Knocking down walls at Goldman Sachs: Can CEO David Solomon get the storied bank to grow again?
You see the confetti before you see him: It swirls over the dance floor as a parade arrives in his honor—leotard-clad servers bearing a glow-in-the-dark bottle of Don Julio and a billboard that reads “D SOL.” It’s then, at half past midnight, at the LIV nightclub in the basement of Miami’s Fontainebleau hotel, that the chief executive of Goldman Sachs emerges, picks up a chunky pair of white headphones, and steps behind the turntables and into his disc jockey alter ego.
It’s the last Saturday in October, which means it’s Halloween in South Beach, and the club has been made over into an apocalyptic Area 51; the crowd has shown up in a mix of extraterrestrial outfits along with devil horns, bunny ears, and Dracula capes. (When I arrived, I’d given David Solomon’s name at the door, eliciting nothing but a blank look from the bouncer. “D-Sol?” He nodded and opened the velvet rope.) Solomon, brow furrowed, looks comparatively sober in a black T-shirt, white pants, and pink Converse low-top Chuck Taylors. Behind him in the DJ booth, a couple of women appear to be dressed as the poo emoji, a costume they’ve accessorized with rolls of toilet paper and a plunger. For the next hour, Solomon will entertain the revelers, occasionally pumping his fist as he mixes rock guitar riffs from Guns N’ Roses and the White Stripes with 1990s hip-hop and wait-for-the-drop dance beats. You can feel the bass pulse through your rib cage, punctuated by blasts from cryogenic fog cannons and strobing lasers. Solomon bops along, his hands on the knobs. Then he drops a Bingo Players ditty whose lyrics consist primarily of the cheeky refrain, “Everybody wants to know how little I care, how little I care.”
It’s hard not to interpret it as a droll retort to anyone who would question whether the CEO of Wall Street’s most storied institution—who sipped tequila at the club until almost 3 a.m.—belongs in such a hotspot while the rest of the Goldman Sachs board is presumably asleep. Solomon was outed as DJ D-Sol by the New York Times in 2017, when he was still one of two copresidents gunning for the top job at the firm. Known at the office as an über-professional, hard-charging manager with little patience for small talk, Solomon was anxious that people would no longer take him seriously—mistakenly equating the side gig with some sort of midlife crisis. Some advisers told him to hang it up. “I thought for a minute, Well, can I do this, can I not do this?” recalls Solomon, who donates the proceeds from his gigs and Spotify plays to drug-addiction-related philanthropies. (He says the total he has raised is in the six figures.) Those doubts soon dispersed, especially after his boss at the time, then-CEO Lloyd Blankfein, and others endorsed it. “You know what, it’s who I am, and nobody would tell me not to play golf,” Solomon says now. “And why shouldn’t I—because I’m a CEO?”
Solomon’s irreverence, even disdain, for The Way Things Have Always Been Done, feather-ruffling and polarizing though it may be for the bank’s old-timers, is also the defining quality that has put him atop the venerable Goldman Sachs. Shortly after his first anniversary as CEO in October, the bank celebrated its 150th birthday; it’s the oldest of the big Wall Street banks to still operate under its original name. At a billionaire-studded cocktail party in New York to commemorate the occasion, Solomon, with a shade of self-deprecation, praised the firm’s tradition of leaders who were “always, up to this point, the right people at the right time.”
His time is shaping up to be one characterized by historic transformation, as Wall Street undergoes an unprecedented technological revolution—and Goldman, in the view of some analysts, may undergo greater change than any other big bank. It comes on the heels of Blankfein’s dozen-year tenure, which started in glory and ended in unprecedented uncertainty. In the years leading up to the financial crisis, Goldman Sachs made astronomical returns on the back of high-risk trades—then reversed some of those bets sooner than others did, riding out the crash on top of Wall Street. Goldman turned a profit in 2008, then racked up record-high earnings in 2009. That rainmaking afforded its leaders a certain leeway with shareholders. So long as they delivered the returns, investors tolerated their opaque financial disclosures and lavish expenditures on pay and perks. “They were really the kings and queens of Wall Street, they did so well,” says Mike Mayo, a bank analyst with Wells Fargo.
But the decade since has been a different story. Financial regulation and the rise of electronic trading have dampened profits. Market-making in assets like bonds and commodities, once Goldman’s bread and butter, has turned to crumbs now that it is largely automated—representing 37% of the firm’s net revenues in 2018, down from 72% in ’09. (That drop has come even though Goldman now commands a bigger share of trading in those industries.) And because Goldman’s old ways worked so well for so long, it never went through the postrecession reckoning its rivals did. “Goldman Sachs was a victim of its own success,” Mayo says. “They didn’t feel the same need to evolve as their underperforming peers.”
