Lloyd Blankfein on His Memoir, Risk Management and Leadership

I think we were very, very good traders. But really what we were, we're very good contingency planners. And if you contingently plan well enough, when that remote contingency happens, you get off the block so quickly, people think you anticipated the start, you anticipated the gun, when in fact, we just heard the gun and acted quicker. So we're thrilled to be joined today by Lloyd Blankvine. Lloyd served as our chairman and CEO from 2006 to 2018, after serving as president and chief operating officer under Hank. Lloyd played a big role in building a lot of our sales and trading businesses early in his career, played a huge role in shaping the firm's approach to risk management, but he's probably best known for his humor and for leading the firm through the financial crisis and its aftermath. His leadership at that extraordinary time made him one of the most respected corporate leaders, not just on Wall Street, but around the corporate world. And today, we're excited to have Lloyd here to talk about his forthcoming memoir, Streetwise, Getting to and Through Goldman Sachs. And so Lloyd, first of all, welcome back to Goldman Sachs, and it's great to have you here. And David, listen, thanks so much, because you've been terrific through this whole process. So thanks for the support and helping to promote it. Absolutely. Well, the book really starts your childhood in Brooklyn, to your journey, to your time at the firm, and all the lessons you learned along the way. And so I want to kind of walk through some of that. And I know a lot of people in this room don't know that the former CEO of Goldman Sachs used to sell peanuts at Yankee Stadium. I did. Yeah, you did. Not beer, because you weren't old enough to sell beer. No, but I used to walk up, this was in the old Yankee Stadium, steep steps, you'd have to go, and some guy, and he made a commission of like seven cents on a $25 item. And some guy way up there, I recall and you'd actually, it was Frankfurt, where you had to carry like in water and stuff, like weight about 400 pounds. And you'd make a total of like, I think, two and a quarter cents if you walked up there and you made the sale, and I used to do that stuff. So you write the book that at one point, escaping your childhood neighborhood was your primary ambition in life. Tell us a little bit about kind of your childhood and the journey that kind of led you not too far from the neighborhood to Goldman Sachs. You know, I had two parents and relatively crazy but stable background, but I did grow up in public housing in Brooklyn. And it was kind of, you know, struggle was always, you know, my father was unemployed for a while. One thing I didn't have to do and one of the advantages, and the first chapter of the book I call advantages, which is I never had a source my motivation. I knew that I really wanted to get out, to get away. You know, we lived very tight quarters in the projects, public housing, and always shared a room alternately with my sister who was a little older than me, and she had a kid very young. And for me, getting away meant going to an out-of-town college. If I got to an out-of-town college and I got away and I broke, I'd be able to go like, it was like watching old TV show like Father Knows Best or one of those TV shows where the guy has, where the people live in a house and there's like grass in front of the house and stuff as opposed to concrete and broken glass. And that's what I aspire to. And then I went to a college night at a high school, at a different high school because nobody from my high school went to college or very few did. You know, I went up to a booth and there was, you know, there was a guy from Harvard sitting behind him. He gave me an application and I filled out the application like you'd fill out a landing card when your, you know, when your plane was coming in. You know, I'd ask the question like, what was the, you know, what was the greatest thing in your life? It's the greatest thing in my life was, you know, and I would just fill it out like that. That was easy breezy. And I got in. Did you go right to law school after Harvard? I did. But at that time you had to take out big loans. Loans start to, you know, come into effect unless you keep going to school. So I kept going and going to school. I worked at a law firm after. So you got a job there. I got a job, you know, mid-March to a partnership if that ever were going to come, which used to be about eight or nine years, right around year four or five, which I was in, everybody sort of looks around. And so I, what else do you do when you live in New York? You, you, you apply to financial firms and I didn't know very much and I didn't do the work that you need today. And even when I, when I was there, the people you'd interview people, they'd know more about the firm than I did when they were interviewing. Cause that's what you had to do. I didn't do that. I didn't know you're supposed to do that and got turned down by everyone, including, including Goldman. But I did get a job at J. Aaron in the, while J. Aaron and Goldman, while Goldman was acquiring J. Aaron. And that's how, that's how I got into the firm. What was it like joining J. Aaron in 1982? What was, what was J. Aaron like in 1982? When I got the job, I was interviewed by Dennis Susskind, who's, you know, big personality, big guy and big personality. And he kept calling me at the interview, college boy. I realized at the time that was, he didn't go to college. A lot of other people didn't. I realized