Goldman Sachs has a David Solomon problem

It began as a steady drip of criticism, including on the cover of The Economist, concerning Goldman Sachs’s performance during his tenure as chief executive. The firm’s foray into consumer banking was setting fire to a chunk of its dwindling profits. Efforts to move into businesses that promised steadier revenues than trading and proprietary investments were coming up short. And this was producing tension between the firm’s divisions. It has now become something more brutal: a cacophony of people outlining the myriad ways in which they dislike David Solomon.

Complaints have come from Mr Solomon’s underlings, who told reporters that he is “not likeable” and is, quite simply, “a prick”. They have also come from his predecessor: Lloyd Blankfein was reported by the Wall Street Journal to have complained about Mr Solomon’s use of the company’s private jets to go to music festivals, where he performs under the name “dj d-Sol”, rather than spending time on the day job.

The mutiny at Goldman has become so open that grousers no longer even bother to do it in private. According to Bloomberg, at a lively steakhouse dinner in Manhattan last month managers complained about Mr Solomon’s failings in the presence of John Waldron, the firm’s chief operating officer and Mr Solomon’s longtime lieutenant. In July Larry Fink, boss of BlackRock, said on tv that there was an obvious “schism” at the bank. Even students are getting in on the act. After a visit by Mr Solomon to Hamilton College, three youngsters wrote an open letter complaining that their conversation with him about climate change had “racist and sexist undertones”, something Goldman disputes.

Mr Solomon’s increasingly precarious employment is now the butt of jokes. Steven Starker, a former Goldmanite who founded btig, a brokerage firm, recently moderated a soirée in the Hamptons, attended by Gary Cohn, Goldman’s former chief operating officer, and Larry Summers, a former treasury secretary. “If you happen to see [Mr Cohn] leave early, that means they’re probably calling him because he’s a candidate to be the future CEO of Goldman Sachs,” quipped Mr Starker.

Few think Goldman should be run by a teddy bear. This is the firm that was characterised in 2009 as a “great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money”. But there is a difference between being disliked for being smarter and more successful than everyone else, and the kind of vitriol that is being spewed now. It is increasingly embarrassing for Goldman that its boss is being laughed at in rarefied circles, and that employees see fit to make petty criticisms.

The situation is evidence of a rot within the firm, which it is hard to see reversing without either Mr Solomon or many of those who clearly loathe him leaving their positions. The question for the board, then, is whether to push him out.

In Mr Solomon’s defence, the firm’s performance on his watch has been patchy rather than dreadful. Shareholders who bought Goldman stock on the day he took charge in 2018 have earned an annualised return of 10%—worse than those who bought shares in Morgan Stanley, Goldman’s closest rival, but better than those who bought Citigroup (see chart).

The institution’s poor earnings for the past three quarters do reflect some strategic errors. Goldman has taken losses in its consumer-banking efforts, and has written down the value of acquisitions. Sluggish profits also reflect a failure to shrink its proprietary investment arm quickly. But Mr Solomon has recognised these issues and is adapting the firm’s strategy, including by exploring a sale of its financial-advisory business. His shareholder returns should have earned him enough goodwill for an attempt at course-correction. He is reported, for now, to retain the support of major investors and the board.

This type of cold analysis of the figures might not be enough to save Mr Solomon in the long term, however. Although it always seems trite when bankers proclaim that the most valuable part of their firm is the employees, it is probably true for Goldman. The company does not make money by, say, investing in machinery to make computer chips for which it owns the designs. It does so, in large part, by hiring clever, competitive people and getting them to work insanely hard to bring in deals, trade assets and come up with investment strategies. If these employees dislike the boss, they will leave.

That is exactly what is happening at Goldman. The bank typically has around 400 partners, adding 60-70 new ones every couple of years. Some 200 are reported to have left the firm since Mr Solomon took charge—a high attrition rate. Even more worrying is that the list includes many who were considered contenders for the top job, such as Gregg Lemkau, a dealmaker, and some of the firm’s highest-earning partners, such as Julian Salisbury, who ran the asset-management business. Even if the board wanted to oust Mr Solomon, there would be no clear successor. The problem with waiting to see how things develop is that there might be even fewer options by the time the knife is wielded. ■

For more expert analysis of the biggest stories in economics, finance and markets, sign up to Money Talks, our weekly subscriber-only newsletter.