The Weinberg interview
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BANKING

The Weinberg interview

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"The grand old man of Wall Street" is a title John Weinberg, chairman of Goldman Sachs, wears uneasily.

True, Weinberg has run Wall Street's most respected investment bank for 14 years and, in that time, kept it consistently profitable. And by expanding more slowly and judiciously than other banks, he also avoided the pitfalls – such as large junk bond portfolios and bridge loans – they crashed into.

But "grand" is not an appropriate adjective for Weinberg. He's too down-to-earth, too unpretentious. He clearly cares more about hands-on management and bringing in deals than philosophising on the future of Wall Street. Weinberg likes to keep out of the public eye, too. He rarely talks to the press. But late last month in New York he gave Garry Evans, editor of Euromoney, a four hour interview.

Behind a slightly prickly ·and diffident manner, Weinberg reveals a folksy charm and unexpected flashes of humour. His strongly held views on why Goldman succeeded where others failed – mainly its ability to build a teamwork culture – are revealing. So, more personally, is his candid description of life with his father, senior partner of Goldman for 35 years; former co-chairman John Whitehead (they ran the firm together from 1976 to 1984); and his designated joint successors, co-vice chairmen Stephen Friedman, 52, and Robert Rubin, 51.

The interview comes at a time when Goldman's culture and blue-chip reputation has been dented a little by bad publicity. In April, partner Robert Freeman was sentenced to four months in prison and fined $1 million for mail-fraud connected with insider trading. Another partner, Lewis Eisenberg, resigned last November after his former secretary filed a suit against him alleging sexual harassment. And Leo Haviland, former head of oil futures at Goldman's commodities subsidiary, J Aron, is suing the firm for illegal dismissal, alleging that he was fired for refusing to divulge confidential client information to the firm. Goldman has also had to slim down – last year it cut staff numbers by around 15% to 5,800.

At 65, Weinberg doesn't sound like a leader just about to bow out. He retains an engaging enthusiasm for the business he's been in for 40 years and expresses confidence about the future. Both his father and Gus Levy were still in office when they died. If he gets his way, Weinberg will be too. Friedman and Rubin could have years to wait.

When will you retire?

We don't have any retirement age. However I don't plan to stay as long as my father did. Of course we have done succession planning and I hope Bob Rubin and Steve Friedman will take over when I finally decide to retire.

Your father [senior partner 1930-1969] and Gus Levy [1969-1976] were still chairman when they died. Will you go on until you drop?

My father was still senior partner, but he had really turned over the operating of the business to Gus some couple of years before.

Might you do that too?

There are all kinds of options. There's more than enough for all of us to do. The most important thing for a leader is to make sure he's got good successors. Goldman Sachs has always had good managers available to step in when transitions take place, and that's what we're doing now.

Is your role external or internal?

Both. Originally I worked in corporate finance, in the IBS [investment banking services], calling on companies. I've been around a long time. I guess I'm more external but I'm also chairman of the management committee. We have a very collegial approach to management of the firm.

Do you meet clients much?

I spend most of my time doing that.

Do you get involved in deals?

I do from time to time. We operate on a team principle. Over the years I've called on clients and helped these teams to bring in business.

Do you take part in the nitty-gritty of deals?

I usually turn the execution over to the fellows who are expert in the field, even though I used to do it myself in the old days. The business has changed and can only be successfully executed by professionals who are in the merger area full time.

How do the vice-chairmen split their responsibilities?

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They cover everything. Before I made them co-vice chairmen, I put them jointly in charge of the fixed income division and they built that up. Now they're involved in inter-divisional and international planning. Bob Rubin came from the arbitrage side. Steve Friedman used to run mergers and acquisitions, then he moved into the investment banking division. We work together but they don't split responsibilities in the sense of being responsible for particular divisions.

Do you divide clients between you?

They are involved with clients although less so than I am. Each one’s taken on responsibility for certain parts of the country and certain clients.

For example?

Bob Rubin did a lot to develop our Spanish work. We've done a lot of privatisations in Spain, such as Repsol and Telefonica. Rubin helped Eugene Fife, a very capable guy who runs our London office and does a lot of the work in Spain and the rest of Europe.