that the uniqueness of me is that I went to college. And, and you walk into a trading room today and you can hear a pin drop, people sitting next to each other, talk to each other digitally. In the other old days, people shouted across the room. I used to interview people later on by putting at the last interview, I put somebody at the opposite end of the trading floor and I'd stay here and say, let's continue the interview to see if they can actually yell across the room. And that's what you did. And in those days it was like this. And, um, I remember Dennis said, Hey, college boy, do you think you can work in a place like this with those screaming around? And I said, work in it. I go home to it every night. And that's true story. And he remembers it. And that's, and then I got the job and I was so pleased with myself. And then when I joined and then when I actually showed up, somebody pointed out to me and which is appropriate for, for, from the trade of gold, they regarded the interviewing process as their words, mud down a sluice, you know, a sluice. They would hire 30 people and hope out of the 30, they'd get one nugget. So the idea was that they'd hire a lot of people and let's see if any were left at the end of the year. I didn't know that I thought I survived this process and there I was. And so that was the kind of wild and wooly, you know, it was the Hunt brothers were cornering the market and gold went from like $35 to $850, which by the way, took only about 35 years to get back to, and they were doing really well. And it wasn't a terrific business. It just, they got caught up in that, but the shrew traders that they were at the tippy, tippy top of their opportunities, he gave a near shaking his head at the tippy, tippy top of his, at the opportunity, they extrapolated that out to infinity and sold it to Goldman Sachs. Thereby establishing the relative trading acumen of the two organizations. That was J. Aaron. It was a really tough crowd and ultimately J. Aaron was saved because some of the people from, you know, Mark Winkleman and a few other people from Goldman proper got moved down and basically reshaped it and shaped it. You talk in the book about the fact you were able to rise through Goldman Sachs because you were better at managing down than managing up. Describe what you meant by that. And I think this is a kind of a universal thing that people should know in this firm. I can't tell you that applies everywhere. When you're rising, even as a leader or a manager in the firm, you really need the support of people under you. People can technically support you. They can comply with your request, but they could do it grudgingly, answer the narrow question that they're being asked, give you a hard time in other words, or otherwise they could support the heck out of you. Tell you things before you ask the question, give you a real answer, see things and support you. And there's kind of a contract between people that, you know, when you're a leader, you're going to you're going to advance their interests and you're going to support. And I don't mean just be their agent. I mean, advance their interest by teaching them, investing in people. And usually and that gets reciprocated by support the other way. But if I had to push a button and choice between the two, I'd rather have I'd rather have the support of the people that are working for me, working with me, than people above me hoping that I succeeded. I'd rather have the people under me wishing that I succeeded. One of the things that you spent a bunch of time in the book, that's obviously hugely important to all of us at the firm is the partnership culture. And you talk about how hard the firm fought to preserve it through the IPO. And you and I had a discussion yesterday when we're on the phone, just talking about how miraculous it is, you know, 27 years after the IPO, that this public company, you know, still has this deep, deep partnership culture. Yes. And what's the partnership culture? It's a sense of ownership. Somebody in investment banking in Tokyo screws up, you know, you pay the price reputationally if you're a bond trader in New York. So you have big years public, you know, being a partnership means that, you know, as a leader, you're talking to people who who kind of own the firm and have an expectation. They expect to know more about what's going on the firm, not just in their narrow area. They have a sense of that sense of entitlement. There's a feeling, you know, sometimes things go a little slower because when you're managing that, you know, you socialize things a little bit more. It's not like lightning bolts radiate from your fingers. You tell people what you want to do. You wait for the reaction. Then you say it again. You wait for the reaction. Guess what? Maybe even change your mind. You have to adjust or you postpone things. And that's not the way in a much more hierarchical corporate setting. In a partnership, almost as a legal definition, you're mutual agents for each other. It's not command and control. And in order to make that work, you actually have to believe it and you have to perform that way. And you have to really do socialize it and really do listen and really change your mind and really think you can't do something if your partners are against it. And sometimes it can be frustrating and slowly and you want to do things and you kind of know where you're going to end up, but you take the time doing it. And as a result, you get more of an ownership culture where everyone feels responsible for the whole. Everybody