Goldman Sachs' Greg Smith: Whistleblowing or Trumpet Blowing?

Submitted by Elaine Cohen

By Elaine Cohen

It seems that there can't be much more left to say about the latest Goldman Sachs saga, prompted by the noisy departure of the now-famous Greg Smith, who walked out on his 12 years at the global investment bank through an open letter titled aptly Why I am leaving Goldman Sachs.

Published on March 14, 2012, in The New York Times, the op-ed claims that profit before clients had reached immoral and irreverent proportions at the golden bank.

Greg Smith: The Critics

By now, most commentators have taken a stand on Greg Smith's exposure of "the real GS", and the camp is divided between the defenders. For example:

If you want to dedicate your life to serving humanity, do not go to work for Goldman Sachs. That’s not its function, and it never will be. Go to work for Goldman Sachs if you wish to work hard and get paid more than you deserve ..." - Bloomberg

"This was a guy who, by any account, seemed to have it all. Why would he throw it all away?" - Forbes 

"For all of Mr. Smith's self-righteous bluster, he is late to the game. Worse, his assertions that Goldman has traded loyalty and respect seem almost too neat." - The Wall Street Journal

The Defenders

The internet now abounds with character testimonials in favor of Greg Smith, including former colleagues, his former table-tennis coach and even his former High School Principal, who portray Smith as a nice guy and "highly principled".

Smith's own letter showcases his achievements and experience - we might be forgiven for thinking it is also some kind of jobseeker resume. But those who know Smith believe his public departure from Goldman Sachs to be the culmination of a period of dissatisfaction and a matter of values not personal gain.

Greg certainly has become a bad-guy celeb.

Perhaps he has already been asked to be a guest on The Oprah Winfrey Show or participate in a Hidden Camera Prank with Ellen DeGeneres? Others, however, wonder if being passed over for promotion or dissatisfaction with his last bonus may have been cause for sour grapes. Another group simply finds it all rather amusing, and has produced a number of parodies of Greg Smith's departing shot.

The Fallout

At the time of writing this post, Greg Smith's outburst seems to have achieved what he might have targeted – a decrease in the already fragile trust in Goldman Sachs' business.

• In just over 1,900 responses to an online poll, 75.7 percent  of the respondents checked yes for Have allegations against Goldman Sachs diminished your interest in potentially doing business with the company?
• Share prices of Goldman Sachs [NYSE:GS] fell by 3.4% as Wall Street considered there might be some truth in the accusations of "callously ripping off clients" and "eroding integrity." 
• Goldman Sachs has even confirmed they will "try to strengthen internal rules to prevent questions about conflicts of interest."

On the other hand, an inside look at the Goldman Sachs culture on Glassdoor -- reviews from 683 employees -- shows that Greg Smith's comments may not be entirely shared by others at the Big Money firm. GS scores a positive 3.8 rank (out of 5) on average from these employees and Chairman and CEO Lloyd Blankfein gains a 94 percent approval score.

The truth then may be a question of perception, personal interest and values. The targets of Greg Smith's attack, Blankfein and COO, Cohn, argue back: "Just two weeks ago, Goldman Sachs was named one of the best places to work in the United Kingdom where this employee resides."

Impact

Wherever the truth lies, the real story here is about how employees who have a genuine grievance can get companies to change. Greg Smith takes issue with aspects of ethics and morality at Goldman Sachs, not illegal activity. This is exactly what Codes of Corporate Conduct aim to address.

Whistleblowing mechanisms have become more ubiquitous and more sophisticated as their importance has grown in perception, often outsourced to third party companies to provide a professional service and ensure issues raised are effectively dealt with.

Goldman Sachs provides such an option. Whistleblowing can have a significant influence in cases against corporations that reach litigation. However, this mechanism has tended to be regarded as a tool to highlight corporate fraud and legal violations, rather than cultural or moral issues. Would Greg Smith's allegations have been taken seriously?

Nevertheless, there is no evidence that Greg Smith attempted to change Goldman Sachs from within, nor are there any hints in his published letter that he had spoken out at any time during his 12 years with the company, especially during the latter years when, he claims, things were getting "toxic."

There is no evidence that Greg Smith returned any of his reputed $750,000 a year salary, bonuses, personal perks or any other of the benefits he earned while being complicit in the "ripping-off' of customers that he claims was commonplace.

There is no evidence that Greg Smith was anything but another fish in the big sea of financial services, trying to swim upstream and when the going got tough, decided to bail out and blame the firm.

There is talk, however, that Smith has ruined his career and is unlikely to be hired within the sector. This is not surprising. Not because he blew the whistle. But because most of what he seems to have been doing was blowing his own trumpet. 

Related:
Subpoenas vs. CSR Plaudits: A Tale of Two Goldmans