What are Rubin and Friedman like as people?

They're good leaders and great guys. Otherwise they wouldn't be where they are.

You have a reputation for being slow to move into new businesses. Why?

We don't perceive ourselves as being slow. We think we're like the tortoise in the race with the hare – we get there. We don't get carried away with new ideas. Being a limited partnership is a big advantage. When it's all your own money and you have unlimited liability, you watch the eggs very carefully and you try to take only sensible risks. My comments are obviously self-serving to Goldman Sachs, because I happen to believe in this place. I love this place.

Who decides which new areas you will move into?

We have a management committee made up of eight people. They're always thinking about things. We have planning committees of the divisions, which think up new ideas of things they'd like to do. We don't go into a certain activity just because we like the idea.

What do you mean?

Take J Aron. When we purchased it in 1981, it was a coffee house and precious metals dealer. We decided we wanted to get into the commodities business. For a couple of years it didn't do too well, but we felt that it would do well eventually. We figured there was always going to be inflation and that being in the commodities business was going to be good. It turned out well but for the wrong reason – Aron began to expand fast in other areas: it's now in the oil trading business and foreign exchange.

Will you make any acquisitions?

We don't purchase many companies. The last company we purchased before Aron was in 1923. We do not have an acquisition programme. We prefer to start a business ourselves and grow it. That's the way we did our internationalisation. We know where we want to go and how we want to do it. And we have our way of doing it and we don't want to buy anything.

Will you stay private?

Our structure as a private partnership has worked for 121 years. I like it, and I think everybody else likes it too. I think we'll keep it.

Did you come close to going public?

We've investigated becoming a public corporation many times. But everybody said: "This is ridiculous. Why do we want to do that?"

Do you have enough capital?

We have adequate capital. But we have broadened the base of our financing. When I first was a partner we couldn't borrow money from anyone except the banks. But in the last several years Sumitomo came in, we have SLIPS (a special limited partnership unit similar to preferred stock) and we have a commercial paper facility. Not that we need the capital, but we want broadly-based access to credit.

Are you trying to avoid banks?

Banks are very important. We spend a great deal of effort talking to banks so they understand our business. The point is to broaden the base. Last year's balance sheet was about $60 billion – you have to raise money like that from all over the world, from many sources.

Are banks more nervous about lending to Wall Street firms since Drexel went bust?

Probably in some cases they were, but the top firms are doing fine now. The banks are good credit people and they want to know that you have good policies and controls – that you're not going to do anything wacky.

The current fashion in investment banking firms is to concentrate on a number of core businesses. Why have you ignored that and stayed so diversified?

We have developed our structure over the years to have numerous streams of earnings. There are new businesses all the time – whether it's Goldman Sachs Asset Management, set up in 1988, or Aron. But we kept the other ones too. We have seven or eight diversified streams of earnings. Some are counter-cyclical.

M&A has been the mainstay of your business. Will it be depressed for long?

My astrologer's out of town today, so I can't give you an answer [laughs].

We've been number one or two in mergers for years. We were not in RJR Nabisco – and I'm delighted we weren't, frankly – so we didn't get number one or two that year. Last year we were the premier advisor for companies worldwide, with notable success in international mergers.

This year the merger business is down because the old game is over. But we're still doing a lot of mergers, but singles and doubles rather than triples and home runs. There's a lot of bread-and-butter business going on.

Why won't you advise on hostile bids?

It started in my father's era. He felt we were representing American industrial companies and so should support management. We felt comfortable with that, and also we were the only guys who didn't do hostile bids, so we could go in and talk to any company because they knew we weren't going to turn around and hostile them.

But we have done a few – reluctantly. I can't say we're absolutely pure, but we try very hard to avoid them. We sacrificed hostile bids and became much more expert in the defence area.

Did the high-profile hostile takeover by your client BAT of the Farmers Group in 1988 embarrass you?

To some small extent. We were trying to help BAT. They were a very long-term client. We thought the bid might be friendly. It started that way but turned out nasty. We decided to stay as an advisor but we had somebody else come in and do the actual transaction.