has big ears. Everyone listens. Everyone throws in. And as a result of that, you have a much better, coherent, stable organization. And Hank did that. I did that. And I know that you do that. And it's very different. If you spent your whole career here, you may not know that, how things work in other places where I'm in the blippity-blip division. You ask them about another division of the firm or somebody four offices down, they have no clue and are surprised that you think they might. That's not their job. Here, it's your life. You own it. And as a result of that, a lot of things come from it, like the loyalty and commitment of people for their whole lives, even beyond your career at the firm. I'm outside the firm now. And I can tell you, I always thought this, but people have been out of the firm for 20 years. And when somebody asks them, sometimes your situation go around the table and somebody has to explain themselves, they start with, I'm a alum of Goldman. They were Goldman Sachs for five years. They worked somewhere else for 22 years. And they self-identify as ex-Goldman. And there's value to that. There's a lot of other elements. I talk about this in the book, what I think are the elements of a partnership culture and what it takes. And again, you know this and you live it. And it's just different. And the result of that is what we have here. Are you surprised we've been able to do it? Because if you step back and you said at the time, and you were here in 1999, that's when I arrived at the firm. It certainly was hard to imagine that 27 years later, it's very unique. There's no other firm that I can think of. It's a public company that has this unique thing. Nobody rolls their eyes or acts cynically when somebody says, you know, he or she is a partner of Goldman Sachs, right? How can you be a partner of Goldman Sachs? Not really partners of Goldman Sachs, but really aren't. You act that way and you live it. But it only happens because you live that way. You stepped down as CEO in late 2018. Talk a little bit about how your view of the firm has evolved with the passage of time and also as you've lived, you know, not lived so intensely inside Goldman Sachs for so long. Now you live not so intensely outside of Goldman Sachs, or maybe just as intensely, but I don't think so. For one thing, when I left the firm, it's clear to me that the firm should increase its dividend. Well, we did. No, but all things considered, you know, I will say that, you know, you and I represent, you know, if you think of the three people associated, you know, when we went public, you know, it happened during the Hank years. I did it. Now you're here. And there's a way of thinking about it. You know, there was a process really by which the firm became a public company in a way. And Hank was clearly running a partnership. I mean, because even as a public company in those years, the partners controlled it. In fact, the board of directors was dominant, was almost, you know, it was still a majority Goldman Sachs partners. And over time, people left, people sell down. And over time, it becomes more and more real. And it kind of gets reflected. You know, private company is different than a public company. A private company, you care about your capital account. You didn't care about whether you earn the same amount of money at the firm every year. You know, if there were 10 years and you have four super duper years and three or so years and two years, you lost money. I don't know if that adds up to 10. But anyway, who cared? It's sort of, you know, you work for your career, you didn't get any money until you retired and you got your capital account got emptied out. And nobody cared that. But in a public company, you don't own the firm, you own a little bit of the firm, but we don't control the shareholders. It's their firm. And they want smooth earnings, smoother earnings, not totally smooth earnings, because the value of the firm to the public shareholders is the earnings multiplied by a multiple. And that multiple is affected by the predictability and the likelihood that those earnings would continue to grow. And that wasn't something that, you know, Hank Paulson wore that much. And it was something that was starting to emerge that way. And I'd say in a lot of ways, David, you know, you sort of completed the IPO process in a way, because you did some things that I wouldn't have done. And guess what, I'm not sure the firm would have had the same multiple today if I was still there, because I really was grounded in a firm that bore a lot of the risk itself that did things on balance sheet. And I would, you know, kept it there. And I thought it was a big part of the mojo of the firm. It was. But you know, you sort of calibrate that against what having a lot of investment assets on the balance sheet of the firm would create in terms of volatility of the firm. And so you can make spectacularly more money. But if you're trading, you know, at a multiple of 10 and your competitors are trading at 17, you give up a little bit of E for a little bit more P. And that was something that, you know, you get a little bit trapped in your own kind of, you know, you know, worldview. And somebody once said when I was there, and they meant this to flatter me at the time during the time of the risk, you know, when, you know, things are going crazy, and we had to be very risk conscious, and the world was blowing up one of the 17 crises of the century that I lived through. They said, you know, it's a good thing you come from the risk side of the business. And