A version of this story first appeared in CNN Business’ Before the Bell newsletter. Not a subscriber? You can sign up right here. You can listen to an audio version of the newsletter by clicking the same link.
David Solomon, CEO and president of Goldman Sachs, is getting bad press — a lot of bad press.
The bank executive, who’s about to celebrate five years at the top, has been accused of poor leadership, and his ability to effectively run the company is being questioned.
His reported potty mouth, passion for DJing, lack of collaboration with other executives, emphasis on returning to the office and the recent failure of Marcus, Goldman Sachs’ consumer online banking product, have led colleagues to openly question his future at the company.
Solomon ultimately answers to shareholders, the banks’ board of directors and the bottom line. And while shares of Goldman Sachs
(GS) may be down by more than 5% this year, they’re still up by about 40% since he took over in 2018.
The Financial Times reported Saturday that the board continues to back the CEO, but would discuss internal dissent and recent media coverage next month.
Goldman Sachs did not respond to requests for comment for this article.
So what’s going on? Before the Bell spoke with Jeffrey Sonnenfeld, who runs Yale School of Management’s Chief Executive Leadership Institute, a nonprofit educational and research institute focused on CEO leadership and corporate governance, to find out.
This interview has been edited for clarity and length.
Before the Bell: What is going on at Goldman Sachs? Is this a larger leadership issue or endemic to the bank?
Jeffrey Sonnenfeld: There are several reasons that all of this is happening right now. One is that we went through a recent era of lionizing CEOs, and now the pendulum has swung back to where we’re quick to vilify them. There’s just an outsized focus on short-term performance instead of long-term change when it comes to CEOs. But if you look at the five-year arc of David Solomon, the company is up by over 50% on nearly every performance measure.
There is also a long-standing hybrid culture at Goldman Sachs that’s fairly unusual. It was one of the oldest and longest partnership firms in US history. Many of the people still working there came up in a culture of partnership, a very collaborative culture. But now they’re a public company and they have to make decisions on a faster time frame. So now they have this cultural confusion.
In a partnership, in a collectivist and highly collegial culture, it’s not hierarchical in people’s minds. So you see a significant faction challenge what the leadership is doing there and especially now that the leadership is making decisions more quickly because they have to answer to outside owners and shareholders.
There have been articles purporting that former Goldman CEO Lloyd Blankfein isn’t happy with the job David Solomon has done and that he has offered to step in to help. What do you make of that?
Somebody who is in Lloyd [Blankfein]’s situation, that’s still beloved and high-profile, is that you still have a lot of loyalists and acolytes who bring all of their laments and complaints to you. It’s an awkward situation, but Lloyd is a smart guy and realized that some of the things they’re saying are right.
But he’s still gone out of his way in the last week to say some supportive things about David Solomon. There were people who were critical of Lloyd when he stepped in, and Lloyd has proven himself to be one of the most articulate, smart and witty financiers of all time, but he wasn’t in the very beginning.
What about the failure of Marcus?
Investors are hung up on the failure of Marcus. But the product largely failed because of the current interest rate environment that nobody saw coming. That’s hurt the attractiveness of what they can do on the consumer side with Marcus.
Look, innovative companies make mistakes. One of the biggest acquisitions in Microsoft’s history, at least the highest profile, was buying Nokia. [In 2015, Microsoft recognized a $7.8 billion loss from its Nokia acquisition and ended its mobile phone endeavors.] Microsoft has done just fine anyway.
These companies learn by some of the mistakes they make. Every great innovative leader has made profound mistakes. And in the case of Marcus, Solomon inherited the idea and then had to reposition it in a very different economic environment. I think that some of the grumbling is understandable, but this isn’t a toxic mistake.
A lot of the criticism around Solomon has to do with his brusque personality. I’m curious, is he getting in trouble for not playing the role of politically correct spokesperson?
David [Solomon] doesn’t work to play diplomat, he’s very transparent. So that is different from the old golden culture of that partnership era. He’s not deceitful, he’s painfully honest. He’s rough around the edges and he’s a bachelor, which may cause some differences socially. Maybe a coach wouldn’t hurt along the way. In high office of a public or private enterprise, you do need to be a little bit more circumspect. I think that there could be some adjustment in his style, that wouldn’t hurt.
So is this more of a disagreement between two different cultures at Goldman and less of a comment about the changing role of CEO in general?
There is undoubtedly some degree of a cultural lag factor here because the people in charge at Goldman are still part of the hybrid generation; they were around before the company went public. All of the baby boomers and some of the millennials came up in that culture of partnership.
China has surprised investors by deciding not to cut an important interest rate that influences mortgages, in a move that economists say will make it tough to revive confidence in the country’s troubled real estate sector which has dragged down prospects for the world’s second largest economy.
The People’s Bank of China kept its five-year loan prime rate on hold Monday, while trimming its one-year loan prime rate by one tenth of a percentage point, my colleagues Juliana Liu and Michelle Toh report.
The cut to the one-year rate was widely expected, but the lack of action on the five-year rate was not. Nearly all of the analysts polled by Reuters had predicted that the five-year rate, which serves as the mortgage reference rate, would also be reduced.
The outcome was “underwhelming,” Julian Evans-Pritchard and Zichun Huang of Capital Economics wrote in a Monday research note.
“On its own, the latest round of cuts is too small to have a big impact,” the China economists wrote.
Stocks in Hong Kong and mainland China, as well as the Chinese currency, weakened on the news. Hong Kong’s Hang Seng traded 1.8% lower, falling deeper into a bear market, while the Shanghai Composite was down more than 1%.
More interest rate decisions are expected this week in Asia. The Bank of Korea and Bank Indonesia will make policy announcements on Thursday.
Chinese consumer spending, factory production and investment in long-term assets (such as property, machinery or other goods) all slowed in July, according to the country’s National Bureau of Statistics.
Youth unemployment in the world’s second-largest economy has repeatedly hit record highs. And an ongoing real estate and debt crisis has some investors fearing the potential of a “Lehman-like” moment for China.
More than 6,500 flights were delayed or canceled across the US on Sunday as the west coast braced for the impact from post-tropical cyclone (formally hurricane) Hillary, reports my colleague Eva Rothenberg.
Those delays continued into Monday, with about 800 delays or cancellations so far this morning.
According to flight tracker FlightAware, some of the most affected airports are Harry Reid International in Las Vegas, where about 350 flights have been canceled, and San Diego International, where some 40% of arriving and departing flights were canceled on Sunday.
Hilary brought severe flooding to parts of California and Nevada, which do not normally experience this type of rain.
All coastal tropical storm warnings have now been discontinued but flood watches remain in place for over 25 million people from Southern California northward to northern Idaho and strong winds are expected to persist across portions of the western US Monday, particularly in and near areas of higher terrain.