You say you think long-term. Are you critical of corporate America for being too short-term?

No. And the game is now over. Everything has changed. Excesses will always take place and, when they do, if you don't take care of them, the marketplace will. I am a great believer in the marketplace.

And Goldman Sachs didn't take part in the excesses?

We had our temptations, but we decided we weren't going to go for that stuff. Our record is very good financially for the period. We can't give you any numbers because we don't make them public. But since John Whitehead and I became co-chairmen profits have gone up approximately 11 times, and the capital has risen from US$90 million to US$2 billion. I don't want to say we are perfect, we've made various mistakes throughout our history.

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What was your biggest?

It's hard to say. We made mistakes on various deals. Penn Central was a mistake. Our judgement was that the thing was money-good, we thought it had access to financing and credit. It didn't. It was the largest railroad in America at the time, but the market told us different.

Do you regret any strategic decisions?

No. Why I can say that is because we don't go into anything without much study and evaluating effort. For example, when we started in the commodities business, we traded modestly at first to find out what it was like. If the strategy was wrong, you could pull out. But I can't really think of anything we've gotten out of.

You have been senior partner for 14 years. Are you ever bored?

Are you kidding? I am always looking for a boring day [laughs]. A week would be better, a month even better. But it never happens, there is always something new.

Are you tough to work for?

You will have to ask somebody else. Being tough is easy. I believe people deserve to be treated well and led well – and allowed to make a few mistakes. They are high performance people at Goldman Sachs. They want to be told how they are doing, what they are weak on.

We might tell someone: "You're bad on inter-personal relationships. You're too aggressive with people. Take it easy". They should be told these things in a gentle way.

When you've got decent people you treat them decently. That doesn't mean you have to be a pussy cat but you should be professional. People want to work in a place where they feel they are led well and fairly. When they feel good about themselves, they perform much better.

You were in the marines. Did that help?

It was a terrific help. I was in twice. I fought in the Second Marine Division in World War II in the Pacific and then was called back for the Korean War, but didn't go overseas. It taught me about leadership, how to work with people. If you give them loyalty down, they'll give you loyalty up. It also taught me a great deal about discipline.

You fought against the Japanese. How do you get on with them now?

Very well. Forty-six years is a long time.

How do you view the changes in eastern Europe?

We are living through a turning-point in history. I don't know how it's going to develop, but certainly it provides a tremendous opportunity to serve those areas to build their standard of living, and their markets.

Salomon Brothers quickly opened an office in Berlin. Will you?

Not for a number of years. It's going to be hard to do business over there for an American firm. We may, however, open an office in Frankfurt.

How will you get business from eastern Europe?

We have people travelling through there to see what's going on. It's a period of very rapid change. It needs a tremendous amount of money.

Just to do something with the environment is going to be mindboggling in terms of cost and it is not going to happen overnight. But they've got to do it. I remember my first ever business trip, to Youngstown, Ohio in the 1950s. When I got there – it was the first week of February – it was snowing and it was black snow. I said: "My God, this is what hell is like". There's still plenty to do with the environment in this country but it’s good compared to over there.

Do you think about political problems?

A lot. But I don't like to make strong statements about things that I don't have a lot of information about, because my opinions on those aren't worth very much.

Did you not want to become a politician like Whitehead?

No. No one would have asked me. I don't spend much time in the political arena. If you want one of those kind of jobs, you have to work for it.

Politics has never interested you?

Everybody has to be interested in the government. I've just never thought that was an area where I could spend much time. I've dedicated myself to this business.

Bob Rubin is very active in the Democratic Party. Can't you do both?

He is. We have a lot of people who participate in political activities but it isn't one of the things that I have been interested in.

But you are involved in charities?

I have been on the boards over the years of a number of schools and hospitals. I spend over 15% of my time working for these. I enjoy that. We have always encouraged that at Goldman Sachs. We have a Goldman Sachs fund which gives out money to all kinds of activities. We encourage people in the firm to take part in charitable causes. For example, our people have contributed to the New York Street Project, which helps the homeless, and to a national project for disadvantaged youngsters, One-to-One.

How do you relax?

