Behind the veil of secrecy of Goldman Sachs’ promotion process

By Jill Treanor  /  The Guardian

Tue, Nov 13, 2012 - Page 9

The telephone call lasts just a few seconds. The words “congratulations, you’ve become a partner,” are just about all Goldman Sachs chief executive officer and chairman Lloyd Blankfein will have time to say to the 85 or so banking high-flyers he will call tomorrow to invite into one of the most prestigious and lucrative cliques on Wall Street.

It is a day of huge expectation for individuals spanning time zones from Sydney to New York who are waiting to hear that they have been given a position for which there is no job advertisement and no interview.

The whittling down of the candidates was under way last week in Goldman Sachs’s head office in New York. Stretching across several days, a team of partners led by London-based Michael “Woody” Sherwood were deciding upon whom to bestow the glittering title of Goldman Sachs partner.

The decision comes at the end of a thorough, secretive and sometimes brutal decisionmaking process that happens only every two years. This year’s deliberations began in the summer and include the selection of managing directors, one rung below partnership.

With the title of partner comes prestige that is arguably unrivaled in the financial world. It also brings vast wealth in the form of a partnership bonus pool that pays out millions of US dollars each year. It also opens the door to high-profile career moves: former US secretary of the Treasury Hank Paulson was in the golden circle, as was one-time BBC chairman Gavyn Davies. Annual payouts can reach tens of millions of US dollars — each — on top of annual salaries which are thought to start at almost US$1 million. Blankfein, for instance, took home more than US$16 million last year, according to Forbes, and received US$68.5 million in 2007.


To be selected, candidates will have survived a process known as “cross-ruffing,” a term borrowed from the card game bridge. Insiders describe it as a rigorous cross-checking procedure that involves teams of Goldman partners interviewing each other about potential candidates.

The individuals being cross-ruffed should, in theory, be unaware that their strengths and weaknesses are being scrutinized. They are not interviewed.

However, in reality, the hierarchical nature of the firm means that anyone with any ambition will be aware they are next in line for promotion, and William Cohan, a former US banker who authored a book about Goldman called Money and Power, said the partnership selection procedure was “an incredible endurance test on one hand and incredibly anxiety-inducing on the other.”

The Goldman hierarchy is rigid. Graduates are hired as analysts while business school graduates come in as associates. The next rung is vice president — the level attained by disgruntled former employee Greg Smith, who has just written a book about the hard-nosed culture of the bank — which is known as executive director in London. Then comes managing director — there are hundreds of them — and ultimately the role of partner managing director, the highest level in the firm.

Sherwood, a partner since 1994 who can still recall the brief, but crucial, call he took 18 years ago summoning him into the elite group, describes how partners are given the job of interviewing their fellow partners to discuss candidates put forward by divisional heads. The partner selected to cross-ruff is always drawn from another part of the firm, possibly even in another part of the world.

The process, which Cohan believes was formalized by former Goldman banker and existing board member Stephen Friedman, continues even though the firm was floated on the stock market in 1999 and is no longer a partnership in the conventional sense. However, the idea of partnership was retained “to maintain various core aspects of the firm’s partnership culture among its leaders, including teamwork, client focus and a commitment to excellence.”

To those inside the firm, the status is much more than just a job title.

“The idea of having a partnership within a public company is quite literally brilliant,” said one partner, who has now left.

This year, 33 partners have departed, leaving the total at 407 before the new crop — or “class” as Sherwood describes them — are appointed this week. Those who leave the partnership — often only in their late 40s and early 50s — go on to other careers, retire or stay on as advisory or senior directors. Some even join the board, as is the case of Goldman’s outgoing chief financial officer David Viniar.

In 2010, Blankfein made calls to 110 new partners. This year he may not spend so much time on the phone: the precise number of new appointments is still being worked on, but at a time when the firm has been cutting staff to save costs, it is likely that this year’s “class” will be fewer than 100, with speculation that between 75 and 100 Goldman bankers will make the grade.


