Shortly after I started as an investment banker, my employer hired a co-head of investment banking to work alongside the incumbent. Within a year they both left. As one senior mentor noted: “In investment banking, you can be a co-chairman one day and be beheaded the next.”
That memory came back again after MainFT reported last week that the co-heads of European M&A and investment banking at Goldman Sachs had threatened to resign over their exclusion from a powerful committee created by CEO David Solomon:
Two senior Goldman Sachs investment bankers have threatened to resign after being excluded from a new operating committee formed under CEO David Solomon, according to people familiar with the matter.
Mark Sorrell, the London-based co-head of mergers and acquisitions and son of advertising executive Sir Martin Sorrell, and Gonzalo Garcia, co-head of European investment banking, have told Goldman they may leave after being excluded from the panel. He said.
Their respective co-chairs – Stefan Feldjuis in Mergers and Acquisitions and Anthony Gutmann in European Investment Banking – have been included in the committee, which has about a dozen members. . .
The source of the latest turmoil is two new operating committees for investment and commercial banking that Solomon created this year. They sit under Goldman's senior management committee. Sorrell and Garcia were removed from the investment banking committee, the sources said.
Co-head arrangements have long been a feature of investment banks where leadership aspirants outnumber available management roles. Of course, this dynamic exists in other industries as well, but for some reason it is more common in finance. And no one likes co-head arrangements like investment banks. Private equity firms, asset managers, law partnerships and the like sometimes have co-chairs, but not to nearly the same extent.
This may be due to the near-constant transition planning in businesses where people can easily walk out the door for a better offer elsewhere, or simply due to the need to oversee disparate and often sprawling businesses.
Whatever the reason, the arrangements involve carefully calibrated decorum: the co-chairs make joint announcements and copy each other's emails. Even if they don't agree, they are forced to present a united front, and colleagues in turn know how to bind them together. They are equal on paper, although in practice one of the co-chairs may receive more pay or have more de facto power.
What is unusual about the Financial Times scoop is that the claim of equality has been dropped entirely: no one can bother to keep up appearances, and the façade of shared leadership has collapsed.
It is useless for the public to analyze palace conspiracies at Goldman Sachs. Any large organization has a complex network of factions, feuds, and loyalties. There is no way to get anything more than a partial picture of what is happening.
If even the United States government – which has the most comprehensive and best-resourced intelligence network in the world – cannot grapple with Afghanistan's clan and tribal allegiances, what hope does an outsider have of understanding the alliances and rivalries within an investment bank, let alone Goldman Sachs? ? Sax?
Moreover, these differences are irrelevant if you don't work for Goldman Sachs. Regulators will be largely unfazed: the potential departure of two London-based advisory bankers would have little credible impact on the operational soundness or capital strength of a systemically important global bank.
Shareholders won't be upset either. Goldman Sachs shares have outperformed their peers under David Solomon. “The share price does not represent the sentiment inside the bank,” one disgruntled European banker told MainFT, sounding surprised and disappointed that the market cared more about the bank's return on equity than the bankers' plight.
However, purges and power struggles arise whenever there is a decline. Investment banks have now suffered two straight years of weak revenues in corporate advisory and capital markets. The non-US parts of the business in particular have slowed to a trickle, and expensive foreign bankers on high fixed salaries can seem like an unaffordable luxury. Although activity is expected to rebound this year, costs remain out of control, and bank bosses are bound to trim the management ranks.
It's not nice, it's not pretty, and politics sometimes trumps merit. But this happens in every bank, and for all characters of color, the causes and triggers are fundamentally structural. The flip side is that bankers don't care much about operating committees and top titles when compensation is high and plentiful.
One year ago, the Financial Times editorial board said in a column about Goldman Sachs: “The fundamental problem is that banking is not what it used to be, even for the giants of Wall Street.” Goldman Sachs ceased being a partnership in 1999 and stopped taking significant risks after the 2008 financial crisis. With the investment banking fee pool falling to new lows, there is not enough money to keep every banker and shareholder happy.
The recent uproar simply shows that Goldman Sachs is becoming more like other major investment banks, albeit still high in the league table. The only anomaly here is that the discontent is manifested in public.
Usually everyone strives to maintain a veneer of cohesion and professionalism. Regulatory changes are carefully designed, and internal announcements are carefully drafted and vetted by many parties. Bank leaders spend a lot of time ensuring smooth transitions and avoiding overt acrimony. As President Lyndon Johnson said in his refusal to fire FBI Director J. J. Edgar Hoover: “It might be better to stay inside the tent while urinating than outside.”
However, sometimes the hatred cannot be contained, and bitterness boils over. It's annoying to be pushed aside in favor of a colleague who you think played politics at your expense and didn't produce as much as you did. Meanwhile, aggrieved managers with tales of woe will always be warmly welcomed by financial journalists.
If nothing else, the current furore at Goldman Sachs serves as a reminder that disgruntled millionaire bankers are able to air their grievances through the media far more easily than, say, wrongly accused sub-postmasters in East Anglia.