I don't take too many vacations. I work a lot, but I also have recreation: I play golf. I travel so much on business that I am not much of a travel bug. But the commitment to this business is tremendous – it's a seven day a week job, 12 months a year. Even when I'm away on vacation for a couple of weeks a year, I'm talking to the office every day. This business is so diverse that you don't get bored or stale easily.

Are you a workaholic?

Some people do say that – namely my wife [laughs].

How do you unwind at home?

I like to read a lot, also I watch television a little – and I go to sleep. I am a family man. I have been married to the same woman since 1952 and I have two kids, two grandkids – and a dog.

You don't associate with celebrities, like others on Wall Street?

I don't associate with anyone like that. I am not looking to get on the New York social scene and I'm not interested in trying to get my name in the papers.

Do you look down on people who are?

No, it's just a type of life that doesn't interest me.

You have a reputation for not being very sociable, for being a loner. Is that true?

I am just as sociable as the next guy. I will go out and drink beer with anybody. I have a lot of fun doing it and I used to do a lot more of it than I do today. I just don't like the publicity.

Your name rarely appears in gossip columns.

I hope not. There is nothing to be gossiped about. I live a very stuffy life.

Your son works for Goldman Sachs. Did you ask him to join the firm?

It was his choice. I didn't urge him. Nobody owns Goldman Sachs. Even though I have been here a long time, and my father was here, I don't own anything. Goldman Sachs is a meritocracy, and you can start from zilch and go up and do very well. All depends on your performance.

And your daughter?

My daughter is in her first year at Harvard Business School. She worked for four years after college, then decided she would go back to business school. What she's going to do, I don't know.

Is it a problem having your son work for the firm?

No, it's too big. I worked for my father when the place was very small.

He beat the hell out of me all the time, but he was a good teacher. It's so big now that my son is on his own and is doing well, I think. He is treated no differently from any other employee in his position at the firm.

What did you learn from your father?

He was a master investment banker. In his day, he was better known than Goldman Sachs was. He was on the board of many prestigious companies. He was one of the leaders of investment banking in his era. He understood what client service was, and how to get things done. When you see a real professional operate, you can't help but learn.

What was he like?

He was as smart as anything, although he had no education – he didn't get past eighth grade. He started here as assistant to the shoeshine boy. But he was a quick learner and he understood people and understood what was right and wrong. He was a feisty guy – he was five feet four inches tall but could take on anybody. He never would have believed that the firm would be this big.

Would he have liked it big?

I don't know. I think he would have adjusted to it – he was that kind of person. He didn't enjoy the management of the firm, he liked investment banking. He didn't want to manage and he had other people managing it. But he was the senior partner and, boy, was he the boss.

And he went off to Washington?

In World War II he helped with the war effort. He was one of a bunch of guys who helped run production. He did the same during the Korean War. He liked to go to Washington, because he was a great patriot. But when the war was over, he was dying to get out of the government. He never caught Potomac fever.

What was Gus Levy like?

He was terrific, a great leader. Gus was one of the innovators of the industry. He was at his height in the 1950s and 1960s when he was in charge of our trading and arbitrage business. He innovated block trading and the institutional department. He evolved from trading and took on investment banking responsibilities when my dad passed on, and he did a terrific job at that too.

Did you and Whitehead expect to take over?

No, although we used to talk over lunch about what we would do if we managed the firm. Everybody predicted that having two people running the firm was going to be a hell of a mess. In fact a Harvard professor, a friend of both of ours, said he didn't know of any example in business history where it had worked, especially on Wall Street. He said: "Give me a call in six months when you get all screwed up and I will come down and help you unwind it."

Why did it work?

John and I were very different – he was the brains and I was the good looks [laughs].

In the early 50s we worked together in an old squash court at 30 Pine Street, and our desks were right next to each other. We were very different and we just got along very well – we were never competitive.

When we took over, we decided we would do everything, we would not divide the firm's functions. It doesn't work unless you are two very compatible people. We never fought. We communicated so well that when we called each other every Sunday night before the management committee meeting on Monday, in two minutes we could go through the agenda and decide what we thought was the right approach to each item. We never had a disagreement. Neither of us wanted personal publicity, which was important.

