Leadership-Development-at-Goldman-Sachs

9-406-002REV:MARCH22,2007________________________________________________________________________________________________________________ProfessorsBorisGroysbergandScottSnookandSeniorResearcherDavidLane,GlobalResearchGroup,preparedthiscase.HBScasesaredevelopedsolelyasthebasisforclassdiscussion.Casesarenotintendedtoserveasendorsements,sourcesofprimarydata,orillustrationsofeffectiveorineffectivemanagement.Copyright©2005PresidentandFellowsofHarvardCollege.Toordercopiesorrequestpermissiontoreproducematerials,call1-800-545-7685,writeHarvardBusinessSchoolPublishing,Boston,MA02163,orgoto—electronic,mechanical,photocopying,recording,orotherwise—withoutthepermissionofHarvardBusinessSchool.BORISGROYSBERGSCOTTSNOOKLeadershipDevelopmentatGoldmanSachsOurpeoplehavedrivenGoldmanSachs’successfor130yearsthroughsustained,superbexecutionacrossarangeofmarketsandproducts.Thebestwaytomaintainthatadvantageisbyrecruiting,trainingandmentoringpeopleaswealwayshave—oneatatime,withgreatcare.WewantGoldmanSachstobeamagnetfortheverybestpeopleintheworld—fromnewgraduatestoseniorhires.Atthesametime,wearefocusingondevelopingourverydeepbenchoftalentedpeopleandimprovingandextendingourskills.Weare,forinstance,placingyoungleadersindemandingpositionsthatstretchtheirabilities.Wearealsodevotingmoretimeandattentiontotheformaltraininganddevelopmentofleaders,particularlyseniorleaders.—HenryM.Paulson,“LettertoShareholders,”GoldmanSachs,1999AnnualReportLateontheeveningofNovember7,1999,asmallcadreofseniorleadershuddledaroundaconferencetableonthe22ndfloorof85BroadStreet,deepintheheartofNewYorkCity’sfinancialdistrict.Theheadyatmosphereandhigh-octaneblendofintensity,anticipation,andquietprofessionalismwerenotunusualforoneoftheworld’smoststoriedinvestmentbanks.Tonight,however,elevenofGoldmanSachs’finestwereworkingnotonamajoracquisitionorIPO,butonarevolutionaryleadershipdevelopmentplanforthefirm.InJune1999,Goldman’sManagementCommitteehadselectedadiverse,experiencedgrouptoformtheLeadershipDevelopmentAdvisoryCommittee(seeExhibit1).Theirofficialcharterwasto“assessthefuturetraininganddevelopmentneedsofGoldmanSachs,withparticularfocusontheneedforamoresystematicandeffectiveapproachtodevelopingmanagingdirectors(MDs).”Aftersixmonthsofbrainstorming,discussionswithGoldmanSachscolleagues,interviewingexperts,andbenchmarkingbestpractices,theCommitteewasscheduledtooutlineitsplanfortheManagementCommitteethenextmorning.Tonight’smeetingwasafinalopportunitytoreviewtheirwork,editthepresentation,andpersonallycommittotheplan.Theyallhadeveryreasontobeconfidentaboutthepresentation.However,astheyporedovereachslide,theycouldn’thelpwonderinghowtheirideaswouldbereceivedbyGoldmanSachs’mostseniorleadershipgroup.Eachrecommendationwasbasedonanappreciationofthefirm’srichhistoryandculture,combinedwithanunderstandingofitsevolvingbusinessstrategyandinsightsfromtheextensiveresearchtheLeadershipDevelopmentAdvisoryCommitteehaddone.Evenso,noonesittingontheManagementCommitteehadreliedonaformalleadershipprogramtoreachthetop.Howskepticalmighttheybe?Andwhilethetimingseemedrighttointroducesuchaninitiative,everyoneinthe406-002LeadershipDevelopmentatGoldmanSachs2roomknewthattheyprobablyhadonlyonechancetogetitright.Ifthisproposalwasrejected,itwasunlikelythatanalternativeleadershipdevelopmentplanwouldbeimplementedanytimesoon.InvestmentBankinginthe1990sTwokeytrendsshapedtheinvestmentbankingworldinthelate1990s.TheboomingIPOmarketsweregeneratingtremendousfeesforbanks;andthebankingindustryitselfwasrapidlyconsolidating.Customerswereincreasinglyprice-sensitive,andbankswerebettingthatcompetitivenesscorrelateddirectlywithscaleandscope.Accordingly,acquisitionsinthefinancial-servicesindustryincreasedfrom62in1994to86in1995,96in1996,and100in1997.1In1997alone,MorganStanley,along-timerivalofGoldmanSachs,mergedwithDeanWitter;MerrillLynchdoubleditsassetsundermanagementbypurchasingMercuryAssetManagement;UnionBankofSwitzerlandmergedwithSwissBankCorp.;TravelersmergedwithSalomonandthenCiticorpin1998,becomingtheworld’slargestfinancialservicesfirmbyassets.2Alsoin1997,ING’spurchaseofFurmansignaledthestartofawaveofEuropeanacquisitionsofU.S.firms.Thoughtraditionallyreliantonorganicgrowth,GoldmanSachslikewiseembarkedonaseriesofsmallacquisitionsduringthe1990s,triplingitsassetsundermanagementfromabout$40billionin1993to$125billionin1997.Evenso,GoldmanrankedfifthinsizebehindJ.P.Morgan,MerrillLynch,MorganStanley,andSmithBarney(whichsoonbecamepartofCitigroup)thatyear.3Thesustainedbullmarketnotonlyboostedoverallmarketcapitalization,butitalsoencouragedafloodofnewcompaniestogopublic.Inparticular,thedot-comboomandtheemergenceofnewmedia,telecommunications,andtechnologyindustriesfueledinvestmentbankgrowth.Yetthisboomhadadownsideforthebanks:“hot”newindustriesplacedadditionalstressonanalreadytightlabormarketbywooingskilledworkersawayfrommoretraditionalfields.Theensuing“warfortalent”threatenedtoputadamper