In a recent blog post, I lauded Greg Smith’s op-ed chastising Goldman Sachs for losing its focus on the long-range goal of making money with its clients and shifting its focus to a shortsighted approach of making money off its clients. I also said that I thought the media had mischaracterized Smith’s comments as a condemnation of capitalism, specifically of Wall Street greed, and I still think this is the case.
However, it has been brought to my attention—both by Craig Biddle, who had not read the Smith op-ed prior to green lighting my post for TOS Blog, and by a lucid article from Eric Dennis at the Center for Industrial Progress—that the evidence Smith offers for his claims against Goldman is flimsy at best. Smith makes general claims to the effect that Goldman has abandoned its long-range, client-centered approach, but he provides no concrete examples, only say-so.
In my initial assessment, I gave Smith the benefit of the doubt because I thought his op-ed appeared supportive of business (and finance) in general while being critical of Goldman’s failure—as Smith saw it—to uphold its pledge to recommend investments “most directly aligned with the client’s goals.” In re-reading the op-ed, I now see that Smith’s comments could reasonably be interpreted differently, and I question whether he deserves the benefit of the doubt.
Whatever the facts of the matter in this case are, however, my main point remains true. For a business to be self-interested—that is, to make the most money in the long-term—it must provide its customers with exactly what it promises to provide. If a bank tells clients that it seeks to help them secure investments that make the most sense for them given their needs and goals, then it is in the bank’s best interest to do so. If the bank fails to uphold its promise in order to make short-term gains, the breach of integrity will spread, throttle the bank’s reputation, and lead to long-term losses—none of which is in the bank’s self-interest.
Whatever Smith’s intentions, this is what I took him to be saying. Far from condemning greed or the profit motive, such a message promotes long-term self-interest and wealth creation as the proper goals of any business enterprise.
And that is a message corporate America desperately needs to hear.
If you enjoyed this post, consider subscribing to The Objective Standard and making objective journalism a regular part of your life.
Image: Creative Commons by Quantumquark