How do you differ in character?

He was a tennis player and I'm a golfer [laughs]. He was much more cerebral. He planned well. I was the outside guy, calling on companies and working on deals. It was a good mix.

How did you resolve disagreements over strategy?

One would convince the other, and if one wanted it very badly we would have done it that way. But basically we had the same ideas about strategy.

You must have fought occasionally.

No, strangely enough, we really didn't. I couldn't do this with anyone else.

One way that it worked well was that you could leverage your time. When somebody said, "I've got to see the boss", there were two of us. So one went to the dinner, the other guy didn't have to.

At the beginning, weren't you concerned about whether it would work?

Yes, but we were so damn busy.

Everyone was predicting the firm would get into real trouble and so they were going after our clients. So we had to hit the road and make sure they didn't· succeed. We were so tired and busy there was no sense in worrying about such things. When you have to, you get your belly in the dirt and you do it. By the time we got back, everything seemed to be OK.

How did you feel when Whitehead left?

Bereft.

Weren't you a bit pleased that you were now the top man?

Not necessarily. I liked it the way it was. I was sorry he left. Everyone thinks that one was waiting for the other guy to drop off the vine, but that's not true. We really did enjoy doing it together. I couldn't explain it to you and you could never understand it, but accept my word for it – it worked very well.

Did you try to persuade him not to go?

I did. But you reach a certain point – he is two or three years older than me – when the business isn't as fascinating as it was.

Are you confident that Rubin and Friedman will be able to work together as well?

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They are outstandingly devoted guys. We worked very closely together. We've worked together for two or three years. I said to them: "If you guys are going to do this thing, you've got to want to do it so bad you can taste it. Because I am not going to tell you to do it. Otherwise I'll choose one of you." They are working together well now, in offices right next to each other.

Who are the rising stars in the firm?

This is a very big team effort. We don't have stars – we are all stars. We have a very unusually talented group of people. I sound like I am bragging but we do. It's the truth.

Have you ever had problems with people who looked like they were becoming stars, like the head of a division that suddenly made a lot of money?

To be a star, getting your name in the paper and all that, is not popular in Goldman Sachs because it's against the culture. If you did that, everybody would call you a showboat. It isn't something people want to do. If people want a career here they go with the system.

There is a group of people at Goldman Sachs in their forties who are very talented but know they will never be chairman. How do you keep them?

We have got a lot of very interesting jobs here. Just running a department is a terrific career. There are a great many opportunities here to fulfil oneself professionally.

Is ambition bad?

Not at all. This is a very consuming business. To function around here, you really have to work hard and give up a lot of your outside activities even, frankly, your family life to some extent. To do that you've really got to be ambitious and hard-driving. Everybody works hard around here. If they didn't, they would have to leave.

Where does the Goldman Sachs culture originate?

It starts with the way we recruit people. We spend an inordinate amount of time recruiting. For somebody to get a job here out of school, which is where we like to do most of our recruiting, it takes about 25 interviews – with people at all levels of the firm. I interview people too. I go recruiting every year. People don't have to be of the same cut and mould. We want bright individual performers, but equally important is that they can work as part of a team.

Why the emphasis on teamwork?

Today the industry is so complex, and client services require so many different expertises, that one individual cannot master them all. You have to have different people doing each of those. Part of our personality is that we get people to co-operate, to work together. Personnel is the meat and potatoes of this whole thing.

How do you keep people interested?

We have mobility programmes. It is unfair and unrealistic to expect somebody straight out of business school to select the type of work they want to do for ever. They will start off in an area and then, because of the requirements of the business, other things will open up. People change and we move them round according to their wishes, and our wishes.

Including the people who deal with clients?

We believe in keeping client relationships as consistent as possible. So we try to have the same person cover the same company in an IBS role for many years.

That's the way you develop a good relationship with the client. They don't want to see a banker for a year or two, who learns a lot about their problems and then moves on. A company doesn't like that. It's a question of trust and confidence, and they don't want too many people to know too much.

Why is your staff turnover lower than elsewhere on Wall Street?

