Money and Power (51 page)

The following Monday after the stories appeared, instead of starting her new job, Abraham was given administrative leave and told to work out her differences with Eisenberg. On October 31, she was fired. Goldman wrote in her dismissal letter that her actions had been “hostile” to the firm. Then Eisenberg was gone, too. Moskowitz also became collateral damage: he lost his job with the police department. A Goldman spokesman said, “The firm had no reason to suspect there was anything other than a business relationship between Kathy Abraham and Lewis Eisenberg. Ms. Abraham never made any complaint regarding Mr. Eisenberg or any request for a change in her job. In fact, her administrative supervisors from time to time offered her a transfer of assignment so as to increase her responsibilities and advance her career, and on each occasion she declined to consider it. We are satisfied that whatever personal relationship she may have had with Mr. Eisenberg had no effect on the terms and conditions of her employment.” Novotny tried to dismiss the contretemps with one persistent reporter by explaining, with some obvious condescension, “Lew Eisenberg is a
friend
of mine.”

Of the three people caught up in the scandal, Eisenberg—not surprisingly—fared the best. Rabinowitz reported that Eisenberg left Goldman with around $30 million in Goldman stock and investments. He served as chairman of the
Port Authority of New York and New Jersey—the same board Gus Levy was on when he suffered his fatal stroke—from 1995 to 2001. In 2001, New York governor
George Pataki named Eisenberg to the
Lower Manhattan Development Corporation, the chairman of which was
John Whitehead. Eisenberg has always been a force in Republican politics and was considered briefly for the job as head of the
Republican National Committee. Professionally, after Goldman, Eisenberg co-founded
Granite Capital International Group, a hedge fund, and Granum Communications, an owner of radio stations, eventually bought by KKR. In February 2009, he joined forces with his friend
Henry Kravis, at KKR, as a senior adviser to the firm. (Abraham still lives in Queens but could not be reached for a comment. She later
recanted her accusations against Eisenberg and said he never harassed her or hurt her in any way. Moskowitz, who would like to return to the New York City police force, teaches martial arts, mostly in Queens. His two-year-long legal effort against Goldman and Eisenberg ended in January 1992, and a police hearing officer said his actions against Eisenberg “bordered on criminal extortions.”)

After the Eisenberg scandal made headlines, Weinberg instructed
Jonathan Cohen, a longtime “human capital” partner at Goldman, to find out within twenty-four hours if any
other
partners at the firm were carrying on in ways similar to Eisenberg. Cohen sent around a voice mail. “If I hear about it now, you’ll get amnesty, but there will be no mercy if I hear about it after today,” was the gist of the message. “The phone was ringing off the hook for the next twenty-four hours,” said someone familiar with what happened.

——

W
HETHER THESE ONGOING
public scandals began to take their toll on John Weinberg—in the way that the litigation surrounding Penn Central affected Gus Levy—is hard to know for sure. On the other hand, how could they not? The culture carriers at Goldman prefer to speak about Weinberg’s grit and determination, attributes he honed as a marine in combat in Japan during
World War II, of his moral rectitude and his unflappability.

But on August 15, 1990, Weinberg announced he was stepping down as Goldman’s senior partner, to be replaced by Rubin and Friedman as co-chairmen of the firm beginning in December. He was sixty-five years old and had been running the firm for fourteen years, the last few of which were especially trying. Rubin and Friedman followed the Weinberg-Whitehead model and did not divvy up responsibility by business lines. They made clear that one of them could speak for both of them. “
This worked because we shared the same fundamental views about the firm, trusted each other totally, kept in close touch, and were both analytical in our approach to problems,” Rubin wrote in his memoir. “When this structure does work—and that is a rarity—the advantages are substantial: there are two senior partners to call on clients and two people who can work together on issues with no hierarchical baggage, and who can reinforce each other in discussions with the rest of the organization. Also, when difficulties arise, having a partner reduces the feeling of loneliness at the top.”