isn't it wonderful that Goldman Sachs gets the leadership it needs when it needs it at the kind of time. And I said this at the end of the book, I said, I can't say that hasn't been repeated now, because I may have delivered what the shareholders wanted, but I would have done it with greater reluctance. Because I was used to the private partnership where you just try to maximize the earnings of the firm over time, and it didn't care in what order, and to what kind of consistency it came in. And it's a much different world in running a public company. And the challenge, of course, is to run the company as a public company, and still preserve all those elements of, you know, we're a risk oriented firm, and all those other things that make us good risk takers over time, and not just when the sun is and do that and still be responsive to the public, which, you know, kind of tends to be a little bit more short term and an amnesiac. But you started to touch on the financial crisis a little bit, I, you know, I want to go there, you became CEO in 2006. The world certainly changed in 2008. You know, two years later, we were full on in it. I remember those days, you know, very, very well. Talk a little bit about that period. Talk a little bit about the firm during that period. And just talk about some of the biggest lessons that come out of that. Well, originally, for us, the financial crisis really started in 2007. I'm looking at David here, who we had the office next to mine, we lived through a lot of this together. And I'm sitting in a movie theater, middle of 2007, doing what I'm always doing, which is looking at the firm's scrolling through the firm's P&Ls while the movie is going on, on a BlackBerry, on a BlackBerry at that time, very primitive. And then I get to something and believe me, it was a long movie. And so I go, I went deeper into the P&L than I normally do. And I got actually got to GSAM, which I never really looked at because it had its own balance sheet, its own risk, it was almost a separate firm. And there was this fund that, you know, that on a busy, wild day would move four basis points, and it moved 6%. And I go, whoa, that's not supposed to happen. And I said, you know, I think it must be there with Laura, my wife. And I said, excuse me, I have to go to the bathroom. And I ran out and I made, and I started calling, what the, and that was really the first, you know, the first sign. And that was sort of the moment, like, you know, when you watch August 07. Yes. You know, you're watching a movie, you know, Western and, you know, nothing's happened. The sun is shining. All of a sudden, the horses start to whinny in the corral. And, you know, you know, there's a, you know, some sagebrush rolls across the screen and you say, geez, they're trying to let me know that something is going on. And so something was going on. And that was when some of those, you know, relationships and relative, relative value trades started to go a little muck. That was kind of an early sign. And by the way, I'm sure there were other early signs and I'm sure other people had them, but we were very good at responding early to early signs because, you know, we had this culture of mark to market, which not everybody had. And we were pretty severe about it. And we had also had a culture where the people in the control department really govern what marks to use. And we would have traders arguing with controllers and, you know, controllers over one, but there was always an automatic appeal, go out and sell something and show that they had the marks wrong. And you had the marks, right. And when they went out to sell them, they look for that bottom and it wasn't there. And they started to do it. And it wasn't a function of us being so prescient and knowing what was going to happen. It was just a function of us really marking things to market and have, and, and even if we didn't have the discipline, the fact that it affected our P&Ls, because we did everything mark to market, forced upon you that discipline because you couldn't bear the P&L loss. And so they forced people to get out of things a lot quicker. The other thing we, we did very well is when we were in risk management mode, which is different from let's trade and make money mode, you know, we'd go around the table and, you know, you're supposed to, you know, say not what do you think is going to happen? What, what could happen? And what contingency plans did you have? If any of those things happen and you go around and if somebody would inevitably say, well, I don't think that's going to happen. And I'd say something like, I don't care what you think is going to happen. And then they'd say, well, if you don't think what I care, what I think, what do you think will happen? And I'd say, I don't care what I think is going to happen. We're in risk management mode, which is what it means. I only want to know what could possibly, even with a low probability happen. And what are we doing to protect ourselves against that tail? We've got a whole chapter on risk on this and what are we doing? Yeah. And I tell you, I think we were very, very good traders, but really what we were, we're very good contingency planners. And if you contingently plan well enough, when that remote contingency happens, you get off the block so quickly. People think you anticipated the start. You anticipated the gun. When in fact we just heard the gun enacted quicker. We were definitely off the block faster. It wasn't an easy transition in the fall of 2008, but we were definitely off the block faster. Lessons, takeaways