The New York Times Op-Ed resignation by Goldman Sachs executive director Greg Smith is perhaps the most brilliant essay ever written on the importance of company culture to business success. Smith’s essay is not simply a warning to the public about the potential impact of Goldman Sachs toxic culture on global finance (and perhaps even your personal investment portfolio). The underlying message is more profound than that. Smith’s courageous essay outlines important lessons any company can learn and apply if to wants to realize the benefits: happier employees, happier customers, increased profitability, and higher revenues.
Let’s break down Smith’s essay into the most essential lessons you can learn and apply to create a thriving healthy company culture in your business.
Lesson #1: Why Company Culture is the “Secret Sauce” to Business Growth
Multiple years of research studies reveal how companies with strong corporate cultures outperform other companies that don’t. Here are the facts: Revenues grew four times faster, stock prices grew 12 times faster, profits were 750 percent higher, and customer satisfaction doubled. A healthy, thriving company culture yields many other benefits such as reduced employee turnover, lower marketing costs, and powerful brand image—all factors that drop right to the bottom line.
Lesson #2: Company Values Is the Most Important Driver of Culture
When a company defines their core values, they describe the actions and behaviors they wish to see in the people who work for their company. Core values drive recruiting, hiring, firing, managing, leadership development and so many other day to day decisions.
Smith began his essay by describing the core values of the Goldman Sachs he joined 12 years ago as revolving around “teamwork, integrity, a spirit of humility, and always doing right by our clients.” It was a company he loved and respected so much he was selected as one of 10 people (out of 30,000) to appear in the company’s recruiting video which is played on college campuses worldwide. Twelve years later, Smith can hardly recognize the company he once loved and respected, describing the culture today as “toxic, destructive and purely how we can make the most possible money off of them [clients].” You may wonder how a company can change so dramatically in 12 years. The answer is in the following two lessons.
Lesson #3: The CEO Drives Culture
Company Culture flows from the top down in organizations. Like it or not, it is ultimately the CEO that influences (consciously or unconsciously) a company’s culture. If the CEO does not passionately believe that culture is critically important to business success, and intentionally make it a priority, then the company culture is left to flounder and by default becomes one that is described as dysfunctional.
Smith said, “When the history books are written about Goldman Sachs, they may reflect that the current chief executive officer, Lloyd C. Blankfein, and the president, Gary D. Cohn, lost hold of the firm’s culture on their watch.”
Even in companies that undergo radical organizational change and “empower” people and teams to drive change, culture change simply cannot be created without the support of a CEO that gets it. But this is only the first step. The CEO must make sure EVERY senior leader gets it too.
Lesson #4: Senior Leaders Must Walk the Talk
Senior leaders must take every opportunity they can to lead by example and “walk their talk.” Leaders must inspire and teach others to lead through their own actions. If they say risk and innovation are important, they not only show this in their actions, but also encourage and support others to take initiative. Leaders foster trust through an open and transparent leadership style. They let people know what is expected of them and why it matters. They energize people by describing the larger vision while focusing on short-term accomplishments and quick wins that create momentum. And they follow through on their promises and commitments.
Smith understands how senior leaders at Goldman Sachs failed to understand this leadership lesson. He said, “The firm changed the way it thought about leadership. Leadership used to be about ideas, setting an example and doing the right thing. Today, if you make enough money for the firm (and are not currently an ax murderer) you will be promoted into a position of influence…. It makes me ill how callously people talk about ripping their clients off. Over the last 12 months I have seen five different managing directors refer to their own clients as muppets…” “These days, the most common question I get from junior analysts about derivatives is, “How much money did we make off the client?” It bothers me every time I hear it, because it is a clear reflection of what they are observing from their leaders about the way they should behave.”
Lesson #5: Do What is Best for Your Customers
The goal of any business is to create customers, and without them, a business ceases to exist. Smith understands this basic truth. His plea to the board of directors is to “Make the client the focal point of your business again. Without clients you will not make money. In fact, you will not exist…It astounds me how little senior management gets a basic truth: If clients don’t trust you they will eventually stop doing business with you. It doesn’t matter how smart you are.”
Smith goes on to say, “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. If you were an alien from Mars and sat in on one of these meetings, you would believe that a client’s success or progress was not part of the thought process at all.”
Most businesses would say they are customer focused, but are they? Ask yourself questions like, “Do we ask our customers to participate in our most important planning meetings, or do we just assume we know what they want?” “What do we do to earn our clients trust, everyday?” These are questions every business should engage in answering.
Lesson #6: Employee Satisfaction Comes Before Customer Satisfaction
As stated in Lesson five above, customer focus is critically important to any business, however companies with a “customer is always first” mantra have the formula backwards. It just doesn’t work the other way around. Businesses must place an emphasis on putting employees first. If they do, employees will always move mountains to take care of customers. To illustrate how this simple principle works, just think of a time you were in a store making a purchase and you experienced a disgruntled employee who was complaining about the company. How did that make you feel as a customer? Did your experience add or detract from how you felt about the company? Now think of a time you experienced great customer service. The reason you felt good was probably because of the experience you had with an employee.
Companies that truly value and appreciate their customers create a culture that is respectful to both customers and employees. In a world that is now driven by consumer generated media, if you don’t pay attention to both employees and customers, you take the risk of damaging exposure from several Greg Smith’s.
Lesson #7: Company Culture is the Most Powerful Influence on Its External Brand
A company’s culture defines its internal brand. And a company’s internal brand is the most powerful influence on its external brand. When you consider what the most successful companies have in common, it’s their thriving internal culture. Companies like Zappos and Southwest Airlines understand this. Their employees and customers are their best sales team. They have happy employees, customers who rave about their business, and lots of free publicity that rewards them. They also spend remarkably little on advertising. Having a big budget is irrelevant because their strong company culture has created market differentiation, a competitive advantage you just can’t buy.
Smith’s final words were a plea to the board of directors. “I hope this can be a wake-up call to the board of directors. Make the client the focal point of your business again. Weed out the morally bankrupt people, no matter how much money they make for the firm. And get the culture right again, so people want to work here for the right reasons. People who care only about making money will not sustain this firm — or the trust of its clients — for very much longer.”
Goldman Sachs lost a valuable asset that most companies would treasure: an employee who gave his heart and soul to the business. I’m sure the company won’t value this loss, but they will come to realize what the loss of customers, consumer confidence, trust, and brand erosion will mean to their business in the long term.
Smith’s essay was far more than a public retribution against Goldman Sach’s unethical practices. After all, what he revealed was hardly new news in the world of finance. I only hope people will understand the real message behind Smith’s public resignation. This is a plea for all companies to take company culture seriously.