The Soul Crush, Revisited

It's been a very interesting week in our financial community.

First, we had Greg Smith's op-ed piece in the New York Times last Wednesday outlining his decision to leave Goldman Sachs. If you haven't read it, you should. Take a minute now to do so. We'll wait.

The fallout from Greg's letter has been fascinating. From James Gorman, CEO of Morgan Stanley, instructing his people not to take advantage of the situation, to J.P. Morgan Chase's CEO Jamie Dimon telling his operating committee to avoid going after GS clients, stating that 'It's not the way we do business.', to Mean Street's Evan Newmark calling Smith 'naive', to United Technologies stating publicly that they are standing by GS despite having 'a love-hate relationship' with the investment banking firm, to, what, about a zillion comments online. Not surprisingly, most missed the real point of Greg's very public resignation letter. More on that later.

Then we had Matt Taibbi's latest article about Bank of America, "Too Crooked to Fail", in Rolling Stone. You probably haven't seen it, but you should. As you read it, consider that the bank described in the article is a new and different one than the bank founded in 1904 by A.P. Giannini. Indeed, Bank of America, originally called the Bank of Italy, was founded in San Francisco with the primary objective of serving immigrants and farmers, two significantly under-served communities at the turn of the century. The bank provided loans to San Franciscans within days of the 1906 earthquake and fire that devastated the city, with Giannini using a plank of wood on the sidewalk as his makeshift branch. A signature and handshake were all he needed to secure a loan. Had it not been for BofA, San Francisco might not have been rebuilt following the earthquake and the Central Valley of California might not be the provider of fruit and vegetables for much of the country, nor Napa Valley the home of world-class wine. As thousands of current and former employees will attest, BofA was one of the best, most ethical places to work in the state. I know this first-hand, having been an employee of the bank in the '80s.

What Taibbi outlines is a gradual and significant change in BofA's corporate culture. What was once a culture focused exclusively and passionately on serving customers and communities is now, apparently, a culture driven predominantly by a motive for profit at the expense of the customer. Without doubt, this is not A.P. Giannini's bank, nor is it the bank that thousands of former employees remember nor, critically, the bank the vast majority of currently employees signed up for.

Starting to see a parallel between Greg Smith's Goldman Sachs and Matt Taibbi's depiction of BofA? Beyond, of course the alleged unscrupulous practices of two enormous financial services institutions?

What's common about GS and BofA is, of course, a radical change in corporate culture. From one defined by a customer-centric business model, high moral standards, pride in community service, one anchored deeply in a belief in the value and honor of banking, to a culture defined by profits at all cost. That was BofA. And according to Smith, that was Goldman Sachs.

If 'corporate culture' is defined loosely as 'how we do business here' and includes commonly demonstrated behaviors, morals and ethics, consider the impact on employees of a dramatic change in that culture. It can be significant, especially if the original 'employer-employee contract', so to speak, has been violated or, worse, broken. This occurs whenever morals and ethics are compromised. Said another way, you've got trouble when stated values do not match widely observed behaviors.

The potential outcome? The Soul Crush. (See our blog of February 19, 'The SCQ'.)

That's what we see in Smith's letter. It's also what we see happening at BofA. Souls being crushed or, at least, damaged as their company, the organization thousands have invested so deeply in emotionally, changes from something worthy of their pride to something far, far less. Smith is getting out. Others have preceded him; others will follow. Our bet is that many at GS and at BofA want to leave, but can't. Not yet, anyway. But watch as the economy continues to strengthen.

Goldman Sachs and Bank of America are not alone. The cultures of many organizations are changing significantly, some for the worse. We urge severe caution. Corporate culture defines an enterprise as clearly as does its logo. It's your brand. Treat it with great care, for once it deteriorates, it's a very long road back to respectability. Now is the time to ensure that your company's culture is strong, vibrant, and absolutely consistent with your stated values. Anything less is a bet against the long-term retention of your best people. Anything less is a bet against your organization's future.

Just ask Greg Smith.