Book Review- 'What Happened To Goldman Sachs'

| About: Goldman Sachs (GS)

This well-researched book chronicles the evolution of Goldman Sachs (NYSE:GS).

Author, Steven G. Mandis focuses on the theme of "organizational drift." He explores how and why the firm changed its philosophy from focusing on ethical standards to struggling with legal issues as it flourished into a global financial powerhouse.

Research: Facts, PR Spins, and Interpretations

Tracking the true story on the evolution of this multinational corporation was not an easy task, as Mandis had to sort between PR spins and facts. He interviews former partners and clients, as well as defenders and detractors to get at the facts. He then culls from a variety of sources to interpret this wealth of information. In particular, he relied on his own experiences, SEC analysis, congressional filings, and theories in sociology to sort out facts from fiction.

Throughout this in-depth analysis, he makes an effort to provide a fair and balanced view on exactly what happened, how it happened, and why it happened.

Imperceptible Organizational Drift

Goldman Sachs was built on the values of trust and integrity, but, over time, numerous forces pulled at it from many directions, forcing it to change its direction. Over time, then, it began stepping away from the very principles that had secured its reputation. However, this drift is still not obvious to insiders, who refuse to recognize a crucial change in the organization.

A History Lesson with Broad Applications

The real value of this book is not just an emphasis on how change can creep up on an organization and shift the very foundations on which it was built, but on how these changes can be invisible to the characters involved in the thick of the plot. In other words, this is more than an inside history of Goldman Sachs, it is a history lesson on how to detect value changes in an organization as it grows to become a worldwide enterprise. Those corporate leaders in other organizations who understand this history lesson are not condemned to repeat it.

A Refreshing Perspective on a Key Player in the Credit Crisis

As the credit crisis began to unfold, numerous memoirs, government reports, and revealing documentaries rolled out, exposing the chicanery behind the financial service industries. These books were written by investigative journalists, retired corporate executives, and former government representatives. However, all of this literature did not give a clear idea about one of the key players in the credit crunch, Goldman Sachs, as it offered a bewildering number of perspectives from different voices, each with their own agenda. In this book, "What Happened to Goldman Sachs," the pieces of the jigsaw puzzle finally come together. This is because Mandis provides a single voice that has witnessed the unfolding story of Goldman Sachs from multiple points of view. He has been an employee, a client, a competitor, a manager in a global bank, a financial advisor to regulatory bodies, and a professor.

Beyond Quantitative Analysis

What makes this book different from other books that mention Goldman Sachs's role in the credit crisis is that it goes well beyond relying on a quantitative analysis to come up with answers. Instead of a dry analysis, it introduces the many human factors that go into shaping any organization. It covers how shared values create beliefs, and how, in turn, these beliefs drive behavior. It also talks about the pull of risk-reward thinking and how it is really the incentives and disincentives behind any financial transaction that makes or breaks deals. So, what appears to be the right decision at the time can imperceptibly lead to a movement away from the value of the founders-values that were responsible for the success of the business in the first place and values that created a foundation of trust and attracted investors. . In essence, then, a corporate culture is built on the bricks of what is said and what remains unspoken, what is done and what is neglected. In time, these factors create organizational drift; and this, in turn, causes two levels of disruption: disruption of personal ethics and disruption of the institutional culture.

A firm like Goldman Sachs is primarily shaped by two populations: those who work in the organization and those who rely on the services of the organization. When the harmony between these two parties wanes, then internal errors multiply and external distrust increases. The result is decline.

How the Book may Affect Goldman Sach's Reputation

If this book is widely-read, it may have a negative impact on GS stock price. As I have discussed in other articles, I believe it may be an appropriate time to take some profits off the table if you own GS common stock.

Although Mandis is at times sympathetic, he also remains objective. He clearly points out that in the final analysis what happened to Goldman Sachs was unintentional. While those steering the ship may have been oblivious of drifting off course - believing that they were on target with their mission purpose and not noticing the imperceptible drift - those outside the firm, clients, competitors, and government regulators were very aware that something had gone drastically wrong. Additionally, the section in the book that details how Warren Buffett's (NYSE:BRK.B) investment bailed the company out is particularly juicy, giving the book a touch of intrigue that will fascinate the business reader.


The author is a well-regarded thought leader when it comes to analyzing corporate history. Steven G. Mandis used to teach at Columbia Business School, and one of his most popular classes at the height of the credit crisis was `Strategic Issues in Investment Banking.' Consequently, his current book is a welcome addition to the literature on the rise and fall of corporations. This book is at once entertaining and informative. It is entertaining because it shares a personal story-the ideals Mandis held when he joined the firm in 1992 and his subsequent disillusion when he revisited it from an outsider's perspective in 2004. It is also informative, providing an education on the mechanics of organizational drift, and how it can be imperceptible to those initiating the drift and increasingly obvious to those witnessing it.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.