Confronting Ethical Emptiness on Wall Street

Earlier this month Greg Smith, an executive director at Goldman Sachs, quit his job in a high-profile way: he announced his resignation in a scathing op-ed piece published in that day’s New York Times. The article denounced Goldman for extensive ethical failures. By his own admission, he knew of nothing Goldman had done that broke the law; instead, he accused the company of maintaining an organizational culture of legal-but-unethical behavior.

The story is doubly important for the church to notice. First, it reminds us that we need to have a public witness about the spiritual nature of work, business, and economics. Too often we talk about “the culture” only in terms of things like sexuality. Second, it reminds us that we need to provide much more than just an ethic of obeying rules. A sense of duty and obedience is important, but sound ethics also involves teaching people to find their sense of meaning and fulfillment in the right places.

Culture of Service

Smith writes that when he joined Goldman 12 years ago, he experienced an organizational culture focused on earning the company’s success by delivering good service to the customer:

It might sound surprising to a skeptical public, but culture was always a vital part of Goldman Sachs’s success. It revolved around teamwork, integrity, a spirit of humility, and always doing right by our clients. The culture was the secret sauce that made this place great and allowed us to earn our clients’ trust for 143 years. It wasn’t just about making money; this alone will not sustain a firm for so long. It had something to do with pride and belief in the organization.

That culture was sustained, Smith writes, because the company’s leadership modeled the right behavior, signaled to subordinates that it was expected, and rewarded it when they saw it.

Goldman had a transition in leadership in 2006. Smith alleges that the new leaders model, teach, and reward a different kind of behavior. As a result, Smith says, a new organizational culture has emerged:

I attend derivatives sales meetings where not one single minute is spent asking questions about how we can help clients. It’s purely about how we can make the most possible money off of them. . . . It makes me ill how callously people talk about ripping their clients off.

I have no idea whether Smith’s allegations are true. But the lessons we ought to learn from this moment apply regardless of whether Smith’s claims are true or false, because you can learn them from watching the way so many people responded to the claims.

The Times article caused an instant uproar on Wall Street and in the financial press. The reaction mostly shows that America’s financial sector has a strictly legalistic understanding of ethics. If no laws were broken, what’s the problem?

A Forbes columnist sneered that Smith was just having a “midlife crisis.” It’s immature whining to expect that companies should strive to serve their customers.

If what Smith is saying today is true, then the biggest problem remains . . . the investors that Smith claims continue to buy garbage from Goldman. Until those clients start to take responsibility for themselves, Goldman will remain incentivized to sell stuff to them. One of the root causes of the mortgage nightmare, the CDO disaster, Madoff, and Stanford, was investor gullibility. . . . If those investors are not already entering into Goldman deals carefully now, they never will.

Even my favorite business columnist, the Wall Street Journal‘s Holman Jenkins, took a similar line: “If there’s a case for outlawing parties voluntarily engaging in complex financial transactions, then let’s hear it. Otherwise Mr. Smith’s Goldman vilification is just the standard Wall Street vilification focused unjustly on a single name.” The Journal editors caught Jenkins’s tone very well in the headline they chose for his piece: “Greg Smith Is Too Sexy for His Cat.”

Letter of the Law

All this boils down to a claim that ethical behavior consists solely of following the letter of the law. It’s okay to rip people off—intentionally selling them financial products that are disadvantageous for them to buy—so long as you don’t break any laws doing it.

That’s an empty, materialistic view of life. Contra Jenkins’s assumptions, I have no desire to pass a law ordering companies to maintain healthy ethical cultures. The whole point here is that law is not the only aspect of ethics. If we teach people to follow the rules, but we also teach them to take satisfaction in gaming the system for their own benefit, we’ve fallen short. The only way to avoid reductive materialism is to teach people to find their sense of satisfaction in earning success by doing work that makes the world better.

Materialism is not only evil, it’s also impractical. One of the most important findings of social science in the past decade has been that you can’t sustain either an economy or a society in a no-trust environment where people expect that those around them will obey the letter of the law but otherwise behave as ravenous egoists. Economies shut down and social conflicts become uncontainable.