Now Goldman is the one underperforming. Though it’s still No. 1 in mergers and acquisitions and IPO dealmaking, its revenue has declined 6% since 2010, to $36.6 billion in 2018, and is on track to decline further this year. Its stock has lagged both the financial sector and the S&P 500 over the past five years—yielding the worst returns of any major U.S. bank. It is also facing its biggest reputational crisis since the backlash against its too-big-to-fail bailout famously led to its caricature as a “vampire squid.” Two former Goldman Sachs executives have been indicted for conspiring in a multibillion-dollar theft from the Malaysian investment fund known as 1MDB, a scandal that could cost Goldman as much as $5 billion to settle.
Enter David Solomon. At six-feet-two, he stands—literally, in the same office where Blankfein used to sit—a full head taller than his predecessor. A broad-shouldered and imposing figure, Solomon has an aggressive, at times combative style that forgoes Blankfein’s characteristic humor in favor of blunt straight talk and a willingness to rethink Goldman conventions Blankfein wouldn’t touch.
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He’ll need those qualities for the tasks ahead. Solomon is acutely aware he needs to jump-start Goldman’s revenue growth by forging into new businesses the firm had previously overlooked (from large-scale quant trading and managing corporate payments to being banker to less wealthy consumers and doing deals with smaller companies). He also needs to squeeze more efficiency from the firm—and that may mean people will have to work harder to earn the paychecks that have made Goldman’s upper echelons enormously wealthy while luring bright young financial sharks to the firm’s talent pool. “I don’t have any sense that he’s a status quo kind of guy, which I give as a compliment,” says Steve Friedman, who was once CEO of Goldman Sachs and now serves as chairman of Stone Point Capital, a private equity firm.
When Solomon became CEO, Friedman advised him to preserve a “small core” of cultural values, but that “everything else has to be subject to change.” Solomon has led by that creed. In March, he tore up the firm’s age-old dress code, a 35-page dossier with outdated stipulations about suits, ties, and shoe color. And this summer, Goldman quietly eliminated drug testing from its employee background checks. Gone, too, is the blanket ban on taking photos inside the office, once enforced by building security guards; Solomon now frequently posts such pics to his Instagram account. “The organization has a lot of bureaucracy I’d like to simplify,” says Solomon (though he doesn’t take credit for changing the drug or photo policies). “I think we can do some work to be more admired and respected, and a little less envied and feared.”
Short of knocking down walls, he’s trying to dispel the ivory-tower reputation that Goldman has cultivated through a historically secretive and hierarchical culture. On the mahogany-lined executive floor, Solomon chafes when visiting colleagues are asked to sit in the waiting room; he insists they be allowed to bypass two layers of receptionists and knock directly on his door. He prefers getting his own coffee and showing up unannounced at divisional meetings, and rejects prepared talking points. “He hates any sort of idea of Praetorian Guard, by any name,” says John F.W. Rogers, the firm’s chief of staff. At a firm that has for decades primarily communicated with its 38,000 employees via mass voicemail, Solomon asked his staff to find a way to convene a global all-hands Silicon Valley–style town hall in Goldman headquarters’ 11th-floor “sky lobby” (between the elevator banks and the cafeteria) so that he can hold them impromptu. (The company abandoned the idea after the logistics of coordinating its 73 offices proved too difficult and costly.)
To certain board members’ horror, Solomon, who made $23 million last year, habitually chooses to travel around New York City by subway. “I mean, why wouldn’t you take the subway? No, seriously,” he says. “It’s quicker and more efficient. You know, the mayor of New York can take the subway. Why can’t the CEO of Goldman Sachs?”
Goldman Sachs, once a private partnership, has been a public company for 20 years. Solomon has been saying he wants at long last to run it more like one. Whereas Blankfein never dialed in to the firm’s quarterly earnings calls, Solomon doesn’t plan to miss any. At its investor day on Jan. 29, Goldman Sachs will welcome some 300 shareholders, analysts, and regulators inside its Manhattan headquarters for the first time and unveil Solomon’s new innovation: a three- to five-year strategic plan. That may seem unremarkable, but until now the firm, believing the market too unpredictable, had only ever budgeted through each calendar year. “The way we made investments is we’d rub sticks together, we’d sprinkle a little bit on something,” says Solomon. In other words, each year Goldman’s people had to find a way to bring in more money than the last, but anything that required a longer-term commitment of resources to pay off later was off the table. “You don’t just get to run faster, jump higher, and have more profit just because we’re Goldman Sachs,” says COO John Waldron, reinforcing the focus on investing. “You’ve got to put money in the ground that grows over time.”
