Goldman's Jobs Act
Dina Powell, the head of the Goldman Sachs Foundation, breezed into an Upper East Side restaurant on the morning of April 19 and flung a red dress over a chair. “I’m traveling,” she said apologetically, referring to both the dress and her slight tardiness. After breakfast, she had a flight to Washington. As she scrutinized the menu—deciding on scrambled eggs with scallions and cream cheese—she contemplated the generous impulses that drive many of her colleagues at Goldman Sachs: “I think we attract people who want to work for an institution that is having a meaningful impact on the world,” she said brightly. “Did you know that Goldman Sachs has fielded more individuals who have served on nonprofit boards in the last 15 years than any other public or private institution? It’s remarkable!”
The Goldman Sachs Foundation is one of the largest corporate foundations in the world, and Powell is in charge of deploying its $500 million-plus in assets. Attractive and polished, she’s a gatekeeper and an ambassador of Goldman’s good deeds. She’s also a talisman to ward off regulators, Occupiers, and anyone else who might regard the investment bank as a less than benevolent force. It’s about as much money as Goldman paid the Securities and Exchange Commission—$550 million—to settle civil claims that it misled investors in mortgage securities whose selection was influenced by a hedge fund client that had secretly bet against them. Goldman settled without admitting or denying liability.
Managing the charitable activity for a company that has come to symbolize corporate predation is just the sort of delicate role Powell has experience with. She was hired in 2007 by Goldman Chief Executive Officer Lloyd Blankfein and Chief of Staff John Rogers after spending six years as a member of the George W. Bush administration. Her last job there was Deputy Under Secretary of State for Public Diplomacy and Public Affairs under Karen Hughes, where Powell worked to put a friendly face on the Bush government. Her ascent through the private sector has been swift: Powell was promoted to Goldman partnership in 2010. (Powell’s husband is head of communications for Bloomberg L.P., the owner of Bloomberg Businessweek.)
The bank’s leadership had recently decided to reorganize the way they practiced philanthropy, and Powell was put in charge. Rather than scattering money around museums and opera houses, or donating only to education, which was a previous focus, Goldman executives wanted to center their efforts on economic growth, which was more aligned with their business. Powell’s first project under this new formula was 10,000 Women, a global economic development initiative to support female entrepreneurs in the developing world, which launched in 2007. The program was a success—Goldman was given an Excellence Award in Corporate Philanthropy by the Committee Encouraging Corporate Philanthropy in 2011.
Next, Goldman decided to try something even more ambitious: helping small businesses in the U.S. grow and create jobs. The firm dedicated $500 million to the cause, called 10,000 Small Businesses, with $300 million going to loans and grants and the remainder to fund educational programs for small business owners. The idea was to pour resources into small companies in urban areas by offering specialized training, mentoring, and access to capital. So far the program has launched in six U.S. cities: New York, New Orleans, Houston, Los Angeles, Chicago, and Long Beach, N.Y. The seventh will be Cleveland, it was announced in early May. The program was launched in London, Manchester, Leeds, and Birmingham in the U.K. as well. “Even though we began this work in 2007, when the downturn hit, we stayed fully committed,” Powell says. “We did not decrease by one penny the commitment of the firm, even through the difficult economic times.”
Big corporate donations always make a statement. An army of consultants exists to help companies figure out how to give money away in a manner that makes the statement they want. At a time when Goldman Sachs is often held up as the worst example of Wall Street greed and excess, it’s only natural to wonder about the company’s motivations for a $500 million philanthropy. When Powell is asked what Goldman’s sponsorship of the small business program says about the firm, she replies, rather stiffly, that “effective philanthropy has been a core value of the firm for 140 years.” Perhaps it doesn’t matter what Goldman’s reasons for promoting small businesses are. Maybe the only important question is whether it works.
Precisely how to “create” jobs is an endless struggle for economists and policy makers. When governors such as Chris Christie of New Jersey brag about job creation during their tenure, often they are referring to the process of enticing a corporation, usually through tax breaks, to leave one state and move to another, bringing jobs with them. The alternative approach is more organic, and arguably more difficult: Individual companies that show potential are nurtured and given the resources they need to expand, optimally leading to actual new job creation. In either scenario, precise cause and effect are difficult to measure.
To get Goldman’s program going, Powell wrangled institutions such as Wharton business school and Babson College, which designed the curriculum, and celebrity business minds, including Warren Buffett and Harvard’s Michael Porter, to serve as advisers. “She’s just good,” chortles Buffett, when asked why he decided to participate. “In a very, very nice way, she gets all the rest of us to work quite hard. I hadn’t seen her in action until I got involved in this. I think I probably oughta hire her.”
Actually helping small businesses is more complicated than simply throwing money at the problem; the elements necessary for job creation include all levels of education first and foremost, according to Guy Michaels, a labor economist at the London School of Economics and Political Science. “There’s [also] evidence that teaching best practices is correlated with doing better,” Michaels says. Access to capital is also critical, he adds, particularly in an environment where large banks aren’t making many loans to smaller companies.
