(May 1) – “As perks go, it was hardly a lavish one. Goldman Sachs Group Inc. for years routinely offered free office space, secretarial services and insurance to more than 150 former partners who had retired from active service,” writes Randall Smith in today’s Wall Street Journal.
“It was a small part of the culture of the close-knit securities firm, which had operated as a prestigious private partnership since 1869. But after Goldman’s initial public offering last May 3, executives agreed they couldn’t justify the perk and eliminated it Nov. 30 for the majority of the retirees, at an annual cost saving of $10 million.
“‘The whole idea is public companies don’t subsidize retired people,’ laments one former partner who lost the amenity. ‘It rings a chime to say the old world is gone and the new world is in.’
“By most measures, Goldman’s first year as a public company has been a success. It has led all U.S. securities firms in underwriting domestic stock offerings and providing merger advice, latest quarterly earnings are up 17%, and its stock has risen 76% from its IPO price, outperforming an index of its rivals even after a sharp pullback since mid-March.
“Still, as illustrated by the elimination of ex-partner perks, going public has inevitably and slowly started to transform Goldman. Answering to thousands of shareholders instead of a small group of partners has brought changes to a part of the firm that Goldman prizes — its distinctive culture of high-intensity teamwork and client focus. ‘The meaning of going public to our culture is far and away the single most important matter the leadership grapples with, every day and with every decision,’ Goldman executive Robin Neustein said in a speech to high-tech executives last month.
“While acknowledging there has been change, Goldman Chairman and Chief Executive Officer Henry M. Paulson Jr. maintains that the worst fears of many inside the company have proved unfounded. Going public has enhanced the firm’s culture, he says in an interview, largely because Goldman distributed 9.1% of its stock in a huge grant among 15,000 employees within the firm — far beyond the current partners who held 56% and retired partners with 10.1%.
“Having stock to issue has also helped Goldman bring in more high-level recruits, Mr. Paulson adds, such as Jack Levy, formerly head of mergers at Merrill Lynch & Co, who became Goldman’s co-head of global mergers in March. Turnover is up only slightly, and few senior partners have left yet. “The reason I think it’s been culturally enhancing is that it’s worked. Broad ownership has worked,” he adds.
“But others aren’t quite so sanguine. Although few partners have left, there has been unexpectedly high turnover among Goldman’s private-client brokers who cater to wealthy individual investors. The defections followed a series of changes in management and compensation that some people inside and outside the firm link to a greater push for profitability and recurring revenue now that the firm is public.”