On the rare occasions when they did not agree on important matters, their rule was to defer to whichever one of them felt more passionately about the topic at hand. For instance, it turned out that Friedman
believed that it was important to differentiate partner compensation by giving more profit points to those partners who had distinguished themselves
over the years. Rubin was more of the view that the internal strife caused by the slight favoring of one partner over another would add immeasurably to the social unrest at the firm. He had seen firsthand one partner’s fury at another being given one-eighth of a point more of the firm’s profits, and he figured life was too short for those kinds of blowups. “Over the years,” Rubin wrote, “I had seen partners who earned millions of dollars a year become deeply unhappy over tiny distinctions in partnership shares.” Friedman referred to Rubin’s preference for relative peace as “solving for maximum social harmony.” Since Friedman believed more deeply about the importance of making the distinction between partners, that’s what the two men decided to do, although the differences were often more tempered than Friedman would have preferred.

Goldman wasted little time establishing its new leaders’ bona fides and authority. In a lengthy December 1990 cover story about them in
Institutional Investor
—“The Steve and Bob Show”—less than a month into their tenure, they let no light between them. “Our minds work in similar ways, and we will tend to see things in relatively similar ways,” Friedman said. “[I have] a kind of recipe for co-managements to be successful: If there’s no demarcation [of responsibilities], then you’d better agree on things 90 percent of the time. And second, you’d better have a chemistry that enables you to resolve the other 10 percent of the time pretty well. We just found we had that mix.” The article made no mention of Freeman or Eisenberg by name—the closest it came to a whiff of the recent scandals was an innocuous reference to “the way” Goldman “handled” the Eisenberg “sexual harassment suit,” and that it did “little to dispel Goldman’s reputation for insensitivity”—and instead focused on the usual Goldman tropes about ethics and teamwork. “If you say ‘I,’ you are being abrasive,” the article quoted partner Robert Mnuchin, who had just retired after thirty-three years. The article claimed that “[n]owhere else on Wall Street has a firm attempted to institutionalize something as intangible as a corporate ethic. When Whitehead drew up a list of the business principles by which the employees of the firm would abide, he came up with four more than God gave Moses to codify all earthly morality. These principles are still read aloud at Goldman gatherings, and tyros have been known to tack them above their desks, perhaps to inspire them to greater glory.” No mention was made of how the business principles dovetailed with the reality of human nature and Goldman’s ongoing scandals.

The thrust of the message that the Goldman brass was trying to
convey was that much-needed change was coming to the firm. There would soon be a Goldman Frankfurt office—after six months of study—even though John Weinberg would have continued to wait before opening one. When other banks decided to leave Latin America after trouble there, Goldman had moved in, “smell[ing] opportunity.” In six months, Goldman had created from scratch a structured-equity-products division. In most un-Goldman-like fashion, Goldman had also gone outside the firm to hire the three Salomon Brothers traders and made them partners in order to “jump-start” Goldman’s mortgage-backed securities and junk-bond businesses.

The truth was that Goldman needed to modernize. The firm relied too much on its reputation, but the financial world was evolving toward ever more complexity and speed. In his time, Whitehead had decided that Goldman could no longer be run as a Florentine guild. He had had to figure out how to extend the firm’s reach beyond Sidney Weinberg’s friends and to learn how to impart the firm’s collected wisdom and knowledge more broadly as the firm grew more rapidly. This led him to create the
New Business Group and the firm’s fourteen principles. These innovations, however, took the firm only so far toward the modernization it desperately needed. To get the firm the rest of the way fell to the next generation of the firm’s leaders, Friedman and Rubin.

