Money Stuff: Goldman Wants to Be Cool Again

My general rule of thumb is that big banks are socialist collectives run for the benefit of their employees, but that is particularly true of private investment banking partnerships, which really are run for the benefit of their partners. This benefit is, of course, partly—largely—financial: You want the firm to make a lot of money, and then give it to the partners. But it’s not just that. You are working long hours for many years; you want to like your partners, and enjoy hanging out with them. You want to pick new partners whom you will also enjoy hanging out with. And you want the whole thing to have an air of mystique and exclusivity; you want to feel that, as a partner, you are one of the cool kids. You want people on the outside to envy you. You want to have a secretive and onerous process for picking new partners, preferably one that involves lots of the existing partners in the selection, not only because that picks good new partners but also because the obstacles raise the perceived prestige of the partnership.

This is good, I think, mostly because the firm is run for the benefit of its partners, and they get a lot of social and psychological benefits from being in a cool club with their cool friends, and you don’t really need any more explanation than that. It does, though, probably also bring financial benefits. If the partners really do identify with the club, if they form deep emotional attachments and feel like it is an important part of their lives, then they will work hard to make it a success, and they will not take risks that endanger it. If the partners all just believe in the mystique of the firm, not only will they enjoy themselves more, but they will also probably do a better job and make more money. And if the non-partner employees believe in the mystique, then they will also work harder so that they might one day be invited into the inner sanctum.