We provide an atmosphere where people can fulfil themselves professionally and financially. We work hard to give them the right opportunities and compensate them appropriately. But we are not immune from all the pressure of cutting costs that other firms have had. We had to cut back our census significantly last year too.

Across the board?

We did it individual by individual, department by department, not on a wholesale basis. We never said to a division: "You've got to get 15% out of here and that's it." The philosophy was profit maximisation. We said: "Look at your business. How can you be more economical? How can you make it more profitable?"

Some of the studies came to the conclusion that we should expand into new areas: international, for example. They've been moving ahead. Last year we opened in Singapore, Australia and Montreal. That's a much sounder way of doing it. We didn't get any headlines about how many thousands of people we made redundant.

Did you pull out of any businesses?

No.

Will you slim down any more?

No. We're staying slim but we don't have any plans to increase our slimness.

How did you feel about laying off staff?

It's never fun. If you ever get to the point where you don't care if you have to let somebody go, you better get out of the business because you're going to be a lousy leader. But you have to do what the situation requires.

It was tough on the culture, too. We are trying to do a lot of things now to reinforce it again. We aren't good at cutting, and I hope we never do get good at it.

You rarely head-hunt senior people from outside. Why not?

We try to keep what we call "lateral hires" to a minimum. We would prefer to be able to train our own people but it's not always possible.

But recently you hired people straight in as partners. For example: Michael Mortara from Salomon Brothers, who heads your mortgage-backed securities department.

That's very rare. We don't like to do that. We don't do it unless we really need it, and all the partners agree. We're not doing it any more unless there's a real special niche need. We've got tons of talent coming up here. Mike is an outstanding performer and fits in perfectly at the firm.

Which Wall Street firms do you admire?

I admire them all. Each one has great things.

There is no question Morgan Stanley is a great firm. Overall, I would admire Morgan Stanley as a balanced firm, basically because they do the kind of things we do, and they do them very well. They are very tough competition.

Will relationship banking come back?

It's always been important. Most companies today have a number of firms they'll do business with, but usually one bank which is a little more important to them than anybody else. That's the one they'll work with on strategy – mergers and divestitures. They are more comfortable working with a firm over a long period of time.

How do you make the relationship work?

The client has to have confidence in you and trust you. That takes years to build up. You have got to convince the client that you are doing things in their best interests even if they are not in your best interests.

For example?

When you tell a fellow: "Don't buy this company." I've done that many times.

Do you get angry when one of your clients goes to another firm?

Sure. That's competition. But I don't like it. And I try to get the business back.

Recently Ford, one of your best clients, did a couple of deals – a straight debt issue and an asset-backed deal – with First Boston. Did that make you angry?

Ford told us about it. We do by far the majority of their work. We're doing most of their divestitures and acquisitions. But they do business with other people too. In the real world, they are a very big company, and they want to have access to others’ ideas and they reward that. We have 10 or 15 people working on their affairs all the time.

Why did you lose those particular deals?

We didn't lose any particular deals. They said a certain percentage of their financing every year is going to be done with others. We said: "You have to do what you think is right and we're fine about that."

We've been the main investment banker for Ford since the '50s and will continue to be. Our relationship with Ford is stronger than ever. We are still the main banker for Ford, period. Our competitors love to take a chop at us and say: "Goldman Sachs, which used to own Ford, doesn't any more."

Last year you allowed companies with commercial programmes arranged by Goldman Sachs to use other dealers to issue paper. Why?

From 1869 until recently our theory was: If we're going to take the responsibility to sell a lot of paper, it is fair that we have exclusive rights to it. Most of our clients accepted that. We had practically all the large companies in the market as our clients.

However, the commercial paper business grew fast and big municipalities and governments began doing it. They said: "We love you dearly, but we can't have just one supplier." We found we weren't hearing about the big deals. We care about commercial paper a lot, because it's our roots, so we decided to be flexible.

Who are your best deal-makers?

We've got a lot of them.

How about Geoff Boisi?


Sure – he's head of the investment banking division. Mike Overlook, Hank Paulson and Bob Hurst have been stars for some years. The people in the IBS part of the investment banking division, who call on companies, are the rain-makers. Some of these young men and women are bringing in business you wouldn't believe, some very large companies. The people in mergers bring in their own deals.

