Stewardship Vs. Salesmanship
Last week the S&P 500 had its best weekly gain of the year and economic data continued to show signs of an improving economy (albeit slowly). While this was happening last week, you might have noticed something else that happened (I sure did). Wall Street got called out on its behavior.
Gregmith, now former employee of Goldman Sachs sent in his resignation letter titled, “Why I Am Leaving Goldman Sachs” to his employer and the NY Times. I hope you have a chance to click the link and read the letter in its entirety. In the letter, Smith basically suggests culture matters and the culture at Goldman Sachs was broken placing corporate outcomes ahead of their client outcomes. Here are a few quotes from his letter:
“To put the problem in the simplest terms, the interests of the client continue to be sidelined in the way the firm operates and thinks about making money.”
“It makes me ill how callously people talk about ripping their clients off. Over the last 12 months I have seen five different managing directors refer to their own clients as “muppets,” sometimes over internal e-mail. Even after the S.E.C., Fabulous Fab, Abacus, God’s work, Carl Levin, Vampire Squids? No humility? I mean, come on. Integrity?”
To show how out of touch they can be, take a look at the response by one Wall Street CEO:
Morgan Stanley Chief Executive Officer James Gorman said he told staff not to circulate a Goldman Sachs Group Inc. (GS) employee’s op-ed criticizing that firm and that it wasn’t fair for a newspaper to publish it.
I believe this to be typical behavior of someone trying to circle the wagons. It makes me wonder what he is trying to protect and if this guy is totally “out to lunch” on how information flows.
Once I read the op-ed piece I immediately sent it out to our entire firm and now I'm sharing it with you. I’m doing this only because I want to make a bigger point about culture and not because I’m trying to win business from Goldman Sachs. So, besides being insulted and called a "muppet" (in England this is slang for idiot, which is where Greg Smith worked for a time) behind your back, why should you as an investor care about culture?
When firms place corporate outcomes as their Key Performance Indicators (KPIs) instead of client outcomes you can see how the system can be rigged. Performance based indicators that focus on the bottom line drives a culture of salesmanship over stewardship when it comes to your investments. A study done in 2007 by Oxford University and Watson Wyatt Worldwide (a global consulting firm), found that investment governance can have a material impact on your investment returns. Investment governance is a part of stewardship and is therefore driven by culture.
Admittedly, this has not always been the case for us at Phillips and Company. However, it is now what drives the ethos around how we live our work lives and has been so over the last several years. We’ve recognized it is our leaders (especially me) that have to drive the right culture. A few years ago we wrote a piece for our clients that addressed what Greg Smith was talking about called, Let’s Talk About Trust. I hope you have a chance to take a peek at this as well.
Being a professional steward is no easy business. An article in Daedalus (the journal for the American Academy of Arts and Sciences) from summer of 2005 discussed the challenges of professionalism. Here are a few quotes from that article:
"Fulfilling a profession’s mission at a high level of excellence requires not only analytical distance and freedom from personal bias, but also passionate engagement, personal commitment, and human concern. And these qualities must not merely coexist; they must be kept in some kind of integrated balance."
"The pressures of many of today's workplaces create conditions under which it is difficult for individuals to pursue non-economic professional values. And since these conditions show no sign of improving-indeed, they may well continue to get worse- we need to strengthen individuals’ ability to do good work under less than hospitable conditions."
"To be both masterful and mission-driven students need to learn… the right equilibrium between analytics and human connection…”
To me this captures the essence of what it means to be a good steward: Doing good work to the best of your ability.
I'm quite proud of the people here at Phillips and Company. Together they wrote our mission statement, determined our operating values and selected our client values around your feedback. We may not win every account and we may not get every investment thesis right, but I can say we stand grounded in putting stewardship over salesmanship. I can only hope my larger cohorts on Wall Street will realize culture matters and they too can be richly rewarded for having the right culture.
Tim Phillips, CEO – Phillips & Company