5 business lessons from the Goldman Sachs resignation op-ed

by Staff Writer

Wall Street has been abuzz with Greg Smith's op-ed to the NY Times this past week where he described, in gory detail, why he was resigning from his position at Goldman Sachs. One week later, the fallout continues for the investment firm in what's become a PR nightmare.

But as the dust settles, there's some very clear messages and lessons that have emerged that we, as business owners, should heed carefully. Here is our top 5:

  1. Customers come first

    When a business aligns its interests with its…

    …benefactors: it is profitable.
    …employees: it is successful.
    …customers: it thrives.

    As soon as a business puts being profitable at the cost of the other two, things start to go wrong. In this case, the customers are the losers. And it shouldn't have to take this disgruntled worker's op-ed for anyone to figure it out. The “culture” that Mr. Smith refers to is something that's been talked about, as a potential toxic force, for the past few (or more) years now.

    This article suggests going public in 1999 was the beginning of the end for Goldman Sachs, causing a framework for profit maximization at all costs. The article uses the following quote:

    Robert Reich, for example, has long argued that "professional companies should not be permitted to become publicly held corporations." As he puts it, "Such a step puts them into high-stakes competition for investors, pushing them to maximize profits over their responsibilities to the public." (Not to mention their client.

    And perhaps the very business of investment banking on Wall Street attracts the type of person that has created such a culture. Bright, motivated, and hungry people who will do anything to boost themselves to the top. Including selling out their clients.

  2. Blame trickles up

    Americans crave leadership. That rare quality that we sometimes find in athletes, but we demand of in our politicians, managers, and coaches. A person we can count on to guide us to the promise land. At least, that's our expectations. So when things go wrong, we need a scapegoat, and those that promised us leadership suddenly make a perfect target.

    How much of what's wrong with Goldman Sachs is to blame on CEO Lloyd Blankfein is a matter of debate. But this week, that debate has almost become moot. Writers and bloggers are calling for him to be fired, most claiming that it's the only way the investment firm can save face. And that's how PR nightmares like this usually go: The blame simply trickles up.

  3. Listen to your employees

    There are few things more potentially dangerous to a company's public relations than a disgruntled worker. Someone who knows the ins-and-outs and the darkest secrets of a business and is motivated to do the most lasting damage they can thing of. And in this case, the employee was most certainly that. One wonders some of the more specific situations that frustrated Mr. Smith so much that he would publish his thoughts so publicly.

    But that's not why you should listen to your employees. It's because they're the ones that make up the “culture” of your company or firm. They are your eyes and your ears as well as everything else that makes up the face of your organization. Take cues from them, listen to what the tell you but also to what they say.

    Something tells me Greg Smith was trying to tell his bosses something. And after reading his op-ed for the first time, I got the feeling nobody was listening. Until now.

  4. Small is the new big

    Mark my words: smaller firms will benefit from this fiasco. Especially investment firms, but not exclusively. People tend to trust large, established companies because they tend to have the experience and infrastructure to handle anything. But as a result of the recession, large corporations are looking for any way to stay profitable, and it's usually at the expense of the customer. Whether it's cuts to customer service, product quality, or something more specific (such as GS), it doesn't matter to customers. They expect better.

    If clients do end up leaving Goldman or another large firm, it will be because of a lack of personal co-dependent relationship with their clients. Something smaller firms have in abundance. And when these clients leave (and they will) they'll flock to a smaller firm for exactly what they crave. Thing is, these smaller guys already know it.

  5. Bad PR: It's never as bad as it initially seems

    Just 24 hours after the op-ed was published, it was reported that Goldman stock had taken a 2.2 Billion dollar hit as a result. And while it seems like a lot, this impact is greatly exaggerated. A week later, the stock is trading for more than it did before the article, having already bounced back. Sure, you still have a lot of angry people bad-mouthing the firm which will likely continue for some time (considering how widely popular the op-ed was). But for now, it's all conjecture. A lot of talk.

    But that doesn't mean that Goldman won't be feeling the effects down the road. If clients and enough large accounts leave the investment firm, their next couple of quarterly statements will likely reflect the impact. But right now, if anything, Goldman Sachs' stock has become one to watch.


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