A Review of 'What Happened to Goldman Sachs: An Insiders Story of Organisational Drift and its Unintended Consequences'

Author Steven G. Mandis

 

Harvard Business Review Press, Boston, Massachusetts (2013)

 

Banks and other financial institutions have always provided a rich field of study and never has this been truer than in the years following the financial crisis of 2008. Much that has been written has pointed to matters of ‘culture’ as a major cause for concern, Mandis, a former investment banker and trader, turned sociological researcher, has taken this conclusion a step further. His book, ‘What happened to Goldman Sachs: An insider’s story of organisational drift and its unintended consequences’ offers a rich and objective analysis of the culture and cultural journey of one of the World’s most revered financial institutions from 1979 to the present day. 1979 is the important starting point because it is the year that Goldman Sach’s first published its legendary business principles which Goldman’s insist have and still do guide the way they do business.

Mandis’ sets out his goal for the book not as ‘a value judgement on Goldman’s cultural change’ purposefully setting aside whether the changes have been ‘for better or worse’, in order to illuminate the process and factors whereby the firm has been seen to exhibit “organisational drift”’.

Much of the change management literature focusses on change that flows from rational choice and purposeful action. There is an alternative body of literature known as ‘Contextualism’ which argues that change more typically results from an institutional response to external pressures. It is these pressures, it is said which lead to ‘organisational drift’ – ‘a process whereby an organisation’s culture, including its business practices, continuously and slowly move, departing from an intended course in a way that is so incremental and gradual that it is barely noticed’. In shining a light on “organisational drift” in one of the World’s most powerful financial institution Mandis hopes to educate leaders of other systemically important financial institutions about the why and how “organisational drift occurs and what can be done about it”.

Mandis’ thesis is explanatory and covers considerable ground. He tackles the popular explanations of cultural change at Goldman’s being due to the change in ownership structure (Goldman’s moved from a privately partnership to a public traded company in 1999) and the notion that the cultural change was largely due to the change in CEO. It is also a popular belief that since Lloyd Blankfein took over as CEO the values of a trading-oriented culture have superseded those of a less-profit driven and more client centred value led by the former CEO whose origins lay in investment banking. Mandis’ rejects both of these as sufficiently explanatory saying that to try to find a single cause for the drift, whilst conceptually neat, is too simplistic to explain the extent of the drift. Instead he tackles the change from multiple perspectives showing how these two elements were just components of a web of factors resulting in sometimes unexpected and unintentional change.

Mandis leaves few stones unturned challenging notions such as ‘leaders are responsible for everything that happens on their watch’, that ‘values always guide behaviour’ and ‘changing a business practice will always result in cultural change’. He explores some of Goldman’s legendary behavioural and structural strengths such as an appetite for information sharing and teamwork and, its flat hierarchy - showing how these elements, largely perceived as cultural strengths, became levers inadvertently accelerating the organisational drift.

Partly what makes this book so readable is the location of culture within real examples of the business issues and challenges facing the firm. He is able to provide accurate and detailed examples of the challenges of conflict of interest facing a complex global organisation such as Goldman Sachs; he is able to reflect on transactions that he participated in as an employee – seeing the long term consequences of things that at the time bothered him but that he admits he chose to do little about. His conclusions point toward Goldman’s (mostly) unconscious re-interpretation of business principles catalysed by in an environment of rapid technological, competitive, and regulatory, ownership, leadership and environmental changes.

Mandis’ CV is impressive, yet he devotes several pages of his book to positioning his credentials, firstly, as an insider – within the all-important ‘social network of trust’ within Goldman’s – as a banker, proprietary trader and as trusted advisor to the Management Committee. Secondly, as someone who made it on his own outside after Goldman’s an advisor to McKinsey’s and CEO of his own asset management business as well as now latterly as a trained sociological researcher. His credentials are bullet proof. The fact that he felt the need to emphasise them in such detail affirmed for me the lack of respect for social science from the leaders of the world’s financial institutions.

One can only hope that Mandis’ excellent work, which does indeed deliver on his promise of being non-judgemental, illustrative and educational, can indeed open the minds of those who have previously been closed to the offerings of social science. Whilst as Mandis points out ‘it is unlikely that this knowledge will be able to cease the drift’ – armed with more of a comprehensive understanding of drift and the consequences of such drift, will help leaders in a more considered way to combat it.

Ali Gill,
CEO, Crelos