In my father's era he was the only guy. Now we have many dozens of people all over the world. John Whitehead and I decided we had to broaden the base and let more people go out and solicit the deals.

Deal-makers are usually not good at managing. Do you train them as managers?

We believe in the producer-manager. The man who is good in global finance, or trading government bonds, or equity research, or whatever, is a producer and also a manager. We run schools twice a year about how to go from being just a producer to a producer­manager. That involves leadership and management techniques. We started out with limited management skills but we're trying to get better.

I never had any management training. In 1975, a year before John and I took over the firm, I was put in charge of the fixed income division. Hell, I'd never run anything before -– apart from a platoon in the marine corps. But you learn how to do it.

Why are other Wall Street firms bad at managing their businesses?

I don't know much about our competitors' management talent.

You have 128 partners. Is communication with them difficult?

We have a monthly partners meeting, and we try to keep them posted on issues. We send them memorandums about what is going on. Once a year, in January, we have a whole month where we have planning meetings every morning or afternoon for each department and division.

You name new partners every two years, and the next round will be this November. How many will you appoint?

I haven't the vaguest idea.

How does the process work?

We ask all the existing partners who they feel should be made partners. We collate that list and we talk about it and talk about it, and we try to get down to the most advantageous number. We've grown a lot, so we need more partners. For a while we had too few partners for the size of the business.

When you see all the partners crammed into a room for the monthly meeting, don't you long for when there were only a few?

No. The good old days were great, but we didn't do very much business. This is a different world: we've got worldwide opportunities and we need a lot of people to take advantage of some of them.

How will business be in the next few years?

There was great expansion over the last decade, but now there is a cyclical lull. It's a dull period, and there is less business. Markets always over-compensate up, and they over-compensate down. We are in a period of stability and quiet activity. Whether it's going to go down to nothing I doubt, because the world is too busy.

Will more firms go bust?

My astrologer is out of town [laughs].


 


Dents in the image The firm has had a number of pieces of bad news recently. How did you react, for example, to the insider trading charge against Robert Freeman?

That was the most painful and excruciating experience of my whole business career. There's no question that was a terrible experience for everybody here. It's done and finished but it will be a scar.

Do you regret defending him so vehemently?

No, I don't. Bob maintained his innocence from the outset and we believed in him. Ultimately, after three years of great pressure he decided to plead guilty to one count. We unqualifiedly do not second-guess our support of him under the circumstances.

What is your response to the suit filed by Leo Haviland, the former J Aron executive?

The suit is groundless. He's a man we let go, who is upset with being let go. He never even accused us of doing anything illegal. He said that he was asked to pass details of clients' trades to his bosses, and that just is not true. He doesn't even allege that any such confidences were in fact ever disclosed or misused. This is just an employment termination case coupled with a massive publicity effort to smear us.

Has that incident – and the sexual harassment case involving partner Lewis Eisenberg damaged the image of the firm?

I do not know. I hope not. The sexual harassment is just a terribly unfortunate experience. While it is clear that there was no employment discrimination or harassment against the individual employee involved, the underlying relationship certainly was unacceptable behaviour for one of our partners.

Have you told your partners that this must not happen again?

We have explained the law and reiterated our principles to our people. They know what is unacceptable behaviour.



 


The Japanese factor Sumitomo Bank bought a 12.5% non­voting stake in Goldman Sachs in 1985. How has your relationship with them developed?

Very well – we work with them often. Both of us realise that it is an investment with no role in our management, and that is the way it works. We like them and respect them. It is a fine relationship. We also work for other Japanese banks.

Have any Japanese stopped doing business with you because you're related to Sumitomo?

It was a problem at the beginning, when everybody thought Sumitomo was going to take over Goldman Sachs. That's not how the deal was structured. The other banks have finally realised that Goldman Sachs has been around for 121 years and we're an independent investment banking firm and we're going to continue as such.

Do you report regularly to Sumitomo, as your biggest investor?

"Report" is the wrong word. I go to Tokyo anyway once or twice a year. I always go and see them. I like them – they're good people, very bright. They also visit us in New York.




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