What Happened to Goldman Sachs
Ex-banker turned sociologist on organizational drift.
Summary
Steven Mandis worked at Goldman Sachs for twelve years and then took a doctorate in sociology at Columbia, writing this as his research. The combination is the book's distinguishing feature: it applies organisational sociology to a firm the author knew from inside.
His central concept is organisational drift, taken from Diane Vaughan's work on the Challenger disaster: an organisation moves gradually away from its stated standards through a sequence of small adaptations, each defensible at the time, with no point at which anyone decides to change. Mandis argues that Goldman's shift from a client-focused partnership to a firm whose conduct produced the Abacus transaction and the resulting reputational damage occurred through drift rather than through decision.
The specific pressures he identifies are the change from partnership to public ownership, which replaced partners' unlimited liability with shareholders' limited liability and changed the time horizon; the growth in size, which made the informal cultural transmission of the partnership impossible; the shift from advisory to principal activities, which put the firm on the other side of trades from its clients; competitive pressure from firms with lower standards; and technology, which made client relationships more transactional. He is careful not to attribute the change to individual bad conduct. The book is measured and its central concept applies well beyond Goldman. Mandis is a former employee writing sympathetically, which readers should weigh.
Key takeaways 7
- Organisational drift means an institution moves away from its standards through small defensible adaptations with no point of decision.
- Converting from partnership to public ownership replaced unlimited personal liability with limited shareholder liability and changed the time horizon.
- Growth in headcount made the informal cultural transmission that a partnership relied on impossible.
- The shift from advisory work to principal trading put the firm on the other side of transactions from its own clients.
- Competitive pressure from firms with lower standards pulls conduct downward across an industry rather than only at the offending firm.
- Mandis argues that no individual decided to change the firm's standards, which is what makes drift difficult to detect or resist.
- Stated values persist unchanged while behaviour drifts, which is why the gap becomes visible only in a crisis.
Who should read it
Executives and investors interested in how institutional standards erode without anyone deciding to change them, applied to a well-known case.
Where it sits in the reference 2
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