The Partnership: The Making Of Goldman Sachs

Paperback | September 29, 2009

byCharles D. Ellis

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The inside story of one of the world?s most powerful financial Institutions

Now with a new foreword and final chapter, The Partnership chronicles the most important periods in Goldman Sachs?s history and the individuals who built one of the world?s largest investment banks. Charles D. Ellis, who worked as a strategy consultant to Goldman Sachs for more than thirty years, reveals the secrets behind the firm?s continued success through many life-threatening changes. Disgraced and nearly destroyed in 1929, Goldman Sachs limped along as a break-even operation through the Depression and WWII. But with only one special service and one improbable banker, it began the stage-by-stage rise that took the firm to global leadership, even in the face of the world-wide credit crisis.

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From the Publisher

The inside story of one of the world?s most powerful financial InstitutionsNow with a new foreword and final chapter, The Partnership chronicles the most important periods in Goldman Sachs?s history and the individuals who built one of the world?s largest investment banks. Charles D. Ellis, who worked as a strategy consultant to Goldma...

Charles D. Ellis is a consultant to large institutional investors and government agencies. For thirty years he was managing partner of Greenwich Associates, an international business strategy consulting firm he founded that serves virtually all the leading financial service organizations around the world. Ellis earned his M.B.A. from H...

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Format:PaperbackDimensions:768 pages, 8.38 × 5.49 × 1.62 inPublished:September 29, 2009Publisher:Penguin Publishing GroupLanguage:English

The following ISBNs are associated with this title:

ISBN - 10:0143116126

ISBN - 13:9780143116127

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Rated 4 out of 5 by from Ellis Tells The Partners' Story Charles Ellis has written the definitive history of Goldman Sachs, relying on candid insight from dozens of the partnership's current and former leaders. In many ways the firm’s history parallels that of Wall Street, as Goldman Sachs (GS) was either a leader or near the forefront in the development of many practices: advisory services; trading desks, block trading, proprietary (prop) trading, private client services, prime brokerage, commodities trading, forex, hostile takeovers, and of course the benefit of a truly global footprint. Readers will learn about the dozens of leaders who shaped GS, how they strove for excellence in all areas, and how and why our modern capital markets have developed. What they will not receive however, is any policy perspective on whether or not investment banks should undertake some of their activities at all - a glaring omission given the book’s length and detail. Goldman Sachs is unquestionably the pre-eminent investment bank today, and Ellis’ admiration comes across in his text. He unabashedly chronicles the significant steps in its evolution, noting disagreements and differences in style within leadership circles, but never stooping to malign individuals. When the firm or partners find themselves offside with New York DA Rudy Giuliani, Ellis highlights the impact on the firm, its operations, and its strategic direction, but he neither moralizes nor impugns an individual’s character. In one notable instance Ellis actually rises to the defence of a former partner, methodically dismissing both the charges of New York DA Rudy Giuliani and the shoddy journalism at the time by James Stewart, who later added insult to injury by immortalizing his mistakes in his classic book Den of Thieves. In short, those looking for character assassination, muckraking, and an expose on the moral failings of Wall Street will have to look elsewhere, including William Cohan’s excellent Money and Culture: How Goldman Sachs Came to Rule the World, and Greg Smith’s highly edited (censored?) Why I Left Goldman Sachs. Though Ellis doesn’t highlight them, careful readers will see some of the potential conflicts as they develop. For example, there is a short passage on an agreement between GS and British company Woolworths whereby GS would keep the price of Woolworths’ stock above a certain level, something that would be unthinkable in today’s public markets. Similarly, the realization by GS leadership that information from unrealized management buy outs (MBOs) could subsequently be used to help outsiders undertake leveraged buy outs (LBOs) would appear to cross a line, as would the development of proprietary trading (i.e for GS’ own benefit) while simultaneously executing clients' trades on an agency basis. With respect to the then new field of asset management, Ellis notes “[The major underwriting firms] were definitely not in the investment management business, and they were, back then, explicit that being an investment management would be a clear conflict of interest. But that simple … policy could not hold up once Wall Street discovered how very profitable the asset-management business really was.” Much gentler words than Rolling Stone Magazine’s Matt Taibbi’s description of GS as a “great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money,” but with a similar message; if an activity can make money and it’s not illegal, it will be considered. The book is littered with names that will resonate outside the walls of the partnership and Wall Street - Hank Paulson, Robert Rubin, Robert Merton, Fisher Black, John Meriwether, Jon Corzine, and Lloyd Blankfein - some of whom are celebrated for further achievement, some for subsequent spectacular failure, and some for both. Even though GS’ early leaders’ names have largely faded from common parlance, their achievements are still easily recognizable - for example the underwriting of Ford’s 1956 IPO (which subsequently sank about 25%) - as are the achievements of more anonymous groups such as the mortgage backed bond group who belatedly realized that their investments had an embedded option and a feature known as convexity, and that changes in interest rates would impact homeowners’ refinancing activities. Perhaps a bit esoteric, but it has subsequently been taught to all CFA Charterholders and it is not uncommon to find reference in more detailed economic and business writing. The Partnership: The Making of Goldman Sachs is a worthwhile contribution to the history of Wall Street. A bit long and dry for casual readers, the book should be read by those with an interest in Goldman Sachs (new GS recruits, prospective GS partners, and those working for competitors), and by those with an interest in the development of investment banking and finance.
Date published: 2014-12-27