It all adds up to a pivotal moment for Goldman Sachs, and Solomon will help determine whether the firm leads again or fades out of relevance. As someone who was seldom in the press before the DJ D-Sol revelations, he’s still adjusting to the spotlight that comes with his powerful role; in interviews this fall, Solomon described a personal struggle to “live my life in a normal way.” His collaborators say that kind of practical, unpretentious mentality may be just what the bank needs now. “I think he’s doing the right things to evolve Goldman Sachs to compete in the 21st century,” says Michael Dell, whose company Dell Technologies has been a Goldman client longer than Solomon has worked there (and whose brother’s startup, Clarity Money, was acquired by Goldman last year). “Supertankers don’t just turn.”
Solomon became CEO, in October 2018, at a tumultuous time not only for the firm but in his own life. He’d recently finalized his divorce. His second week in the job, his former assistant, who’d been charged with stealing $1.2 million worth of wine from Solomon’s collection, jumped to his death from a Manhattan hotel window. Solomon’s two twentysomething daughters, with whom he’d long had a standing Sunday night dinner date in New York, had both moved across the country that summer. His father had passed away in his seventies a couple of years earlier. “I think he wishes his parents had been alive to see him become CEO of Goldman Sachs,” says a friend who’s known Solomon since his undergraduate years at Hamilton College. “I think that would have been incredibly meaningful to him.”
The 57-year-old Solomon found himself at the zenith of his career, single and no longer tethered to many of his former responsibilities—outside the small task of running Goldman Sachs. “If I’m not working, I can basically do whatever I want,” he says. “And as a personality, if I decide I’m interested in something and I’m going to do it, I’m going to do it. I mean, I’m going to try to really do it to the highest capacity of my ability, or I’m not going to do it.” He’s applied that intensity to hobbies like DJing and kite-surfing—some colleagues have termed him a “born-again millennial.”
He’s also applied it at the bank, where Solomon has always been something of an outlier. Competing with Harvey Schwartz for the top job—beginning in late 2016, when they were both named copresidents—Solomon was seen as the underdog. He was an investment banker; both his rival and boss Blankfein were traders. Among peers, he also bore the brand of a “lateral”—he had been hired from Bear Stearns as a partner in 1999, instead of working his way up to the title from within.
Above all Solomon, who’d once worked at McDonald’s and been rejected the first two times he applied to Goldman, was a jarring force in the firm’s tirelessly collegial atmosphere. Coming from elsewhere on the Street, another transplant notes, Goldman could “feel like you walked into Pleasantville.” In the firm’s consensus-driven culture, Solomon was a strong-willed, table-pounding decision-maker. He would tell employees to their face when they had no shot of making partner that year, and openly challenge colleagues’ ideas in meetings of 25 other people. “The first couple conversations were a little brutal, but people then appreciate it—there’s no BS,” says Gregg Lemkau, who has Solomon’s former job as cohead of investment banking. If you need someone to tell you you did a good job, Lemkau advised a colleague, “Go hire somebody to do that for you.”
Still, Solomon had enough emotional intelligence to navigate the firm’s politics and temper his tone accordingly, and he impressed his superiors with his ability to nurture and groom underlings. “He’d probably be pissed at me for saying this,” says Chris Nassetta, Hilton’s CEO and Solomon’s close friend, “but I think a lot of people don’t know that David is a sweetheart of a guy.”
Solomon doesn’t emphasize that side as he fosters a more rigid tone of accountability. Underpinning the strategy Solomon is bringing to Goldman Sachs now is a stricter lens for performance evaluation—a metrics-based system that he piloted in the decade he ran the investment banking division. There, he’d receive statistical reports on such factors that reflected priorities both traditional—such as the fees each banker collected—and personal, like which ones violated his rule against making junior analysts work on Saturdays. In year-end reviews, he surprised some people by asking them to justify granular choices. A fiscal disciplinarian, he unseated some managers whose pay ballooned out of whack and replaced them with cheaper people; besides layoffs, past employees say getting “zeroed” at bonus season was a signal to start job-hunting. At the same time, he demanded loyalty, dismissing young analysts who were caught accepting their next job elsewhere before their Goldman contract was up. Solomon felt it was a conflict of interest. Of his philosophy, he says, “You have to set a culture where discipline matters, and people make hard decisions.”
