Leadership: Why Was Goldman Sachs So Stupid?

There have been two volcanoes in the news recently: one spewing ash into the air

over Iceland and much of Europe; the other igniting a potential fire-storm of banking regulation and litigation in the US and elsewhere. The first warns of nature's unparalleled power; the second of man's repetitive stupidity. The Goldman case is commercially extreme in scale and implications. However, as leaders, we daily face moral questions: does this customer deserve her money back regardless of the fine print? Given what I know, must I retrench my biggest-selling salesman? Are the representations I'm making about this product true? By a career of such decisions, we build our image and brand as a company and as a leader. If I polled your staff and customers, how would they rate you on honesty and integrity? For some of us, particularly a few of the very, very smart, this is the biggest (and most dangerous) blind spot of all. Let's explore this a bit further.

Until the Goldman disclosures, I'd felt that much of the post-GFC criticism of investment banks was like criticising a Formula-One manufacturer for building cars that go fast, when that's the business they're in. I felt politicians and regulators (abetted by rating agencies) were the culprits. They'd not required the setting up of regulated exchanges and supervisory regimes for many of the more exotic derivatives. But, Goldman has destroyed my case: dishonesty trumps logic.

Across my career, I've known a number of dishonest people. Sometimes, it's relatively small: taking home stationery or other low-value company material. I've done that and suspect most of us have though, not for a moment suggesting that prevalence justifies it. In other situations, the stakes are higher: changing monthly figures to make sure you reach target and get the promised promotion. Most devastating, however, is when an individual or team conspires (often with outside parties) to sell something, which makes millions but only by falsifying or not disclosing information such as Goldman's conflict of interest, or adding conditions in the footnotes that negate what's conveyed elsewhere.

Sadly, many of the most sophisticated and dangerous instances of dishonesty come from very bright people. In part, perhaps, because hiding falsification often requires considerable skill. A client executive I knew went to jail for insider trading under an assumed name. A senior director lost his job for trying indirectly to sell a personal asset to the business without proper disclosure. My response in each case was why would you? Both perpetrators had money and status. Why step across the line and risk everything? For the adrenalin rush? To demonstrate their smarts? I can't tell you.

All of us carry within us the seeds of our own failure. Our strengths become our weaknesses. As above, if we're bright, we may rely too much on our IQ cleverness rather than develop people skills to complement it. But, if I've learnt on thing, it's that losing your grip on right and wrong is an ironclad guarantee of career destruction. It may go unnoticed for a long time particularly if you're very smart. But when it comes to light, it's a volcano that will not just singe you but incinerate your career entirely. And, if it's a group effort, it can do untold damage to the business and spread ash across a whole industry.

by: Tim Pascoe

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