One aspiring partner described how the “process is intense.”

“It’s a brilliant process, but it is a reasonably odd one because as a candidate you don’t have an interview. No one talks about it, but everyone knows you are up for it. People are asking questions about you, but you are having zero involvement,” the aspiring partner said.

Cross-ruffing allows comparisons to be made. Rankings given to candidates by the department heads are cross-matched against those drawn up by the partners leading the assessment process. Differences are sometimes exposed. Sherwood stressed that it “is not about how you did any one year.”

If the process of being named a partner sounds grueling, getting a foot on the ladder lower down the firm is tough too. Even though many investment bankers are now often ashamed to say what they do in polite company and Goldman is often portrayed as the epitome of all that is wrong in the financial world, it is a still an organization that ambitious people scramble to join.

Goldman’s annual report reveals that almost 300,000 people applied for jobs in 2010 and last year. Fewer than 4 percent were hired “and though most had multiple offers, nearly nine out of 10 people offered a job accepted.”

Cohan wrote in his book that candidates can be subjected to 30 interviews and describes Goldman as a place that is not for “prima donnas,” but “stuffed to the gills with high-achieving alpha males.”

Each year there is a formal assessment process. Staff are subjected to a 360o review where they are rated and assessed by their peers, subordinates and superiors.

These assessments are resurfaced during the final selection process in the promotion to partner. Few are hired from outside at partner level, although these so-called “lateral” hires can hope for fast-track promotion.

While the cross-ruffing process sounds exhaustive, Cary Cooper, professor of organizational psychology at Lancaster University’s School of Management, thinks it has serious shortcomings.

“There’s no process, no criteria. Staff could wonder: ‘Why should I stay here when I don’t know if I’ll get the opportunity to become a partner?’” he said.

The easy solution would be to select those who generate the most revenue for the firm. This is what Smith suggested when he resigned from Goldman and penned an excoriating attack on the firm and its culture in the New York Times.


“Today, if you make enough money for the firm [and are not currently an axe murderer] you will be promoted into a position of influence,” he wrote.

Sherwood disagrees. In his view the partnership is something far more altruistic: “It is often about doing something that is good for the whole firm, to make the firm better and subduing your individual motivation and aspirations for the good of the whole firm.”

Acting for the good of the partnership is a prerequisite once membership of the exclusive club has been attained. The average tenure of a partner is eight years.

As Cohan puts it: “It’s very good for the junior people.”

Viniar reckons that 20 percent leave every other year. However, it is not just a benevolent act to encourage younger bankers. It is also about the bonus pool that exists for the partners.

The prospectus accompanying the 1999 flotation described the process: “Upon selection to the partner compensation plan, participants will be allocated a percentage interest in a pool for annual bonus payments in addition to base salaries. The size of the pool will be established by the partner compensation plan committee annually, taking into account our results of operations and other measures of financial performance.”

In 2009, in the wake of the financial crisis, the 100 London-based partners decided they needed to demonstrate that they understood public anger with the banking sector — so they capped their pay and bonuses at £1 million (US$1.5 million) each. However, that was a one-off.

Sherwood says the partners’ bonuses are handed out after the wider bonus pool is agreed on and that the process of becoming a partner is a meritocracy.

“Some are great leaders, some drive the organization, others are just incredibly productive people or are building new businesses. Some are lateral hires. There is no particular person, there is no particular nationality, race, region or gender. It’s a collection of very motivated, very diverse people who come from all types of different backgrounds,” he said.

“If you talk to the candidates, it is a very aspirational process,” Sherwood said, acknowledging that it also means that some hoping to become partners will not make it.

Those aspiring partners who pick up their phones this week and do not hear Blankfein’s New York tones but, perhaps, the more familiar voice of their divisional boss on the end, will know their time has not come.

Some will walk, but others, as Sherwood puts it, “will go back to their desk and work hard” and try again in two years’ time.