Why former Goldman Sachs partners say they left the firm
- 202 partners have left Goldman Sachs under CEO David Solomon.
- Insider interviewed six former partners on why they left.
- The partners cited personnel decisions, pay, and strategy missteps.
According to Insider, 202 Goldman Sachs partners have left the firm during David Solomon’s five years as CEO.
According to the venerable Wall Street firm, the partner departures are part of a decades-old natural order in which partners retire, become bored, seek new opportunities, or are forced to leave. With the firm naming 80 or so new partners every two years, close to 200 people would have to leave over a five-year period to make way for the new elite class.
“There’s nothing going on in the context of partner transitions that’s different than any other cycle,” Solomon stated earlier this month at an investor conference. According to Goldman, the average tenure of executives who become partners has increased from 6.2 years to 8.3 years.
But the departures come as Solomon is under fire from the media for his use of the corporate jet, strategy blunders, and temperament.
In August, New York magazine asked bluntly, “Is David Solomon Too Big a Jerk to Run Goldman Sachs?”
Insider sought the perspectives of former partners to better understand their reasons for leaving. Interviews with six of them who left in the last year or so, as well as one former managing director, shed new light on what’s going on at Goldman and why so many are leaving.
The executives worked in various departments of the bank, and each had their own reasons for leaving. They’ve since moved on to smaller rivals or clients, or they’re keeping their next move a secret.
Under Solomon, there is no way to fully comprehend the reasons for each and every partner’s departure. However, when the interviews were combined, they revealed a few recurring themes, such as personnel decisions, pay, and strategy blunders.
“You want to suspend belief and say, ‘I will follow these guys,’ but with the number of people mistakes and business-strategy mistakes that they have made, I think people have lost confidence in the plan,” said one former partner, referring to Solomon and Goldman’s president and chief operating officer, John Waldron. The individual, like the others, requested anonymity in order to protect their relationships at the bank and in the industry. Insider is aware of their identities.
Some people who spoke with Insider defended Solomon, saying that he had made a lot of changes in a short period of time and that some upheaval was to be expected. They didn’t excuse his strategic errors, but they did acknowledge that he believed his mandate would modernize Goldman Sachs in ways that his predecessors didn’t or couldn’t.
Prior to Solomon, Goldman nurtured many fiefs and then distributed the wealth from the most successful ones throughout the firm. Under Solomon, that model was turned on its head in favor of meeting investors’ return-on-equity targets in a way that made Goldman more like JPMorgan.
Adebayo Ogunlesi, Goldman’s lead director, acknowledged that the firm lost some partners “it did not want to lose in part due to disagreements as GS began acting more like a Fortune 50 firm,” Wells Fargo Securities analyst Mike Mayo wrote in a September 18 report after meeting with Ogunlesi and referencing the company’s stock ticker.
Investors have largely backed the change. According to Devin Ryan, a JMP analyst, Goldman’s stock has increased 94% since the end of 2018, compared to a 79% increase in the S&P 500.
“We think it’s also fair to criticize certain aspects of management and its decisions, including Mr. Solomon, as that comes with the territory,” Ryan wrote. “However, when looking back on how the firm has operated since 2019 (Mr. Solomon took the helm in late 2018), we would highlight that a lot has gone right.”
Nonetheless, the changes made by Solomon have enraged many current and former employees, partners, and managing directors, according to one of the sources.
“It was a multiyear process of pissing a lot of people off,” the person explained.
Here are the top reasons given by former Goldman executives interviewed by Insider for leaving the firm.
Personnel selection
It doesn’t take long in a conversation with a former partner to hear complaints about Solomon or Waldron’s personnel decisions.
Solomon and Waldron, according to former partners and those still at the bank who spoke with Insider, have repeatedly elevated executives without the necessary management experience into much larger roles, or placed people in charge of teams where they had no industry experience. Many of those handpicked executives failed to execute on the firm’s strategic priorities.
Solomon and Waldron have defended the appointments, claiming that talented executives should be able to thrive anywhere and that an internal candidate who understands Goldman’s culture is preferable to an outsider.
