president and chief operating officer. And chances are at least a few more future Presidential advisers are roaming the halls at 85 Broad.

By Joseph Weber

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