The Partnership: The Making of Goldman Sachs » (Bargain)

Charles D. Ellis is a consultant to large institutional investors and government agencies. For thirty years he was managing partner of Greenwich Associates, an international business strategy consulting firm he founded that serves virtually all the leading financial service organizations around the world. Ellis earned his M.B.A. from Harvard University and his Ph.D. from New York University. He has taught investment management courses at Harvard and Yale, and is the author of twelve books. Ellis has served on the boards of Harvard Business School and Phillips Exeter Academy and is currently chairman of the Whitehead Institute for Biomedical Research, a trustee of the Robert Wood Johnson Foundation, a director of Vanguard, and a trustee and chair of the investment committee at Yale University.

The jury is still out on what the future of Goldman Sachs will look like, but no one can argue that the 139 year old firm has been (and, if Warren Buffett has his way, will be) the dominant investment banker and dealer on Wall Street. What does Buffett see that we on the outside do not? It's all about the people.

Charles D. Ellis has written a landmark book that couldn't come at a better time. The Partnership: The Making of Goldman Sachs is the colorful and fascinating story of Goldman's rise to power through many life-threatening changes in markets, competition, and regulation. It tells the personal history of the men and women who built the world's leading financial powerhouse from a firm that was disgraced and nearly destroyed in 1929, limped along as a break-even operation through the Depression and WWII, and, with only one special service and one improbable banker, began the rise that, in half a century, took Goldman Sachs to global leadership.

A conversation with Charles Ellis:

• Is Goldman Sachs really a lot better than other firms at managing risk?

The big difference is in the cumulative power of many “small” details. The difference in the speed, accuracy, and extent of communication inside the firm; the difference in intensity, focus, and disciplined toughness of the men and women hand selected to work there and real difference in recruiting, training, and compensation. All add up to a decisive advantage in management. Leaders and co-leaders manage Goldman's many business units with rigor and drive; risk management is the envy of other banks; and coordination is powerful across business units and markets around the world.
As every Olympic athlete knows, such small differences make all the difference between gold, silver or bronze — or no medal at all. In the current, very difficult test, Goldman Sachs has come in 1st — again.

• Goldman Sachs is often described as the best managed Wall Street firm. Is that true?

Yes, it is true. Goldman Sachs is the best managed “Wall Street” firm — and the best led. Management is why Goldman Sachs is consistently rated the best firm to work for and gets top ratings from clients all over the world. Superior management is why the firm earns more profit, develops more effective people, has made itself the market leader in the U.S., U.K, Germany, France, China, Japan, and in most major lines of banking business. No other firm comes close.
One of the things you will learn in The Partnership is just how Goldman succeeded in making themselves different from any other Wall Street firm. They learned early on that in order to survive, they had to not only make money, but create a culture that was universal, that demanded absolutely loyalty and, most importantly, act as one organism.

• Why does Goldman Sachs put so much weight on its “culture”?

Goldman Sachs culture works. In the complex, fast-changing, global, 24/7 securities business almost all the important decisions are made in highly specific and complex settings under great time pressure. These decisions cannot be made by headquarters and they cannot be deferred. They must be made locally by local market and business experts thousands of times every day.
Rules won't work. If rules were written for every type of decision in all those different businesses in all the world's different markets in all the different cultures, the resulting Rule Book would be far too large and complex to read or use.
Culture — its way of working — is the universal “stem cell” that enables Goldman Sachs to operate so forcefully in so many different national markets and in so many different businesses.

• With all its different business activities all over the world, doesn't Goldman Sachs have problems with conflicts of interest?

Yes! The firm certainly has many, many conflicts of interest. While it could take a defensive approach and try to avoid or minimize those risks of conflicts, the firm believes the more realistic and effective approach is to recognize those risks, be candid about them with clients and counterparties, and actively manage the conflicts. The firm strives to deal with each of them in such thoughtful and effective ways that clients and customers will know Goldman Sachs can be trusted to manage conflicts better than any other firm.

This is, of course, an assumption of enormous responsibility — particularly on the scale on which Goldman Sachs operates — so it raises the obvious next question: Who will watch the watcher?

Publishers Weekly

In this history of investment bank Goldman Sachs, Ellis (Winning the Loser's Game) covers the same ground as Lisa Endlich's Goldman Sachs: The Culture of Success-with notable stylistic differences. From Marcus Goldman's purchase of his first commercial paper in 1869 to the firm's current success, Ellis's account is lively and engaging where Endlich's is accurate but dry. Ellis sheds light on events through dialogue and detailed descriptions of people's thoughts and feelings, embellishments that the author terms "recreations" in his epilogue. The effect of infusing such narrative techniques into the history of Goldman Sachs is entertaining, but it pushes the envelope of nonfiction, especially since the author appears to have interviewed only former partners of the firm. More damagingly, Ellis fails to report much about actual business, and attempts to do so-such as a chapter on Rockefeller Center financing-require lengthy digressions and are incomprehensible due to the complexities of the transactions. Without links to business, boardroom conflicts take on the air of petty squabbles. More a composite memoir of senior Goldman partners than a traditional history, this book will satisfy readers curious about the philosophies and personalities of the firm. (Oct.)

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1 Beginnings 1

2 Disaster: Goldman Sachs Trading Corporation 17

3 The Long Road Back 30

4 Ford: The Largest Ipo 53

5 Transition Years 63

6 Gus Levy 73

7 The Wreck of the Penn Central 96

8 Getting Great at Selling 116

9 Block Trading: The Risky Business That Roared 132

10 Revolution in Investment Banking 153

11 Principles 183

12 The Two Johns 192

13 Bonds: The Early Years 215

14 Figuring Out Private Client Services 232

15 J. Aron: Ugly Duckling 250

16 Tender Defense, a Magic Carpet 269

17 The Uses and Abuses of Research 283

18 John Weinberg 297

19 Innocents Abroad 320

20 Breaking and Entering 345

21 How Bp Almost Became a Dry Hole 356

22 Changing the Guard 373

23 Transformation 399

24 False Starts in Investment Management 425

25 Robert Maxwell, the Client from Hell 437

26 Making Arbitrage a Business 463

27 J'accuse 481

28 Building a Global Business 512

29 Steve Quit! 533

30 Collecting the Best 552

31 Jon Corzine 566

32 Long-Term Capital Management 582

33 Coup 606

34 Getting Investment Management Right 615

35 Paulson's Disciplines 636

36 Lloyd Blankfein, Risk Manager 665

Notes 689

Index 711