Nonetheless, some of the people said that the appointments had a destabilizing effect on various teams and contributed to the turmoil. Managers in the division below them have had to spend time filling positions or calming fears when they could be focusing on developing new business.
“That’s absurd,” Goldman spokesperson Tony Fratto said in an emailed statement, using abbreviations to describe the asset and wealth management and global banking and markets businesses. “Our AWM business is exceeding its targets and delivering record management fees, while our GBM business is taking market and wallet share from peers.”
Many of those who spoke with Insider cited the asset- and wealth-management division as an example of a unit that had suffered as a result of Solomon’s unconventional leadership choices.
Solomon merged Goldman’s mutual fund and third-party alternatives businesses with its in-house private-equity business, known as the merchant-banking division, in September 2020 to create one large asset-management division. He appointed Eric Lane and Julian Salisbury to run the combined company. While Lane had long been in charge of one of Goldman’s divisions, Salisbury was a relative newcomer to the executive suite. He was an accomplished investor who had previously only managed a team of several hundred people.
When Lane left six months later, in March 2021, Salisbury was in charge of a division of approximately 5,000 people. It wasn’t until January of the following year that Luke Sarsfield, an investment banker close to Waldron, was named to co-head the division. Sarsfield also lacked management and operations experience, which would have prepared him to run a large division.
When both men struggled, senior partners left, and Goldman struggled to reduce its balance-sheet investments. Both Salisbury and Sarsfield have left the bank.
Solomon has now appointed Marc Nachmann to lead the asset-management division. Even Nachmann, known internally for his operational skills, is new to asset management, having spent the majority of his career as a banker and the last three years in the markets division. Two of the people said he’s having to learn a lot on the job.
“The asset-management business is one where all of these consultants, all of these clients, want longevity,” one former partner explained. “They are dissatisfied with the churn.”
At the investor conference, Solomon addressed turnover, saying, “Whenever you put businesses together, there’s going to be disruption and volatility.”
The CEO expressed satisfaction with the division’s leadership and optimism for its future.
“We think we’re well positioned, and one of the things that gives us such confidence is feedback from our clients about our offering, the mandates we’re competing for and winning, which gives us a lot of comfort that we have something unique that can be powerful and grow over time,” he said.
Goldman recently won the right to manage two pension funds for the defense company BAE Systems, totaling £23 billion (approximately $28.5 billion).
Fratto stated that the asset-management division was “exceeding its targets under Marc’s leadership,” adding that the firm promoted 11 investors to partner this year and hired nine managing directors to invest on behalf of clients. According to Goldman, attrition is at an all-time low.
Solomon used a similar managerial approach when naming an inexperienced executive to lead the firm’s consumer-banking division, Stephanie Cohen. Cohen had also never led a large division before, and people with firsthand knowledge of her leadership said the division suffered as a result. Solomon finally pulled the plug and ordered a large-scale retreat after head count and expenses skyrocketed in 2022.
Cohen is now on leave, overseeing a much-scaled-down division called platform solutions.
Solomon “has a big ego, is ambitious, and really wants to disrupt,” one of Solomon’s former partners said, adding, “He wants to think outside the box and wants people who don’t seem to make sense. He underestimated the pushback he would get from the people on the ground.”
There are additional examples. Kathy Ruemmler, President Barack Obama’s White House counsel and a former Justice Department attorney who assisted in the convictions of Enron executives Kenneth Lay and Jeffrey Skilling, was appointed as Solomon’s chief legal officer. Ruemmler joined the firm in 2020 as the head of regulatory affairs and rose to become the firm’s top lawyer the following year.
Unbeknownst to Goldman’s partners, Ruemmler met with convicted sex offender Jeffrey Epstein dozens of times before joining the firm, The Wall Street Journal reported earlier this year. While Ruemmler disclosed the meetings before being hired, according to a Goldman spokesperson, her hiring in the face of that knowledge has several people who spoke with Insider questioning Solomon’s judgment — Ruemmler cochairs Goldman’s reputational-risk committee.
“I regret ever knowing Jeffrey Epstein,” Ruemmler told The Wall Street Journal.