“There are a lot of disastrously managed small companies out there,” says Nicholas Bloom, an economist at Stanford University. But, he adds, aiding them is not so easy at it seems: “It all sounds very inspiring and fantastic, but it turns out that the evidence from large samples is less encouraging.”
According to Bloom, it’s large companies that would potentially benefit from the kinds of interventions Goldman could offer, places where advice on corporate finance might actually be relevant. “The types of things a pie baking shop needs to know are either very detailed skills the Goldman Sachs guy won’t know about, or very basic things like how to keep accounts in Excel, which they typically already know,” Bloom says. Some studies he cites suggest that training small business owners can actually cause harm by taking up precious time that could be spent running their companies, and often the instruction quality isn’t great. Even the higher level of teaching that Goldman is reaching for might not be enough. Plus, the failure rate for small businesses is extremely high, around 75 percent. Those that survive tend to show “fantastic” job growth, according to Bloom. A study by the National Bureau of Economic Research released in 2010 found that most job growth actually happens at startup companies rather than the sorts of established small enterprises that Goldman has been targeting.
Still, Goldman executives say they are encouraged by the results they’ve seen. Powell and her team felt they could overcome the obvious obstacles by applying what they’d learned through the 10,000 Women program and by being rigorous in how they did it.
The firm contracted with Babson, the well-regarded Massachusetts business school, to design a course around practical skills that business owners need and most often lack—accounting, negotiation, hiring. Community colleges, most of them in cities, would host the educational programs, which take about 80 hours spread over 10 weeks. Professors and experts were corralled into teaching them. The first city was announced—New York—and the inaugural pool of business owners was selected, 50 out of about 200 who applied. “We know that startups create jobs. What we also know is that startups fail,” says Len Schlesinger, the president of Babson, explaining why he thought targeting established companies would work. “Goldman Sachs is interested in being able to demonstrate empirically that there is an answer here.”
Rahm Emanuel, the mayor of Chicago, the sixth city to host Goldman’s program, says it dovetailed perfectly with his plan to reorganize the city’s community colleges to focus exclusively on career training for industries that are likely to provide jobs in the future, such as health care, information technology, and hospitality. “I want to talk to Goldman about how to make this permanent,” Emanuel says. Buffett, too, remains a fan. “I talked to a number of graduates who told me they were able to renegotiate leases or franchise fees—they really put it to use, having someone there who is like an outside investor, but isn’t,” he says. “There’s no question that it will work.”
Jessica Johnson, who runs Johnson Security Bureau, a small security firm based in the Bronx, describes her experience with 10,000 Small Businesses as “very surreal.” Johnson’s father had been running the company when he became gravely ill. Johnson was working in Texas for a pharmaceutical company and rushed home to help care for her father before he died, in 2008. Suddenly the daughter was in charge, and she had very little sense of what to do next. “He walked me through some operations, I got to see a couple of runs of the payroll system,” she says. “It was enough that after his death I was able to step in and at least keep things going.”
A friend urged her to apply to 10,000 Small Businesses, then in its debut year. Johnson thought, “I’ll take any assistance I can get.” She describes the program’s workshops as “intense.” They talked about how to get a company’s finances organized in order to apply for loans. There was a human resources session where lawyers came in and discussed employee law. They even covered strategies for expanding and acquiring new business.
“Before, we were like a 10-year-old girl, cute and a little awkward. Now we’re more like a 15-year-old—not quite as awkward, with a better idea of where we want to go,” Johnson says. She’d hoped to finish 2010 with 20 employees; she fantasized about having 25 in 2011. Instead, business picked up, and they reached 40 by the end of 2010. She says this year they’re looking to add 80 to 110 more. “People are starting to take notice,” she says.
Over breakfast, Powell recounted a story about Goldman COO Gary Cohn, who participated in a roundtable discussion about “human capital management” with the 10,000 Small Businesses cohort in Chicago. “It was fascinating,” Powell said. “He was sitting between the owner of a bakery on the South Side of Chicago and a man who owns a construction company.” Both business owners were explaining to the Goldman bigwig, whose 2007 compensation totaled some $67 million, that they didn’t know how to find the best workers or make the most of them once they did.
“He said, ‘That’s our biggest challenge at Goldman Sachs, recruiting the best and training them, retaining them and giving them a path to promotion,’ ” Powell recalled. Cohn recounted the story of his own hiring at the firm—he underwent something like 40 interviews, many of them with people who were going to be his juniors. He told them: “ ‘Make sure when you’re hiring someone, it isn’t just one or two interviews—make sure everybody on your team interviews them.’ ”
Powell is convinced that Goldman Sachs does things better than everyone else, especially when it comes to giving money away. “I think it used to be acceptable to give money, attend galas, those kinds of activities,” she says. “Now I think a higher bar has been set.”