from that period as we came out of it in 2009. Yeah. If the market's going to go down, be short. I have a respect for the fact that stuff happens. I was asked today, tell me about the bubble we're in. I said, if I could tell you about the bubble, we're not in a bubble. You just have to have a respect that things come out of left field. If everybody was prepared and expecting the bubble and staring at the watch, when is that bubble going to get here? It wouldn't get here. You don't know. You don't know. People are so sure they know. The one thing that you always taught me is we don't know. We don't know and nobody knows. And you just have to go around the table. We used to say, look around corners. You have to look around. Can you see around corners? No, you can't see around corners. The whole point of that metaphor. That's why it's a corner. That's why it's a corner is that you're trying to see things that you really can't see, but what you really are doing is you're paying for things. Because guess what? Low probability events. Forget it. Throw that out. I mean, how many times during the financial crisis said, oh, this is a 13 standard deviation event? Well, guess what? There were a few of them. Guess what? It's not. What happens is we are now in a place and now people have gotten it. They use the language. People say risk on, risk off. Because if it's risk off, two things that in a million years you never thought were correlated. Guess what? I now have a correlation of one. They're absolutely correlated because everybody's getting out of everything that isn't a T-bill. And that's the kind of thing. And so here's a funny thing. As I used to tell younger people, experience is a two-edged sword. If you're young and you're starting out and you're conversing in technologies that older people haven't had to rely on or get educated in, that's a huge advantage sometimes. That's why in a lot of businesses, the younger people have sway over the older people because they're much more conversant with the new stuff. And older people, dinosaurs such as we are, are a little bit slower and don't have that metal. But there are just some things where experience does help. And one of those things is living through these cycles and these crises. So you could read about financial history, but it just won't register to you the same way. When we were living through the financial crisis, that really registered with us. And you can read about it. And having had it register, you're much more attentive to the sound of a twig crackling because somebody's sneaking up on you and you jump higher in the air as opposed to let it go. And that's kind of what we are. Can that hurt you at times? Yeah, because you might find, you might identify six financial crises that really aren't there, but I'd rather prepare for the ones that aren't there than be underprepared for the one that is there. Absolutely. Shifting gears, you launched during your tenure two programs that really have had an enormous impact, 10,000 women and 10,000 small businesses. The impact continues to grow today. Talk about the impetus behind those initiatives and how you thought about them for the firm and why this was important to you personally. Part of this, one of the problems that Goldman Sachs had in the financial crisis, people didn't know us. We were a wholesale firm. We didn't have a consumer business. We didn't deal with consumers. And so the consumers didn't know us. And other words for consumers are citizens and taxpayers. And that kind of hurt us in the financial crisis when people sort of knew the mythology and the, I won't say fame, but let's call it notoriety of Goldman Sachs during that period. And we wanted to do something that reached out and had contact with the real kind of world. And also wanted to do things that people in the firm would appreciate that was on a human scale. And so one of the things we did, if you take these 10,000 women, 10,000 small business, taking people through the steps of the acculturation, the education that we would give our clients, that we got ourselves in business school, albeit in a 10-week kind of a course in partnership with real business schools and real institutions, help them line up capital, and give them advice. But the most important beneficiaries, obviously, are client companies. The 10,000s were big beneficiaries, but so are our people. Because on that scale, you could really see what you were doing, what it was accomplishing, and just taking somebody through the analysis of when you get paid back and financing it, what the return would be, how long it would take to recover that, was let people do something on a scale of real people. And I have no doubt, let me tell you, what Goldman Sachs does is very, very important to the growth of the economy and the well-being of the republic and the commonweal and wealth creation in general. But sometimes you're so remote from it because of the scale that there's a lack of appreciation. This gave people much more appreciation. Another thing that happened on the tail end of my tenure, which is much more prominent now, the Analyst Impact Fund, where they're going out and they're really doing the same thing. They're raising capital philanthropies and they're doing pitch books and trying to sell to their investors, namely the audience and the senior people of Goldman Sachs, why this is a good investment and why the return will be there. And again, that's something that people compete in and do, but they can really see vividly the impact, a good name, of what they're doing. Yeah. What