Resisting Corporate Corruption, 3rd Edition

Case 1Seeking a Sustainable Business Model at Goldman Sachs

In order to realize our strategic objective of creating a unique blend of client and proprietary businesses, we must develop a sophisticated management approach for ‘relationship’ conflicts as well as legal conflicts.

HANK PAULSON, CHIEF OPERATING OFFICER OF GOLDMAN SACHS, looked again at these words in his draft speech. He wondered whether they would provide the right balance to CEO Jon Corzine’s opening talk. Paulson also wondered what exactly a sophisticated approach for conflicts might entail. It was early 1996. Only two years prior Goldman had suffered severe trading losses; some partners described it as a “near death” experience. Things were better now, but the Goldman partnership was edgy. Some forty partners left the firm in the wake of the trading debacle.¹ Those that remained were debating whether Goldman should “go public.” When they weren’t debating the IPO, their talk turned to whether banking or trading was going to lead Goldman going forward.

Paulson laid down his remarks and picked up an outline of Corzine’s comments (Attachment 1). Every year Goldman gathered its partners together for what was known as the Arrowwood Meeting. Part team building, part strategy session and part revival meeting, Arrowwood sessions served many functions. Goldman’s partners expected to hear their leaders’ thoughts on the firm’s future and to provide them with feedback.

The 1996 session promised to be especially tense. The ...