Lower bonuses, more issues
Pay is one thing that can be relied on to alleviate personnel issues on Wall Street. Solomon failed to deliver on that front last year, as the mergers and acquisitions and initial public offerings boomed.
However, among Goldman’s highest earners, the question now is whether the 2022 bonus disappointment is part of a changing norm as Solomon adjusts how to distribute wealth in good and bad times.
Goldman Sachs partners are compensated well by any standard: $950,000 in base salary plus annual bonuses that are often multiples of that. Because of a pandemic-fueled increase in trading and investment banking, bonuses were exceptional in 2021.
But, according to those interviewed by Insider, last year felt very different. The unease began around midyear, when Solomon and Waldron began communicating compensation levels to managers in a way that led many people to believe that something had changed about their approach, according to four of the people.
That was right around the time that losses in Goldman’s consumer bank began to mount, and it didn’t take long for partners to notice.
Though partners had long been accustomed to working from the bottom up to determine compensation levels, Solomon and Waldron imposed top-down figures last year that suggested they had little understanding of what each desk or business was paying its employees, according to the people.
Two of the people told Insider that when managers looked at their teams and calculated the base salaries they were paying and the bonuses they expected to pay to keep people, the two sides were far apart. Goldman had set aside more than $3 billion for compensation and benefits heading into the fourth quarter of the previous year.
Managers resisted the top-line figures, and by the end of the year, Solomon and Waldron relented and increased the compensation pool.
The adjustment increased the compensation ratio for the year to 32%, up from 30% the previous two years, and resulted in fourth-quarter results that, according to one analyst, were “even more miserable than anticipated.”
However, three former partners interviewed by Insider said they had come to believe that Solomon favored shareholders over employees. After all, Solomon had been appointed CEO in late 2018 with the goal of increasing corporate accountability at a company that had previously operated as a private partnership before going public in 1999.
In other words, it was a clear signal to them that the way Goldman had traditionally paid its employees — for example, by paying investment bankers to maintain relationships even when dealmaking was slow — had fundamentally changed.
According to Fratto, the spokesperson, “the process for compensation did not change at all. Business heads fight for compensation for their people every single year. The only thing that changed in 2022 was that it was a relative down year off a record high in 2021.”
Current partners are now looking to the 2023 compensation cycle for signs that Solomon is still looking out for their best interests. Some fear that if the year is 2022, there will be another wave of exits.
“A decade-high decline in compensation in 2022 probably caused a degree of extra concern on the part of some employees,” Mayo wrote in his report dated September 18. He also expressed concern that Goldman “might feel compelled to transfer more wealth from shareholders to employees in order to appease any potential situation.”
Increased Fed scrutiny
What is undeniable is that, as Goldman’s staff has grown in size, Solomon and Waldron have less flexibility in terms of compensation.
Pay and benefits, for example, fell 15% last year, while staff increased 10%.
Over the four years to 2022, head count increased by 33%, from 36,600 to 48,500. Many people who work in technology or consumer banking earn a higher percentage of their total compensation in base salary. Investment bankers and traders, on the other hand, receive a larger portion of their compensation in variable bonuses.
“It was a massive ballooning of head count to support the consumer and tech build-out,” one of the people said, referring to Goldman’s expansion into lower-cost locations like Texas. “Those are Plano residents earning $100,000 per year, so there isn’t a lot of variation.”
Solomon has started to reverse the trend, firing 3,200 people earlier this year, bringing the total increase during his tenure to 21%.
“If you have a blowout year, you pay top performers very well. You don’t need to use those discretionary dollars on people who have more of a fixed compensation scheme. It also works in reverse, so you can’t pay top performers very well in down years,” said one of those who spoke with Insider.
Fratto disagreed, saying, “This makes no sense for Goldman Sachs’ compensation structure or decision making.”
According to some, the increase in head count has resulted in more bureaucracy. Solomon, to his credit, has sought to eliminate red tape wherever possible, for example, by encouraging partners to call or text him directly rather than going through assistants, according to one person who spoke with Insider.
However, for dealmakers like investment bankers, traders, and portfolio managers, a significantly larger firm risks becoming unwieldy. Three of the people said that partners’ roles are now being dominated by more paperwork than they would like.