Extra Content

Read from the Book

IntroductionThis book was almost never written—several different times. In the winter of 1963 at Harvard Business School, I was, like all my classmates, looking for a job. My attention was drawn to a three-by-five piece of yellow paper posted at eye level on a bulletin board in Baker Library. In the upper left corner was printed "Correspondence Opportunities" and typed to the right was the name "Goldman Sachs." As a Boston securities lawyer, my dad had a high regard for the firm, so I read the brief description of the job with interest but was stopped by the salary: $5,800.My then wife had just graduated from Wellesley with three distinctions: she was a member of Phi Beta Kappa, a soprano soloist, and a recipient of student loans. I was determined to pay off those loans, so I figured I'd need to earn at least $6,000. With no thought of the possibility of earning a bonus or a raise, I naively "knew" I could not make it on $5,800. So Goldman Sachs was not for me. If I had joined the firm, like everyone else who has made a career with Goldman Sachs I would never have written an insider's study of Goldman Sachs.*In the early 1970s, while promising future partners that we would develop our fledgling consultancy, Greenwich Associates, into a truly superior professional firm, I had to laugh at myself: "You dummy! You make the promise, but you don't even know what a truly superior professional firm is all about or how to get there. You've never even worked for one. You'd better learn quickly." From then on, at every opportunity I asked my friends and acquaintances in law, consulting, investing, and banking which firms they thought were the best in their field and what characteristics made them the best. Over and over again, well past the bounds of persistence, I probed those same questions. Inevitably, a pattern emerged.A truly great professional firm has certain characteristics: The most capable professionals agree that it is the best firm to work for and that it recruits and keeps the best people. The most discriminating and significant clients agree that the firm consistently delivers the best service value. And the great firms have been and will be, sometimes grudgingly, recognized by competitors as the real leaders in their field over many years. On occasion, challenger firms rise to prominence—usually on the strength of one exciting and compelling service capability—but do not sustain excellence.Many factors that contribute to sustained excellence vary from profession to profession, but certain factors are important in every great firm: long-serving and devoted "servant leaders"; meritocracy in compensation and authority; disproportionate devotion to client service; distinctively high professional and ethical standards; a strong culture that always reinforces professional standards of excellence; and long-term values, policies, concepts, and behavior consistently trumping near-term "opportunities." Each great organization is a "one-firm firm" with consistent values, practices, and culture across geographies, across very different lines of business, and over many years. All the great firms have constructive "paranoia"—they are always on the alert for and anxious about challenging competitors. However, they seldom try to learn much from competitors: they see themselves as unique. But like Olympic athletes who excel in different events, they are also very much the same.Armed by Greenwich Associates' extensive proprietary research and working closely as a strategy consultant with all the major securities firms, I was in a unique position to make comparisons between competing firms on the dozens of salient criteria on which they were evaluated by their own clients market by market, year after year, and particularly over time. Over the years, I became convinced that my explorations were producing important discoveries that would be of interest to others who are fascinated by excellence, who retain professional firms for important services, or who will spend their working careers in professional firms. One discovery surprised me: In