Our Communication to the People of Goldman Sachs Regarding the Book by Former Employee Greg Smith

Following is the memo circulated on October 19, 2012 to the people of Goldman Sachs:

In the days ahead, Greg Smith, a former vice president of the firm who wrote an op-ed in The New York Times in March 2012 on the day he resigned, will be publicizing a book about his time at Goldman Sachs and his views of the financial services industry.

Greg is scheduled to appear on various television and radio shows to attract publicity for his book to drive higher sales. Some of these news outlets have signed deals with Greg’s publisher, which give them exclusive access to the book in advance of its publication, and we expect them to tell a more one-sided story than they might otherwise. We have provided the following statement to any media program that has requested a response from us:

"Mr. Smith’s op-ed portrayed a firm that is unrecognizable to us and directly opposite to the culture we work hard to foster, but we took his claims seriously and conducted a thorough review of them. That review found no evidence to support his claims, but did find that Mr. Smith appeared to be frustrated about his career and future prospects at Goldman Sachs."

At the heart of Greg Smith’s complaint is an assertion that the firm’s culture and values have deteriorated, and, as stated above, we take those issues very seriously. That is why we did an extensive review of his claims, as vague as they were, and found no evidence to substantiate them.

A Demonstrated Commitment to Protecting and Enhancing Our Culture

In May 2010, the Business Standards Committee (BSC) was created for the purpose of extensively reviewing the firm’s business standards and practices across every major business, region and activity. The result of this eight-month effort was 39 recommendations spanning client service, conflicts of interest, structured products, transparency and disclosure, committee governance and training and professional development.

To date, 35 of the 39 recommendations have been implemented, and the remaining four recommendations are expected to be fully implemented by the first quarter of 2013. (Read the Summary and Report of the Business Standards Committee.)

No Record of Raising Concerns

Everyone’s opinion matters, and we encourage people to raise issues with their managers, their colleagues, or through the numerous other avenues we provide. With regard to the points Greg raised in his op-ed, we believe that his perspective was limited because he had no direct client coverage responsibilities and was not responsible for any business or desk, nor did he have access to the risk positioning of the firm.

However, to better understand Greg’s criticisms, we examined his performance reviews for 2009-2011 to determine if we had failed to appropriately address issues which he may have raised about the conduct of his colleagues, and, more generally, about our culture. Our review showed that Greg did not provide any negative feedback on any of his reviewees in any of those years. In fact, he scored all of his colleagues’ performance at the top of the range, including in the areas of Culture and Values, Leadership and People Management, Client Focus and Reputational Excellence.

We Remain Committed to Learning From Our Experiences

Of course, we know that we can always do better as a firm, and the last few years have presented more than a few challenges for Goldman Sachs and our people. We remain committed to learning from these experiences. Since the financial crisis, we have been dedicated to improving our business standards and renewing our focus on reputational excellence. In addition, we have taken a number of steps to increase our financial strength and stability. We are pleased that many of our clients have recognized the importance of these efforts. And, that they continue to turn to Goldman Sachs to help meet their needs.

  • Strengthening Our Business Standards and Practices.
    • Creation in May 2010 of the Business Standards Committee: Extensive review of business standards and practices across every major business, region and activity.
    • Examples of actions taken to date include:
      • Enhanced framework for evaluating suitability of structured products for different client segments.
      • Introduced new pre- and post-transaction sales responsibilities.
      • New efforts to communicate more clearly with clients around conflicts.
      • Created Client and Business Standards Committee to put the client franchise at center of decision making.
      • Elevated focus on clients in performance reviews and recognition decisions.
      • Reorganized how we publicly report our results to provide greater clarity and visibility on the importance of the client franchise.
      • Our chairman and CEO spoke with the global managing director population in 23 sessions around the world on the importance of client service, reputational risk and culture.
      • Conducted more than 90,000 hours of training and development across every level of the firm associated with the BSC’s recommendations; over 34,000 hours of training for vice presidents, with the bulk of that focused on client relationships and responsibilities.
  • Enhancing Our Financial Stability. Since the end of 2007:
    • Our gross leverage, or assets relative to shareholders’ equity, has fallen by 50 percent to 12.9x.
    • The amount of common equity we hold has risen by more than 70 percent to $68.3 billion.
    • Our pool of available liquidity (cash or liquid instruments) has increased nearly three-fold to $170 billion and represents 18 percent of our balance sheet.
    • The amount of illiquid, difficult to price assets (Level 3) has fallen by nearly a third, representing 5.1 percent of our balance sheet.

  • Aligning Compensation Practices with Performance and Stability.
    • From 2008, the time period before any employee can sell granted Restricted Stock Units (after tax) was extended from three to five years.
    • In 2009 and 2010, we expanded forfeiture and clawback provisions for all employees who were granted equity (i.e., if an employee fails to appropriately analyze certain risks or fails to raise concerns about risks that can impact the firm or broader financial system; if there is a significant deterioration in the firm’s financial condition).
    • All Named Executive Officers (NEOs) must retain 75 percent of the shares they receive as compensation for as long as they are NEOs.
    • In 2010 and 2011, 70 percent of the variable compensation paid to our NEOs is in the form of Restricted Stock Units.
    • Compensation has grown more slowly than net revenues and book value per common share since our IPO.