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Passion, People and Principles

Goldman’s Secret

post # 65 — May 1, 2006 — a Managing, Strategy post

There is a special report in this week’s Economist magazine (issue dated April 29-May 5th 2006) on Goldman Sachs. It is essential reading for anyone who is interested in professional businesses.

The summary quote from Goldman’s CEO, Hank Paulson, is a brilliant insight. “Goldman”, he says, “is a hard place to be hired, a hard place to be promoted and a hard place to stay.” As the Economist’s writer observes – “And if you want an explanation of how Goldman endures, that, perhaps, is the best explanation of all.”

The article is rich with details of the intensive hiring process (a vice-chairman had to endure 150 interviews before being hired), the tough promotion process and, the enforcement of high standards even among the firm’s most senior people. The article says “Often enough, someone important is asked to leave. This is one of Mr. Paulson’s most critical roles.”

What all of this proves is that, in professional businesses the essence of strategy, the keys to ongoing success, are not primarily the choices of which markets to compete in and which services to offer. Such decisions, important as they are, are secondary to having processes in place which force the firm, and the people within it, to live at (and to) higher standards than the competition.

Goldman does not preach different philosophies than most other businesss would preach – commitments to client servoice, teamwork, being a place for the best and the brightest -it just has THE DISCIPLINE and the COURAGE to achieve consistently higher standards on those principles, with fewer compromises.

cover of David Maister's book, True Professionalism It's not your aspirations or your goals that define what you achieve, but the rigor of the diets you are prepared to live by. (See my article <a href=Strategy and the Fat Smoker and the chapter The Value of Intolerance in my book True Professionalism)


Steven Pearce said:

David – Are you really saying that success is predicated on discipline and courage in enforcing principles? Are the standards and principles you refer to ethical or commercial ones? If the former, I only wish that what you say were true. However, it is my experience, particularly in UK law firms, that there is very little commitment to the processes you mention AND YET THEY ARE STILL VASTLY PROFITABLE! Living at higher standards than the competition hardly says much when the bar is set so low. There is – or ought to be – an opportunity for genuine differentiation and competitive advantage here, but I have yet to see a major firm breaking ranks and, say, firing a partner for transgressing the Diversity policies which most firms trumpet in their annual reports and would have us believe are among their guiding principles. Maybe things are different in the US and a tipping point has been reached?

posted on May 3, 2006

David (Maister) said:

Steve, I clearly have not been clear!

Accepting your distinctionbetween ethical and commercial principles and standards, what I was trying to say is that many firms advocate similar COMMERCIAL principles and standards. (The examples I gave were excellence in teamwork, quality, high standards in hiring, promoting etc.)

However, firms differ tremendously in the rigor with which they enforce these standards. In many firms high standards are aimed for, but “OK” is acceptable and good enough, as long as there is a short-term profit to be made.

In other firms, the standards truly are “Excellence” and nothing less than that is accepted. They not only preach their high standards, but have practices in place to enforce them.

That’s the difference bewteen a true standard and a loosy goosy goal which forever remains an aspiration (such as the Diversity example you give.)

I’m not making moral or aesthetic points here, but simply reporting an obvious, if neglected business point – that you get the business benefits of that which you enforce, not that which you aspire to.

posted on May 3, 2006

David (Maister) said:

You posed another question which I didn’t address, Steve. Which was “How come so many firms are so profitable without being excellent and living to high standards?”

The answer, in my view, is that it is not only possible, but also prevalent, to “win ugly.” (ie achieve success in unattractive ways.)

In many firms in many professions, super profits are being obtained by working everybody to death (senior people as well as junior people), slashing support costs to the bone, and chasing every piece of potential new revenue that comes along.

You can and do make a lot of money by “working harder than anyone else with even less support than they have, and doing it for anyone who’ll pay you”

All I’m pointing out is that there is a better (real-world) alternative out there that is demonstrably making more money, by striving to be the “class act.”

posted on May 4, 2006

Ian Welsh said:

“a vice-chairman had to endure 150 interviews before being hired”

I confess that that just strikes me as absurd and an indication of bureaucratic culture adverse to risk, rather than as an enforcement of high standards.

posted on May 9, 2006

David (Maister) said:

Yes, Ian. The Economist and I both probably ruined the force of the argument by citing an extreme, counterproductive example. Taken to such an extreme, any idea, (even the wise principle of being selective in hiring to ensure a cultural fit) is going to be a very bad idea. Guilty as charged!

posted on May 9, 2006

Technology Transfer University said:

David, just want to say that I really enjoy reading your blogs, and even more, your books, you are doing a great job!

posted on February 8, 2008

Ramon1982 said:


You can and do make a lot of money by “working harder than anyone else with even less support than they have, and doing it for anyone who’ll pay you”

posted on January 17, 2010