More people will face increased pressure as Goldman ramps up hiring in response to increased scrutiny from the Federal Reserve.
Bloomberg reported last month that Goldman was hiring for hundreds of back-office positions to help address the Fed’s concerns, but sources told Insider that it could take months, if not years, for Goldman to shake the Fed’s scrutiny.
While most banks face regular scrutiny from regulators, some people believe Goldman’s attention is being drawn in part because of Solomon’s aggressive push into consumer banking, a highly regulated industry.
“The Fed is all over us,” said one. “And David refuses to admit it’s all driven by the consumer business.”
GreenSky jokes from clients
Solomon publicly admitted in 2022 that Goldman’s consumer ambitions were costing the company too much money. He’s been reducing them ever since. Late last month, for example, Goldman sold a business it acquired when it paid $750 million for United Capital Financial Partners in 2019.
In addition, the bank is selling its GreenSky point-of-sale financing business. Nonetheless, the $2.2 billion acquisition, which Goldman made in 2021, continues to irritate Goldmanites. Many people at Goldman never understood the deal, particularly those in the investment-banking division who had spent their careers advising corporate executives on takeover targets.
With GreenSky, Goldman transformed a financial-technology firm valued at a high multiple that was funded by other banks into a business dependent on Goldman’s balance sheet and valued at a lower multiple.
Not only internal employees have noticed. One former partner who spoke with Insider said that when calling on clients, people had to answer for Goldman’s mistakes in consumer banking.
“It’s kind of embarrassing when you’re pitching M&A business to a client, positioning yourself as the best M&A advisor, pointing to these credentials, and our own deals have been an absolute mess,” the person explained. “There are a lot of jokes clients make, and some of them are true: why hire you to do M&A if you can’t even do your own M&A?”
Fratto noted that Goldman had been ranked first in M&A advisory for the past 20 years, and that the firm’s consumer problems were mostly behind it.
“We began narrowing our consumer ambitions nearly a year ago, have been executing on that strategy ever since, and the market has reacted positively,” he explained.
To Solomon’s credit
According to Goldman, much of the negative press surrounding the CEO has come from former partners who disagree with the firm’s direction, and Fratto says it’s “not surprising” that many of Insider’s sources were “disgruntled former employees.”
Nonetheless, Solomon appears to believe that if he can win back the former partners, some of the noise will subside, according to one of the former partners.
To that end, Solomon has gone on the offensive, tasked Alison Mass, the chair of investment banking, with leading the office of alumni engagement and winning back the partnership’s hearts and minds. Mass has hosted a number of dinners and get-togethers for former partners in cities such as London, Paris, and Chicago, where Solomon and former CEO and former Treasury Secretary Hank Paulson addressed a group of ex-partners.
“He’s on a campaign to reconnect with his ex-partners,” said one person who saw Solomon at one of the alumni events. “If he can get them to back off and be supportive, that will help.”
Solomon has also courted partners at his lower Manhattan Wooster Street apartment.
Solomon rehired a respected former partner, Russell Horwitz, as the firm’s chief of staff earlier this month. Several former partners who spoke with Insider backed the move.
The stakes are high as Solomon faces the most difficult challenge of his five-year tenure.
The company’s board of directors met earlier this month, and firmwide succession planning was high on the agenda. In addition, the bank will report third-quarter earnings next month. Ryan, the JMP analyst, predicted $12.4 billion in quarterly revenue, the highest in six quarters.
If Solomon can improve his numbers and weather the media storm surrounding partner exits and his personality, he may outlast his detractors.
Mayo concurs, writing after meeting with Ogunlesi that “our conclusion is that the CEO is not going anywhere anytime soon,” citing his belief that the “board is in anything but caretaker mode, as reflected by the engagement of the lead director.”
That means Solomon has time to leave his mark.
“The people who are really unhappy with the way that David has run the firm are being flushed out, they are cutting their ties with the firm, and they are deciding it’s not the place it used to be,” one of the former partners said. “Those who are left behind are those who support; this is a watershed moment.”