Jenkins rightly points out that Goldman’s clients are all big, grown-up, sophisticated investors. They are aware Goldman may not have their interests at heart but find it advantageous to do business with them anyway. But over the long term, that’s insufficient. Both our moral integrity and the flourishing of our economy and civilization require us to set the bar higher.

I’m not naïve. Goldman has become a less attractive place to work since the meltdown, and it’s pretty clear that Smith enjoys the limelight. So I have no doubt he hopes his actions will help him transition to an even better job somewhere else. But we don’t have to lionize Smith to be worried about the ethical emptiness that the response to his article clearly reveals.

  • From Canada

    Thank-you Greg for a tremendous article which brings attention to some very real fissures that are forming in our society that we in the Church need to understand at a fundamental level.

    I am an agent representing top-level brands in the retail sector. My company is the outsourced sales arm of numerous National and Multi-National corporations who sell the products that fill the shelves at your local stores from Walmart to Home Depot to Costco to small independent shops. Everyone reading this will likely have some of the products I sell in their home. The sentiment expressed in Smith’s editorial regarding a shift from taking care of the client’s best interests to the companies bottom-line is not just a Wall Street story anymore. Unfortunately, it is the new normal right across the business spectrum right now.

    There is so much I could say, but I’ll keep it brief. I am seeing (and being told in no uncertain terms) that all that matters is corporate profitability. It doesn’t matter if the item being presented is a good fit for the retailer (it’s what we have to sell so sell it), it doesn’t matter if it will sell (we’ll worry about that down the road), it doesn’t matter if it is poorly made (hey, “they” wanted a better price), it doesn’t matter if it will fall apart (if we make it too well, we won’t get repeat business). All that matters is that we hit the numbers on the spreadsheet which was reported to the shareholders…how we get there from a moral and ethical standpoint is not up for discussion. If we don’t hit the numbers, people get fired. If we do hit the numbers, in some ways, souls get destroyed.

    The irony is that if companies remembered why they got into business to begin with and what made them successful, they’d see that the old adage of taking care of the customer actually solves many of their problems. Instead of trying to PUSH things out to the marketplace, pausing to look at the very real needs of real people and doing your best to actually meet those needs with integrity and good products would actually take care of your sales problems. Consumerism has flipped everything on it’s head and is now racing towards major upheaval.

    Cognitive dissonance has become the only way that most of us in the industry can continue to function. I know it’s killing me and many of my industry colleagues (literally from stress, depression, substance abuse etc.). It makes a nice academic and pat answer to tell us that we should simply quit, but that doesn’t work for two reasons. First, as beaten down as we are, some of us actually do try to work with integrity and where possible try to influence others to do the same, if we all left the industry and completely released the brakes, it would be even worse for society. Secondly, in these tough economic times, I’m responsible for providing for my wife and children and destroying my family economically is sacrifice I’m not willing to make.

    I want to make a difference, I want to be an agent of change and to shine Christ in all I do. Right now, I’m failing miserably, I don’t see a way out and in many ways I know I’m just one of millions just like me, all of us trapped. My only hope in this world is Jesus, but since our society has rejected Him so completely, most days I live in the desert, and hope I can make it.

    • Greg Forster

      Thanks for this moving testimony. Don’t despair! God is still at work in the world. The company culture where you are may be sick, but that doesn’t mean you’re not making a huge positive difference in God’s world. You said most folks reading this have items in their home that you helped provide. That means your work has personally blessed most of the people reading this. That’s a lot more than I can say! My family shops at all three of the chains you mention and I’m sure others that you supply, so let me take this opportunity to thank you for how your work has made so much comfort and enjoyment possible for my family. We are blessed by you in what you do every day! None of that takes away from the problems you’re writing about but I hope it gives you something encouraging to focus on. If you’re looking for more sources of encouragement let me recommend three books: Amy Sherman’s Kingdom Calling, Tom Nelson’s Work Matters and Lester DeKoster’s Work: The Meaning of Your Life. I think they may be very helpful to you in your circumstances!

  • Ryan Over

    Great article. I really appreciated the perspective.

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