Is Greg Smith Believable?

Should Goldman Sachs care about Greg Smith's book?

While “Why I Left Goldman Sachs: A Wall Street Story” does not contain any explosive accusations of wrongdoing, it does lay bare at least one man's view of how the firm's culture went haywire over the last decade. The believability of his story could have a long-term effect on the firm and its ability to recruit and retain new talent.

Mr. Smith's book is being released on Monday and was the subject of a segment on “60 Minutes” on Sunday night. On that program, Mr. Smith said Goldman, like other firms, started several years ago to use client information to bet with its own money, sometimes against its own clients. Getting an unsophisticated client, he said, became the “golden prize” because the “quickest way to make money on Wall Street is to take the most sophisticated product and try to sell it to the least sophisticated client.”

Goldman rejects Mr. Smith's claims, saying, “We have take n a look at those claims as they relate to his business and found no evidence whatsoever to support them.”

Mr. Smith had a seat in the trenches as Goldman evolved from an old line investment bank into a trading power house. He was influenced, as most employees everywhere are, by both things he saw during his time there and by events he read about in the news.

“I knew in my heart there was simply something deeply wrong with the way people were behaving, in the way they didn't care about the repercussions, in the way they saw their clients as adversaries,” Mr. Smith wrote in his book. “My human reaction was that it was bad for the future of the firm, a place that I had put lot of heart and soul into.”

On the one hand, Mr. Smith comes across as naïve. Yes, there is gambling going on at the casino. But Goldman has long stood out on Wall Street for its ability to hang onto the partnership culture it had before it went public in 1999. That culture, whi ch Goldman says promotes teamwork, integrity and putting the client first, is at Goldman's core. It helps the bank maintain and attract talent, and Goldman hopes it instills in its employees a type of focus that will allow it to thrive for decades to come.

Corporate culture can make or break a firm. Mr. Smith's book is interesting because while the tone for corporate culture is set at the top, managers like the Goldman Sachs chief executive, Lloyd C. Blankfein, rely on people like Mr. Smith to believe it and live by it.

While the book is at its heart a story about how the firm's culture broke down, it is oddly also a testament to some of the ways in which Goldman's culture still works.

For instance, Goldman is legendary for instilling the idea in traders that it is better to fess up to your mistakes, and the penalty for covering something up will be worse than if you had not spoken up.

This lesson was drilled into Mr. Smith on his few months on the jo b, in the summer of 2000, when he was an intern and witnessed it in action throughout his career. The mantra of one of his first bosses, he says, was “no ambiguity, no error.” One morning he made a mistake on a trade, and came clean as the firm would hope he would.

“We covered the error, traded out of it, and the correct trade was put on. In all that time â€" it seemed like 10 minutes but was probably 1 â€" the market had moved only one tick.” Mr. Smith noted that the error cost Goldman just $80, but the larger point he was making was reporting his error was the right thing, and encouraged by his managers.

Another positive revelation: “Drugs were severely frowned upon at Goldman, even regarded with a certain horror.”

And while Mr. Smith's depiction of a bachelor party for a Goldman trader, replete with a topless woman in a hot tub, will not go down as Goldman's finest moment, there was no obvious abuse of corporate funds at that party, or at an ytime during his time there, at least that he cared to mention.

He even goes out of his way to note that he once saw a partner who ordered a $400 bottle of wine and then paid for it himself because it exceeded the firm's corporate spending guidelines.

At the heart of Mr. Smith's book, though, is what went wrong with Goldman's culture.

The firm's overriding business principle is its clients' interests always come first. He says traders in London frequently refer to clients as “moppets” and that their goal is to land elephant trades, transactions that will net the firm more than $1 million in revenue.

Goldman, he said, “really had become more like a hedge fund, concerned more with helping itself than helping its clients with doing only the business we thought could make us a lot of money and ensure our survival,” he wrote. “Company culture and morale seemed to be bygone values.”

Goldman could not disagree more. “Nothing that Greg s uggested rang true to me,” said the head of human capital management, Edith W. Cooper, last week in an interview with Bloomberg TV.

For years, the essential read for any new Goldman recruit has been a 1999 book, “The Culture of Success” by Lisa Endlich, a positive look at what sets Goldman apart from its rivals. Mr. Smith's book will no doubt be added to the reading list of at least some students thinking about applying to Goldman.

In the last few weeks, Goldman has adopted an uncharacteristically public attack plan, which has included media briefings and on the record interviews. Its effectiveness is critical because it will color the view of future recruits who pick up the book, and whether they believe (or even care) about his concerns.

“I don't see what he suggests are challenges at the firm,” Ms. Cooper said, “and I believe our culture is stronger than it's ever been.”