Abigail Hofman: Muppetgate leaves Goldman looking none-too-clever

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By:
Abigail Hofman
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This column usually focuses on the big people in the industry. But in March it was a little person who roiled the markets. Greg Smith, a mid-level Goldman Sachs employee, and his vehement exit letter, masquerading as a New York Times opinion-editorial took everyone by surprise. The piece went viral and another new word was spawned in the Goldman Sachs lexicon. ‘Muppet’ joined ‘vampire squid’.

GS versus GS (as I like to think of the tussle) reinforced ordinary people’s view that all bankers are "banksters". It also sent a tremor through the most senior members of the industry. "While Smith actually said nothing new," one investment banking chief told me, "this form of post-exit public vindication is an unhelpful trend."

James Gorman, Morgan Stanley’s chief executive, grumbled that the New York Times was at fault for publishing such an unbalanced piece. I thought Gorman missed the basic point that an "opinion-editorial" is just that – the opinion of the author – and doesn’t need to be balanced to the same extent that a news story does.

Jamie Dimon, JPMorgan’s chief executive, took a more Olympian stance. "I want to be clear," he wrote to members of his operating committee, "I don’t want anyone here to seek advantage from a competitor’s alleged issues." Once that memo was, inevitably, leaked you could argue that Dimon had already taken advantage.

In his piece, Smith criticized Goldman Sachs’s chief executive, Lloyd Blankfein, and its president, Gary Cohn, for losing control of the firm’s culture and a "decline in the firm’s moral fibre". One thing is for sure, Goldman has lost control of the PR roller coaster. The former communications chief, Lucas van Praag, retired in March and the new guy, Richard Siewert Jr, has not exactly hit the ground running.

In the past few years, Goldman’s profile in the media has been high for all the wrong reasons. And the bank has not been able to turn this around. Instead banana skins have turned into piles of dog excrement. After all, Lloyd gave his famous Sunday Times interview only to try to portray the firm as open and affable in response to the "vampire squid" diatribe published by Rolling Stone magazine during the summer of 2009. That Sunday Times interview went infamously wrong when the magazine ran it under the headline: "We do God’s work".

Indeed van Praag underestimated the Rolling Stone article and probably told colleagues that its effect would be limited because none of Goldman’s clients or stakeholders reads the magazine. What van Praag missed was the pent–up hatred among the general public towards bankers, how Goldman personified that trend and how a well-researched, readable article with a few colourful analogies could itself become a rolling stone in this internet age.

Before the Smith article, Goldman’s senior management comforted themselves with the assumption that although the public hated the bank, their clients still liked and needed it. This belief should have been dented by the murky facts of the Abacus CDO transaction where the bank seemed to be drowning in conflicts of interest. Following Smith’s declaration, hiring Goldman is no longer the safe or obvious choice.

The sub-text of the muppet reference is that “the A players are servicing the B players”. In other words, Goldman Sachs’s employees are brighter and more skilled than their clients
Although it had been whispered for a long time that Goldman resembled a proprietary hedge fund rather than a traditional adviser, senior Goldman bankers loved to extol to anyone who would listen the importance of clients. I remember talking to a very senior Goldmanite, an outside contender to be the firm’s next chief executive, who claimed that he was unable to single out any one corporate finance deal executed by the firm in 2010. No client could be prioritized above any other: all Goldman deals were equally special. As an ex-banker, my subliminal response to his words were "rubbish". Now, with Goldman Sachs clients firmly tagged as ‘muppets’, that sort of sanctimonious twaddle rings hollow.


The muppet epithet is baffling in any case. Smith was a South African based in London. And in London, the term ‘muppet’ is not abusive: it’s affectionate with a patronizing overtone. Basically, it means: "The guy doesn’t get it. He’s harmless but not the brightest tool in the garage."

The opposite of a muppet is a player. The sub-text of the muppet reference is that "the A players are servicing the B players". In other words, Goldman Sachs’s employees are brighter and more skilled than their clients.

Abigail Hofman

Having said that, Goldman Sachs’s senior management are now running around like headless chickens. A spirited riposte was issued on the day Smith’s article appeared, claiming that he had misrepresented the culture. A press release claimed that 75% of Goldman employees thought the firm provided exceptional service to clients and that the firm had recently been voted one of the UK’s best places to work. But of course there’s a huge difference between playing offence and playing defence. And recent rumours that Blankfein has demanded all staff emails be screened for the word "muppet" do little to reassure.


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