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Originally published on January 14, 2014.

4 out of 5 stars...

This former Goldman Sachs (NYSE:GS) insider employee, Steven Mandis, does a very good job in presenting both the history of the firm and how it changed.

Founded over a hundred years ago as a partnership, partners had the same values, extremely ethical, basically to care most for the customers and think "long-term greedy" so that if the customers were treated well and the customers knew that, the partners would do well even if the firm would sacrifice profits in the short term to please the customers. And, as a partnership, the partners were personally liable, so that all the partners' money was at risk, not just their money in the firm, but their personal assets also, therefore creating an environment of trust between partners and customers.

So, a culture of both high ethical values and high profits created a renowned culture, so much so, the firm was able to easily recruit the best talent where each new recruit strove to be a partner. It created a real team approach, everything for the customers and all employees.

The author described how that once-proud culture didn't change overnight or dramatically over time, but "drifted."

The drift began when the firm, around the 1980s, changed to a limited partnership, LLC, so that only the partners' assets held at the firm were at risk. This change happened as competition grew and instead of concentrating on things like mergers and acquisitions, and financing for such deals, investment banking functions expanded into where really big profits were, propriety trading. The industry had metastasized, so Goldman Sachs risked not attracting big clients.

Then, in 1999, the firm went public, with an IPO, the last major investment bank to do so. Now, the firm had a priority to shareholders first, clients second even though the firm still had fiduciary responsibilities to them. Plus, the partners no longer had much liability. So, the firm was now more concerned with following just legal responsibilities, making it harder to follow just high ethical standards with clients, as public companies were required to treat shareholders first, plus have a short-term outlook, rather than the former long-term outlook. Also, as the company became more complex, compensation policies changed, forming less of a team approach.

The author is perhaps most critical of Jon Corzine and Lloyd Blankfein in transforming the firm around this time, to making it competitive with the other companies especially with propriety trading. But, there still was much of that previous culture around, almost religious, so much so that employees believed so even if not as true anymore. So, the firm "drifted," still maybe a cut ahead of the competition on ethics and reputation. It did survive the 2008 financial crash, but needed help. Also, this drift happened at other firms and was really a warning to all about the industry.

Some other points from the book:

1. After the crash it was revealed in an email some securities sold to clients were "s***y."

2. Goldman Sachs always did have a commitment to public service, part of its culture was a sense of higher purpose, and thus around 1979 many former employees went to work for the federal government. This did have the effect of expanding the firm's powerful network.

3. Part of the firm's rationalizations that its shareholder responsibilities didn't really hurt clients is that they considered the clients "big boys" and were aware of the new risks.

4. Goldman did branch out into asset management in 1928 with closed-end trust funds, which cratered with the 1929 crash and Goldman did close down for a time.

5. In 2012, in an op-ed, former employee Greg Smith called the culture at Goldman "toxic," specifically blaming CEO Blankfein and president Gary Cohn.

6. Since teamwork was so important to Goldman originally, it strove to recruit those with team sports, military and public service backgrounds.

7. As competition grew, Goldman expanded internationally, even taking on some questionable clients like the Libya sovereign wealth fund.

8. Goldman was accused of its privileged position of trust and confidentiality regarding its bailout of Long Term Capital Management (LTCM).

9. In 2003, Goldman settled charges by the SEC for conflicts of interest by research analysts by paying $110M in fines, because of the Sarbanes-Oxley Act, passed in 2002.

10. Beginning in 1999, Goldman's board of directors had some outside directors, so there was less knowledge of inside workings of the company.

11. It is debatable whether Goldman could have survived the 2008 financial crash without help from the government.

12. In 2006, Goldman was betting against mortgage bonds it was selling to clients, resulting in a fine.

13. The author counted negative and positive articles about Goldman in the NY Times from 1980-2012, and found more positive before 2007 and more negative after 2007. Most of the negative articles after 2007 dealt with conflicts with clients and connections to the government.

14. A former employee, Greg Smith, mentioned above, wrote a scathing op-ed, criticizing Goldman with treating clients as "muppets."

15. Goldman spent over $15M lobbying Dodd-Frank.

In conclusion, Goldman's culture drifted over time, less to the welfare of its clients and more to its own welfare. All the while, even current employees felt they were serving a higher purpose, based on the original culture. Meanwhile, clients still seemed to prefer Goldman because it was better than its competition, not a very good testimony to the industry.

Source: My Review Of 'What Happened To Goldman Sachs'