Greg Smith, ex- Goldman Sachs executive director and head of the firm’s United States equity derivatives business in Europe, the Middle East and Africa, resigned last week. His public statement in New York Times “Why I am Leaving Goldman Sachs” has generated worldwide debate on organization culture and ethics in financial institutions and other organizations. He clearly mentions – “And I can honestly say that the environment now is as toxic and destructive as I have ever seen it.”
Then he further articulated that now clients interests are ignored to benefit the organization. The focus shifted from making profit for the clients to making profits for the organization. Brokers suggest clients to trade in securities that benefit Goldman, even if the products are wrong for them. The “Business Ethics” blog mentions Goldman Sachs was charged with 13 cases in the last decade, hence this isn’t the first time ethics of Goldman Sachs employees have come under search light. Excessive competition to be the leader makes organization culture dysfunctional. Employees driven by salaries, bonus and other perks, find it difficult to be ethical if the tone at the top is wrong.
The research paper “Organi-cultural Deviance: Socialization of Individuals into Deviant Culture” authored by Gendron, R. and Husted – states that financial self-interest is the key reason white-collar-criminals engage in illegal acts. He states that wealth and success are the central goals of human behavior. In a capitalistic society personal wealth and power give the stamp of success. When people compete, and realize that they cannot achieve success by legal means, they indulge in illegal acts. He further describes Coleman’s thoughts as –
“Unable to lawfully obtain goals that are deemed appropriate or correct by the specific organization or society writ-large, an individual or a group of individuals may engage in neutralization strategies and begin to engage in deviant behaviors. Often more acts of deviance are required to continue to meet the organization’s or society’s goals. In this process, the individual or group may negate any concerns about their actions arguing that it is in fact “market forces at work”, that there are “no real victims” in such transactions.”
The 1998 money laundering and securities fraud case of Jordan Belfort, illustrates this thought process. Jordan Belfort in an interview mentioned that if anyone had asked him at 21, his aim in life, he would have answered = “to get rich”. Belfort while still in his twenties opened Stratton Oakmont, a securities company. He hired youngsters in their teens and early twenties to sell stock to high net worth investors by writing their sale scripts. Over a 1000 people worked in the company. In his book ” The Wolf of Wall Street” he narrates the hard playing culture in his organization –
“They were drunk on youth, fueled by greed and higher than kites. And day by day the gravy train grew longer, as more and more people made fortunes providing the crucial elements young Strattonites needed to live the Life.”
Fast cars, mansions, babes, drugs, expensive products and dysfunctional behavior defined the core attributes of “The Life” of Strattonites. Youngsters in their twenties without professional qualifications earned salaries over a million dollars. Since they spent their whole salary on living the Life, they were totally dependent on Berfort. He led the culture and in the rehabilitation center for drug addiction, he described himself as – “My name is Jordan, and I’m an alcoholic and a drug addict and a sexual deviant.”
Jordon Belfort was prosecuted and spent 22 months in federal prison for a pump and dump scheme, which resulted in investor losses of approximately $200 million. In the book he narrates that he transferred over US$ 10 million illegal cash funds to Switzerland bank accounts and FBI tracked his activities. He talks about Swiss Bank executive putting him in touch of a trustee who basically functioned as a master forger. He opened skeleton companies to pass fictitious transactions. Most of his business associates were also prosecuted by FBI as Belfort cooperated with FBI after his arrest.
Some take Gordon Gekko’s statement “Greed is good” seriously. The desire to have money and become rich fast pushes them to take risks. Since legitimately one cannot become rich overnight or have savings higher than salaries, a few break the laws. In the financial sector, with the knowledge and relationships, it becomes easier to override the laws. Hence, they pursue a rich lifestyle far more aggressively than employees of other industries. As they sink deeper and deeper in illegal activity, they believe they can control the situation and have nine lives. They ride a tiger with no capability of stopping.
- Why I Am Leaving Goldman Sachs – New York Times
- 13 Reasons Goldman’s Quitting Exec May Have a Point
- The Wolf of Wall Street – How Money Destroyed a Wall Street Superman – By Jordan Belfort
- Organi-cultural Deviance: Socialization of Individuals into Deviant Culture