each profession, one single firm is usually recognized as "the best of us" by the professional practitioners—Capital Group in investing, McKinsey in consulting, Cravath in law (nicely rivaled by Davis Polk or Skadden Arps), and the Mayo Clinic in medicine (nicely rivaled by Johns Hopkins). And Goldman Sachs in securities.Ten or twenty years ago, many people in the securities business would have argued that other firms were as good or better, but no longer. (Much further back, few would have ever chosen Goldman Sachs.) For many years, it has seemed clear to me that Goldman Sachs had unusual strengths. Compared to its competitors, the firm recruited more intriguing people who cared more about their firm. Their shared commitments, or "culture," was stronger and more explicit. And the leaders of the firm at every level were more rigorous, more thoughtful, and far more determined to improve in every way over the longer term. They took a longer horizon view and were more alert to details. They knew more about and cared more about their people. They worked much harder and were more modest. They knew more andwere hungrier to learn. Their focus was always on finding ways to do better and be better. Their aspirations were not on what they wanted to be, but on what they wanted to do.Goldman Sachs has, in the last sixty years, gone from being a marginal Eastern U.S. commercial-paper dealer, with fewer than three hundred employees and a clientele largely dependent on one improbable investment banker, to a global juggernaut, serially transforming itself from agent to managing agent to managing partner to principal investor with such strengths that it operates with almost no external constraints in virtually any financial market it chooses, on the terms it chooses, on the scale it chooses, when it chooses, and with the partners it chooses.Of the thirty thousand people of Goldman Sachs, fewer than half of one percent are even mentioned in this book, but the great story of Goldman Sachs is really their story—and that of the many thousands who joined the firm before them and enabled it to become today's Goldman Sachs. Goldman Sachs is a partnership.The legal fact that after more than a hundred years it became a public corporation may matter to lawyers and investors, but the dominating reality is that Goldman Sachs is a true partnership in the way people at the firm work together, in the way alumni feel about the firm and each other, and in the powerful spiritual bonds that command their attention and commitment.The leaders of Goldman Sachs today and tomorrow may have even tougher jobs than their predecessors. The penalties of industry leadership, particularly the persistent demand to meet or beat both internal and external expectations for excellence—over and over again on the frontiers of competitive innovation—are matched by the persistent challenges of Lord Acton's warning: "Power tends to corrupt. Absolute power corrupts absolutely."Three great questions come immediately to any close observer: Why is Goldman Sachs so very powerful on so many dimensions? How did the firm achieve its present leadership and acknowledged excellence? Will Goldman Sachs continue to excel?The adventures that crowd the following pages point to the answers.Charles D. EllisNew Haven, ConnecticutJune 2008* John Whitehead and Robert Rubin have both included a few stories about the firm in their books but have certainly not tried to provide a complete picture. Lisa Endlich, a fine writer but with limited access to the full range of partners, wrote a thoughtful and wide-ranging study centered on the development of the firm in the 1980s and 1990s.Bob Lenzner, a gifted writer for Forbes who had worked in arbitrage at Goldman Sachs a generation ago, started a book but set it aside, saying he didn't want to lose his friends at the firm.

Editorial Reviews

" Rich with insider lore as well as the closed-door dramas of partnership clashes."
-The New York Times Book Review

"Exhaustively researched . . . paints a convincing picture of an institution that has got most of the important things right."
-The Economist