Has Hank Paulson done an Alexander? According to the Financial Times today, the Goldman Sachs chairman ended an analysts’ briefing in New York on Tuesday by saying, “I don’t want to sound heartless, but … the fact is that in almost every one of our businesses, there are 15 to 20 per cent of the people that really add 80 per cent of the value.”
In a business conspicuously reliant on human capital, it is usually unwise to drop hints of this kind, as Lord Alexander, sometime chairman of National Westminster Bank, could testify. One of the portents of the eventual failure of County NatWest (later NatWest Securities) in 1997 was an effective declaration by the chairman of the parent bank that if the investment banking operation did not make money within two years it would be closed down. This unguarded remark, which sounded sweet to shareholders, caused a quite different sensation at the bank: the talent left for more obviously committed institutions.
Should Goldman staff ask themselves whether they are part of the 15-20 per cent of producers or the 80-85 per cent non-producers? No need, explains a Goldman Sachs spokesman. Paulson’s remarks, he says, were taken out of context. The Goldman chairman and chief executive (corporate governance enthusiasts take note) was responding to a suggestion the current round of redundancies at the firm would cut too deep. In that context, he was merely explaining that investment banking was a naturally cyclical business in which at any one time the booming bits (15-20 per cent) are always paying for the quiet bits (80-85 percent).