I have been receiving notes from some of you about the New York Times op-ed piece shared by the departing Goldman Sachs executive, Greg Smith. His complaint is that Goldman has become a company that is different than the one he joined 14 years ago. He blames their intense focus on profits, while forgetting the importance of the client, on a shift in the culture of the firm. He lays this cultural change at the feet of CEO Lloyd Blankfein and president Gary Cohn.
This whole drama has the feel of the 1996 movie Jerry McGuire. If you have forgotten the theme, Jerry has a realization, early one morning, that the sports agent firm he is a part of has lost its way. Its focus is on maximizing the money, not on what’s best for their clients. He invites the firm to go back to its roots.
There is a misunderstanding about cultures in both Greg Smith’s piece and the movie. Cultures consist of a network of beliefs, most of which are unspoken. These beliefs fall into three categories: creation myths, the rules of the inner game, and the rules of the outer game.
The creation myths comprise the originating beliefs of the founders as remembered and interpreted by the second generation of members of the culture. Myths are never about truths, but about how we want to see ourselves. If you are a student of Apple Computer, as I am, you know that the myths of the birth of Apple often don’t square up with the facts those of us who were around at the time know.
The rules of the inner and outer game consist of the beliefs we have about what’s permitted, excluded and forbidden. Artifacts such as employee manuals and codes of conduct consist of less than 5% of the rules of the inner game. The bulk of the rules of the inner game are handed down through conversations between workers. One of the challenges in changing organizational culture is exposing these beliefs and changing the ones that no longer serve the purpose of the organization.
The rules of the outer games are about how we treat people outside the walls of the organization. The constituencies involved are customers, suppliers, governmental bodies, media, communities and others who we believe have power. While we have at least a beginning framework for these rules of the inner game, almost everything about these rules is anecdotal and passed along informally.
One would think with such a loose framework for these beliefs and rules, they would be inconsistent and oft changing. That’s not how it actually works. These rules are part of the operating system of the organization. As pack animals, we have an instinct for finding out “how things work here”. This instinct enables our quick understanding of the rules and why they so seldom change.
Culture is visible in the actions of the organization. We are often distracted by what people write or speak about their values or beliefs. I suspect it’s to an organization’s advantage for others to believe this spoken or written about virtuous image, rather than a truthful articulation of how things really work.
I also suspect that Mr. Smith isn’t seeing a different Goldman Sachs. Rather, he is seeing Goldman Sachs differently. The concerns he raises are about practices that have been part of the Goldman culture since its inception. The myth and rules of the inner and outer game haven’t changed. People are attracted as clients to Goldman precisely because they believe they can make the most money through this relationship. Goldman’s reputation, for clever financial instruments, has been an integral part of its culture since its pioneering efforts in creating IPOs at the beginning of the last century. They have always been interconnected to the seats of financial power and benefited from these relationships. So you can see, nothing is really different.
I offer this final note in today’s conversation about cultures. In the current issue of The Atlantic, there is an article, Why Companies Fail, that points to culture as the root of business success or failure. That’s true, but what’s missed is why this is true. Cultures are about people, not technology or capital structure or marketplace. Cultures always trump everything, and when this phenomenon isn’t recognized, the only outcome possible is a continuation of the past.
Tomorrow, I will write a companion piece about the rise and fall of an American iconic company, Kodak, from a cultural perspective and what companies can do to transform a culture when faced with the demise of the effectiveness of their current cultural mindset.