Greg Smith: On Wall Street, Goldman Sachs and students entering finance

Greg Smith ’01 is a former executive director and vice president of investing banking firm Goldman Sachs. In March 2012, he resigned from the firm in an op-ed in The New York Times decrying the firm’s change in culture and loss of client focus. He has since written “Why I Left Goldman Sachs: A Wall Street Story.” Smith spoke to The Stanford Daily about his time at the firm, Stanford students on Wall Street and the difference between Wall Street and Silicon Valley.

 

We read in your op-ed that you decided to leave Goldman Sachs after an experience while doing student orientation. Was there a specific instance that you encountered while working at Goldman Sachs that made your decision final?

MEHMET INONU/The Stanford Daily

MEHMET INONU/The Stanford Daily

Integrity and doing the right thing is something that Goldman as a firm always espoused to do. Certainly I think that’s one of the reasons that it survived for 140 years … I think that the problems came up in the early 2000′s when I joined the firm.

There was a whole host of regulations that were overturned by Congress, which allowed it to be a lot easier to make money by using your client’s information to place your own bets, as opposed to helping your clients.

This didn’t happen overnight, but from what I saw through my career from when I left Stanford [in 2001] to when I left Goldman [in 2012]…was an erosion of that duty to the client, and a maximization of the firm’s own interest over the client. I think what got to me was the hypocrisy of publicly saying, “Yes, our clients’ interests come first,”… whereas privately doing something completely different and often using your client’s information to bet against them, which is something that jived against my ethical beliefs.

 

You worked at Goldman Sachs for over 12 years. What was it that attracted you there right out of college?

It was the idea of Goldman Sachs being the absolute best in the world, having the highest standards. It was really the reputation. If you flash back to 1999 to 2000, when I was interviewing for Goldman, it had an absolutely golden reputation. I saw a real erosion of that reputation as people tried to make profits more and more quickly – you had to have the right attitude towards clients. I saw that mindset change at Goldman, and I hoped that it would change back to the way it was.

Do you think that some of the things that you heard or said or experienced at Stanford affected your decision to leave Goldman Sachs eventually?

That’s an interesting question. I think that Stanford is an interesting place because it teaches students to cut through the noise and see the truth. Certainly I credit Stanford for giving me my education, but I also credit it for giving me my value set and my perception of the world. I’m very proud of Stanford; one of the reasons I loved recruiting was visiting Stanford. I always found the East Coast kids, the Harvards [sic], the Whartons [sic], of the world, as being really cutthroat. Stanford students have a reputation on Wall Street of being collaborative, easygoing but still very acutely commercial. We want to be entrepreneurial and create a product which will contribute to society. That’s what I think the biggest difference is in the way business is done in Silicon Valley and on Wall Street.

Did you make an attempt to change some of the [practices you criticize] while at Goldman?

I did. I used to do a lot of recruiting, and I was one of the captains of Stanford recruiting… Within the firm, I certainly was a big proponent of the culture. Once I saw things go as they did during the financial crisis, Goldman Sachs had a big SEC [U.S. Securities and Exchange Commission] lawsuit and the firm ultimately settled a $500 million suit with the government…

I actually saw some wrongdoing, and the firm did a yearlong study… I found the survey to be lip service… After speaking to my colleagues and nine different Goldman partners, everyone agreed that there were these lapses … we had no competition.

What advice would you have to give to the 15 percent of Stanford undergraduates who ultimately will work in finance?

I’m not certainly going to be the person to tell students to go or not to go into finance. There are certainly a lot of positive aspects to finance. Unfortunately, actual finance on Wall Street is only 20 percent of the pie. So, what I would say to people is that if you are going into finance, go into it for the right reasons. Don’t go into it because you think that it’s the easiest career or because you think that it’s the path you should take.

One of the up-and-coming fields that Stanford students are interested in is venture capital. What would you say about that, being someone who did investment banking on Wall Street?

I think that it’s a great profession. I think that the level of innovation going on in Silicon Valley is a level not seen anywhere else in the world. When I was at Stanford, Google was being invented, and I remember going to Chicago in the 1990′s and telling them to use Google. When I graduated, I felt that that era had come to a close.

What we see clearly with the … whole host of innovations is that we’re still pretty early in the cycle. What I would say to Stanford students is that we’re incredibly lucky to be going here. Embrace the spirit of innovation while you’re here.

If a Stanford student came up to you today with a job offer from Goldman Sachs or another reputable financial institution on Wall Street, what advice would you give them?

Examine the reasons why this attractive to you. By that what I mean is, “What are you really interested in?” The longer I’ve been in business and the longer I’ve been away from Stanford is that it’s more important to follow your interests and your heart than what you think you should be going. I would encourage them to not lose track of their own ethical framework and to stay true to themselves no matter how long they stay in business.

I would not encourage someone to go into something because it looks flashy, or that they’re supposed to do it, or that society thinks it’s the right thing to do.

Do you think that the culture on Wall Street will be changing anytime soon?

I don’t see it changing anytime soon… I think that the overriding message I’m trying to get across is to highlight to, especially non-financial people, that politicians are still being funded by the banks they’re trying to regulate. I would take away this misaligned incentive – that Wall Street is incentivized to swing for the fences… If things go really bad, the worst that will happen is that taxpayers will have to hold the bag and bail out the bank. I feel that you need to make an even playing field.

People need to be tied to their performance over, say, five years. There needs to be a changed fiduciary standard where conflicts of interest disappear – you need to change some of the laws.

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- Nitish Kulkarni

About The Daily News Staff

  • the best joke ever

    “Integrity and doing the right thing is something that Goldman as a firm always espoused to do.”

    “It was the idea of Goldman Sachs being the absolute best in the world, having the highest standards. It was really the reputation.”

    “I think that Stanford is an interesting place because it teaches students to cut through the noise and see the truth.”

    Capitalism having integrity? Doing the right thing? Having high standards? Stanford teaching us to see the truth?

    HAHAHAHAHA

  • Truthfinder

    Greg is a disgrace and opportunist – he certainly didn’t learn the tenets of integrity and character in college.

  • http://twitter.com/LorenaJordan Lorena Jordan

    Took a lot of courage to do what you did Greg. Your book was very enlightening.