prompted you to write a memoir and what do you hope for the people who read it? Well, there was kind of COVID boredom that had some involvement in it. I'm not encouraging people who are going to make their afterlife sooner than it would otherwise be. But once you get out, you talk to people, you remain as anecdotes. I can't say it's an egoless decision. Anybody who writes an memoir can't claim to be, oh, I'm just a humble guy. I just thought the world really needs to hear about my life. Let me bestow myself on the planet. So there's that kind of element too. But it was kind of fun. I didn't start out thinking that I would publish a book. My parents passed away when I was in my early 30s, never got to chat. I wonder, you know, my kids understand what I was, but they're pursuing their lives now. There'll be a time. I mean, now I wish I could talk to my parents and I can't, and then they may want to talk to me. And so I started writing and the beginning of it, you know, when I'm talking about my childhood, went very quickly because, you know, anybody who could contradict me was either dead or institutionalized. And then once I progressed to the part of the story where people were alive and could contradict me, I sort of got bogged down. So one night when I got to one of those knotty things about how I should reflect something, I said, maybe I should call some people and see how they remember it. I sort of put my pen down and then I picked it up again, three years later. And that's what happened at that point. I got somebody to sort of help organize it a little better. And he was much more of a disciplinarian and say, now we're going to write a chapter. And then eventually that's how it became a book. You know, you talk about the book when you became a partner, the then chief of staff, John Cohn, gave you a piece of advice that stuck with you. Can you share that? John Cohn was kind of like the minister of interior. And, you know, in those days you became a partner. It was a real partnership. And you had to have a meeting with someone where he would tell you how much money you had to contribute to the firm. You know, part of that meeting, you know, obviously there was the obligatory and very sensible, you know, things. And then there was an interesting part of it where he said, you should also, you should be philanthropic. And one of the things in those meetings was they helped you set up a private foundation. This was before there were donor advised funds. They actually set up a private foundation for everyone. They said, you know, this will be very good for you. It'll be good for you because you should have a life outside of the firm. You should meet people from other businesses, other industries who are also interested in these things. It's broadening for you and you'll be a better person for it. And by the way, it's good commercially for you to meet these people and people to see doing things. And also as you grow up and become more important, you know, you need to be a citizen of the city that you're in and make those kinds of contributions. And then the other thing was a statement about balance. If at the end they write an obituary about you, and that obituary is nine paragraphs long, make sure that no more than three of them are about Goldman Sachs. So in other words, you should be doing other things while you're at the firm, but you should also, inevitably, people have other chapters after Goldman Sachs. I may not have that many chapters after Goldman because I stayed a long time, but by and large, that was that kind of advice. And when I think back of kind of people who became partners with me, many of them have big firms, some of them philanthropic, and other people, you know, go into government. And I think that that was life advice to put it in that way where it wasn't just an exceptional thing. It was part of an expectation. And, you know, having that in your mind also has to determine about who is a Goldman Sachs person, who are the people you get. Because what people do at the end of Goldman Sachs has a lot of influence on the kind of people who select Goldman Sachs in the first place. I always thought it was very important who your alumni were, how you treat them, how the network performs as one of the best recruiting things we have for people coming into the firm and the whole place. When people see the value of what it is to not only work here, but to have worked here, that's a very, very important thing. And you know that. I know you know that. How many times have somebody come into you who you pinned your hopes on and broke your heart and said they're leaving? Then you go into a room, count to 100 or 10,000, how long does it take you? And then you come out and say, how can we help you in your next chapter? Because that you have to remember, it's a long, it's a long-term thing. That's another important element of the culture. When you look back on your career, what's the thing you're most proud of? I think I'm most proud of maintaining the distinctive Goldman Sachs culture, despite the shift in context that we had, which we all thought was a very low probability. Yeah. And it's, it's, it's, it's a huge part of what I think about, you know, sitting here. Well, Lloyd, thank you. You know, thank you for being here and doing this. And also thank you for writing a book that highlights, you know, so specifically the specialness of the culture. I mean, that's my biggest takeaway from reading the book is how it amplifies what's really special about the place. Well, thanks. I feel that way. Thank you.