According to
Institutional Investor,
the firm’s new leaders established an “Ad Hoc Profit Maximization Committee,” whose members were “intelligent men from Mars,” according to Friedman, and the purpose of which was “to bring new perspectives to the firm’s various businesses by questioning how things are run … without threatening the ethos.” Then there was the “bevy” of new consultants who showed up at the firm. Marketing consultant
Anthony Buzan—a “creative provocateur,” Geoff Boisi said—had been hired to counter the perception that Goldman was a follower, not a leader, when it came to financial innovation. At an investment banking retreat in upstate New York, Buzan tagged along and got the Goldman bankers to engage in a little finger painting while also getting their creative juices flowing. Indeed, Boisi had implemented an annual award for financial creativity—$25,000 plus a slab of Baccarat crystal—that was won in 1989 by a woman banker whose name has been lost to history who created Goldman’s business in employee stock-ownership plans (then all the rage on Wall Street in facilitating employee buyouts of companies). In the wake of the Eisenberg debacle, Goldman hired
Alterna-Track to devise and implement a system of part-time and flex-time positions for the firm’s women who also wanted to start families. “If we can keep high-powered women involved
and active at Goldman Sachs, this will be a tremendous competitive advantage for us,” Rubin explained. “I think it’s terrific.” Alterna-Track was started by
Karen Cook, who worked at Goldman for twelve years as an equity trader after bulldozing her way into the firm in 1975. By serendipity, Rubin had overheard her insistent—but unsuccessful—efforts to get an interview and decided to interview her on the spot. Two weeks later, she had a job.

They brought in Booz-Allen to review the firm’s real estate and its infrastructure, much of which proved to be antiquated. “
There was a lot that needed to be fixed there,” Friedman said, “and they told us how we could take out a lot of costs and be more efficient. We were just doing some things like some big, bureaucratic company. If someone needed something in terms of telecommunications, there was a book, and if you needed something new and the book said ‘Everyone will have the same thing at great expense,’ then either you couldn’t get it or we’d have to rip out everyone else’s and they’ll get the same thing. And metaphorically, if you were running an area and you said, ‘I need pizza for dinner for my people,’ the book in effect said we’re going to deliver this in a chauffeured Bentley.”

——

O
NE EXAMPLE OF
a Goldman practice that could have benefited from some cleaning up occurred on Memorial Day weekend in 1991. That Friday, at the start of the holiday weekend, at a time when most people who could would be thinking about heading out of town, forty investment banking newbies were told to report to a conference room on the twenty-ninth floor, at 5:00 p.m. “
No mercy for the yuppies,” explained
Anthony Scaramucci, one of the forty Goldman associates in the conference room that afternoon. Hour and after hour passed without the partner who had told them all to be there showing up. By 8:30, three of natives were getting restless. “What’s up?” one of them said. “Where is this jerk? I have plans in the Hamptons and want to get going.” After another half hour, the three rebels left. “They were MBAs from top grad schools,” Scaramucci observed. “They were the future Gordon Gekkos.”

The rest of the group waited around. At 10:00 p.m., the partner appeared, passed around a sheet of paper, and asked everyone there to sign his or her name on it. With that minor bit of bookkeeping completed—and taking a page from the nineteenth-century French writer,
Stendhal, in
Lucien Leuwen
—he said, “So, today’s lesson is about waiting patiently for those who are more important than you. Someday you may be in the lobby of a billionaire, and he or she may make you wait. Your job as a representative of Goldman Sachs is to sit there. We are in
the client service business. We wait patiently and graciously. Now you may have a fancy degree from a fancy place, but that will never replace having the right attitude. Have both and there is nothing you can’t do. Without the right attitude, you are not the right stuff for Goldman Sachs.” With that sermon completed, the partner dismissed the class.

The following Tuesday, the three Masters of the Universe who had left early were fired. “It was a lesson I will never forget,” Scaramucci explained. “It communicated the culture of the firm without bluster, cheerleading, or empty rhetoric.”

Other messages were communicated constantly to the young Goldman employees as well. One of them was how to make money from others’ misfortune, as when a Goldman trader boasted to MBAs at Columbia Business School how much money the firm had made from the January 1986 explosion of the
Challenger
space shuttle. Another of them was that Friday is “Goldman Sachs Day.” One Goldman trader remembered how strong his boss felt about this and conveyed it to the team on a regular basis. “His view was Friday is the day everybody’s been out boozing and kind of writes off as a nonevent and doesn’t do anything,” he said. “So, if you come in on Friday with your head down, intent on actually doing something, everyone has their guard down and is less competitive and that’s when you can make a big difference. So, at the end of every meeting, he’d say, ‘Yeah, it’s Friday. It’s Goldman Sachs Day.’ I can see the logic of it from a trading perspective. People are surfing the Internet. They’re kind of leaving early. They’re off to the Hamptons at two o’clock. Whatever it is, they get out and go on Friday.”