Lloyd Blankfein On Leading Out of a Crisis
I interviewed retired Goldman Sachs’ CEO Lloyd Blankfein on the lessons he learned about managing our way out of a crisis, also known as “tail risk” something every business should be thinking about.
What mattered most in choosing team members at a time of crisis? Blankfein replied, “Wise people who have lived through stressful moments and came out on the other side.”
Blankfein is both brilliant and amusing as an interview partner, a rare commodity. He is one of the few who grew up in the projects of a New York’s Bronx and ended up at Harvard Law School, a Black Swan life if ever there was one. When I interviewed him, he remarked back on one of his main concerns during the financial crisis was the long term impact on the firm’s people as well as how the public felt about the firm handled the challenges.
He began by telling me, “We are in the business of managing risk, not guessing — and risk to reputation is always larger than to our balance sheet.”
Blankfein went on to explain what he learned from operating in a crisis. I asked him about what we call “tail risk.” He said, “The first lesson is never delegate responsibility for risk to anyone. When things go south, own them. The second was be prepared for the worst under the best circumstances: “while remotely improbable events never happened before, there are improbable things that will happen every day. So be ready.”
When I asked how he looked at data to see what the future held, he said: “Make sure you’re able to cover any extreme scenario with what matters whether it’s capital, people, crisis planning, and that you are alert to early warnings. If you are watching and see things start to deteriorate that you can’t explain, start searching for an exit.”
As we all know, Goldman Sachs fared better in the crisis because they were alert to the meltdown. I asked how? He told me, “To that moment if you’d asked, “Would real-estate assets at the beginning of ’07 go down? I would have said I had no idea. What I did have an idea about is the risks we were running and that we should get closer to home. Throughout, I was sure that we were selling things that we would regret selling.”
I wondered if becoming a public company with a short term quarterly focus changed the way Goldman operated? “When we became public we carried our partnership culture into the public company so we have an ownership culture. No one at Goldman Sachs gets paid out of his or her own P&L. It matters how your business is doing, but it matters more how the firm as a whole is doing. Most investment banks run away from the problem. At Goldman Sachs, you run to the problem.”
I also asked about building a great career. He told me, “When I first became a partner at Goldman Sachs, a senior partner said: “When your epitaph is written and it’s nine paragraphs long, no more than two should be about your career at Goldman Sachs.”
How did he keep up with the changes happening in business during a crisis? He responded that it was much like the way he ran Goldman Sachs on a day-to-day basis, making his famed 100 calls each day: “I grew up in a trading room, and it’s just noise. But if somebody 30 or 40 yards away says something wrong the whole room comes to a dead stop. It’s the same way with my phone calls.”
What mattered most in choosing team members at a time of crisis, I asked? Blankfein replied, “We look for wise people, and then those who have lived through stressful moments and came out on the other side. Then we make sure that we get diversity so that it reflects our businesses and our people.”
When I asked about company image, he said, “The answer is we’re a confidence business. Our reputation is very important to us. There are people who feel that our industry participates in things that are clearly wrong, and some of this is real and some of this is imagined. And so, we’re very concerned, but at the end of the day, we care what people know about us.”
So how does he handle that? He said, “Instead of responding in kind, fulfill the commitment to the world — in Goldman’s case, be good allocators of capital, make sure we’re doing the right things, make sure we’re helping the country grow businesses that help generate jobs. Is that enough? I don’t know. I get a lot of opinions.”