The ultimate manifestation of Solomon’s method is the way he set out to tackle Goldman’s gender gap. Concluding that the problem began at the bottom, Solomon instructed his investment bankers to hire half-female analyst classes starting in 2017, then expanded the mandate to all new recruits. Bankers received no bonus points when they increased the share of women from roughly 40% to as much as 49%. “Like, doing almost well enough doesn’t count,” Lemkau recalls. “That is quintessential David.” The banking division’s analysts that started this year are the firm’s first to achieve gender parity; firm-wide, Goldman expects its 2020 crop to include more women than men. “He is really breaking glass,” Dina Powell, a Goldman partner and former White House adviser, said at Fortune’s Most Powerful Women Summit in October.
Indeed, several colleagues use the phrase “breaking glass” to describe Solomon’s approach—often in the sense of someone who set upon Goldman’s old ways as though he was rifling through Grandma’s antiques to decide what to pawn and what to toss. His first day as CEO, he put out a memo aimed at bulldozing the territorial silos in which the firm was organized: Now, there’d be just “One Goldman Sachs,” Solomon wrote. People would be compensated more for bringing in business anywhere in the firm, regardless of where they sat. Within minutes of the email hitting inboxes, says Alison Mass, chairman of the investment banking division, she had “50 calls from random people around the firm,” including back-office workers, with ideas to sell her clients. “It was literally like he turned a key and unlocked a door and let everyone out,” Mass says.
Next, Solomon turned Goldman’s investment banking playbook on itself, running the kind of front-to-back review it has done for innumerable clients. He asked his lieutenants to strip their businesses “down to the studs,” asking as many as 40 questions in the span of a 90-minute meeting. “He doesn’t ask a question rhetorically,” notes CFO Stephen Scherr. Solomon’s edict: “There are no sacred cows.” That included the securities division, where Blankfein, a trader by background, had resisted changes; so far, Solomon has green-lit more automated trading and the consolidation of back-end operations, which is expected to shave off some jobs. He also merged Goldman’s high-net-worth and consumer businesses, with the aim of serving both sets of customers with a single web platform. “There are very few leaders in the financial services business who are very detail-oriented and at the same time strategic,” says Alan Schwartz, once Solomon’s boss at Bear Stearns, now Guggenheim Partners’ executive chairman. “David is one of those who does both.”
The proverbial bovine sacrifice should help Goldman improve returns as it spends to scale up its technology ($1.3 billion on the consumer business alone, so far). But it also means fewer luxury perks for employees. Some senior bankers lament having to fly coach on trips where in the good old days they sat in business class; Goldman now discourages anyone but partners from gliding into the line of black cars waiting outside the bank’s New York headquarters to get to meetings, telling them to take Uber instead. Solomon says expense policy decisions are too small-potato to involve him directly, but they reflect an increasing rigor toward expenses and productivity. “When we say ‘operating efficiency,’ everyone hears cost—operating efficiency, you’re a cost,” says Stephanie Cohen, the firm’s chief strategy officer. “What we’re really trying to do is help people do their job more efficiently, and sometimes that’s a cost thing, sometimes it’s a time thing.”
Since Goldman Sachs launched its first credit card, in partnership with Apple, over the summer, Solomon has been workshopping a new party trick. It starts with the phrase, “Take out your phone.” In a two-minute routine requiring a few swipes and the last four digits of your Social Security number, Solomon has been virtually opening Apple Card accounts for many of his friends and acquaintances. “It’s pretty easy, right?” he says, adding, “It’s not perfect.”
The Apple Card—tailor-made for the iPhone’s mobile wallet, with a numberless titanium physical counterpart—was a partnership that grew out of Marcus, the fledgling consumer bank within Goldman Sachs that made its debut in 2016. The card was code-named “Project Cookie” inside the bank; Apple itself was known as “Saturn”—perhaps because Goldman, as one of its partners, was treated like one of many moons in its orbit. Goldman’s logo, along with Mastercard’s, ended up on the back of the white metal rectangle (and is nowhere to be seen on the virtual version).
The credit card’s development has been a telling parable about a bank exploring a new business a century and a half into its existence, and at times finding itself out of its league. Goldman until recently never fancied itself a retail banker, even after a financial-crisis era change to its regulatory status allowed it to become one. “I think we were in denial,” says Lemkau. But as its revenue has steadily shrunk, it has had to come to terms with trying something new. Goldman is targeting $5 billion in annual revenue from new businesses by the end of 2020, with Marcus on track to generate more than $1 billion.
Neither Solomon nor Goldman likes doing anything unless they can excel, and the firm determined it should be able to start a consumer tech business at least as well as any garage-full of entrepreneurs in San Francisco. Three years after launching Marcus, though, it has encountered many of the problems of a startup without engendering quite the same cultural feel. Between a patchwork of acquisitions—including its $750 million purchase of financial-adviser network United Capital this year, the firm’s largest in nearly two decades—and engineers both in-house and outsourced to three of the “Big Four” consulting firms simultaneously, former Marcus employees describe a Babel-like experience. Engineers chafed at the way Goldman computers require running compliance systems that restrict their functions, and dubbed them “Kushners”—a reference to the way presidential son-in-law Jared famously runs Microsoft Windows on a Mac. Without its own consumer data to back-test, Goldman initially took higher losses on Marcus loans than it planned. The Apple Card rollout has also been glitchy; New York regulators have opened an investigation into whether Goldman’s credit limit algorithm has a sexist bias, which the bank denies. For all that, Marcus still doesn’t have a mobile app—though people close to the bank say it’s coming soon.
What it does have is scale—$55 billion in deposits and $5 billion in loans, dwarfing most fintech startups. “When you take risks, you make mistakes, you lose money, things go wrong,” Solomon says. “The only difference is we don’t stand up there and trumpet publicly in an amplifier, ‘Go fast and break things.’ ”
Solomon’s keen anticipation of “what possibly could go wrong” is a major reason he was chosen to be CEO, says Bill George, a Harvard Business School professor who retired this year from Goldman’s board. “You know how they talk about professional basketball players having eyes in the back of their head? He had that kind of peripheral vision.”
There was long a phrase inside Goldman Sachs to describe those most likely to ascend the firm’s coveted partner track: an economic killer. “It used to be the only thing that mattered,” says an ex–managing director. And en route to the top, you ate what you killed: Bonuses were paid virtually entirely according to the revenue you made for the firm that year.
As Solomon seeks to spur the firm to work more cooperatively, he and his leadership team are recalibrating how Goldman pays its people—by far the firm’s biggest expense, accounting for about 35% of revenue this year. And that means redefining who’s a killer. Around holiday time, when this year’s compensation discussions begin, a new rubric will tie bonuses more to the company’s new priorities, including three-year timeline goals, diverse hiring, participating in the “One Goldman Sachs” spirit—and the overall returns of the firm. The system effectively puts more of employees’ compensation out of their own control and potentially at risk—especially as some grow more convinced that the bull market is poised to top out soon. “I don’t think realistically there’s a tremendous amount of upside in the future,” says a recently departed partner. “I don’t think it will ever be what it used to be.”
Neither Solomon nor his C-suite have explicitly professed an intention to give paychecks a haircut. But the compensation pool they earmarked for the first nine months of 2019 is 11% lower than it was for that period last year, a steeper drop than the 7% decline in revenue. Employees anticipate a flattening phenomenon: “$1 million is the new $3 million,” says the former managing director, adding that this year’s norm for pay for the so-called MD tier—one rung below partner—may be closer to $750,000, including bonus.
That trend could be cause or effect—or both—of a recent exodus of partners. About 10% of them have announced their departures since Solomon took over, and more could leave by the end of the year. The “thinning out,” as COO Waldron calls it, has created an opening into which the firm is actively promoting a younger, forward-thinking generation of executives. Solomon says his only intention is “that young people get to move up, and people that have been here for a while don’t stay too long.”
That’s made Solomon popular with the millennial and Gen Z cohorts who now make up 75% of Goldman Sachs’s workforce—and there’s a mood among them that Solomon is the change the bank has been waiting for. At the same time, he aims to make the culmination of their Goldman Sachs career—the partnership—just that much harder to attain, by paring partner ranks even further toward 400, from about 440 or so today. It also makes sense when you consider that the partnership ranks grew by some 63% over Blankfein’s tenure, even as revenue stagnated. Partnership remains the firm’s holy grail, and the reason employees at lower levels have long been willing to accept the “Goldman discount” compared with other Wall Street salaries—in exchange for the chance to eventually make far more. The message, Solomon says, is, “If you really succeed here, the top of the pyramid is super-aspirational.”
The tradeoff is that for most, Goldman Sachs may have fewer of the trappings of a haven for the elite. “I don’t want to make Goldman Sachs more exclusive. In fact the opposite,” says Solomon. “I’m trying to make it more open, more approachable, more understood, more human.” After all, many younger Goldmanites remember neither the boom times nor bailout days; to them, nothing symbolizes the bank more than a selfie at the club with D-Sol.
Correction: Due to a transcription error, an earlier version of this story included a misquotation of Goldman Sachs chief strategy officer Stephanie Cohen. The article has been updated to correct the misquotation.
A version of this article appears in the December 2019 issue of Fortune as part of the 2020 Investor’s Guide with the headline “Ripping Up the Rules at Goldman Sachs.”
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