Goldman Sachs: Can Employees be both “Engaged” and Unethical?

This question has been banging around my head since the SEC charged Goldman and one of its star traders with civil fraud.  Can a company have very “engaged” employees who are at the same time highly unethical?  The allegations relate to the mortgage securities business and one particular financial vehicle, so they are very focused;  but they look like a proxy for a lot that happened in the last few years, and Main Street seems to be happy that Wall Street might be…finally…getting its comeuppance for helping bring about the Great Recession. 

As a former active stock trader (for my own account) I am very aware that every trade involves a buyer and a seller, and that shorts have as many rights as longs.  This is not the point.  The point is that the game is meant to be played on a level playing field, with equal access to information for all.  With that in mind one can take the risk and bet on the direction of a stock, mortgage bonds, etc.  So if there is fraud, the game suddenly changes and one side benefits to the detriment of the other.  This is what the SEC is charging. 

So let’s consider the Goldman culture:  don’t you think that people who work in such a successful environment, where the average bonus for 2009 was more than $700,000 and where they are among the best and brightest people in their field, in the world…don’t you think these people have high employee engagement?   Read the e-mails of the trader who is charged, the “Fabulous” Fab, he seems to be having a blast, even though he admits to not understanding what the hell he is selling.  Doesn’t it make sense that this environment would be one in which people would be extremely engaged, partly by the intense nature of the business, by the fact that Goldman can and does hire the most enthusiastic, the most motivated, the most energetic?  By the fact that they can earn what for most of us would be like winning a lottery every year?  I’d love to ask the person who has surveyed this company’s employees but I am sure he is far too ethical to tell anyone about a client, and I would never actually do it anyway.   Perhaps he is a lot more ethical than some of those he is surveying?  Why do I say that?  Because the Goldman e-mails indicate that traders regularly characterized one or more of the financial instruments which they were selling as “shitty”, as famously demonstrated in Congress the other day when the mails were read by the Chairman of the committee which gave Goldman people such a grilling.   Did the traders tell the buyers how “shitty” these were?

So it has occurred to me, and not for the first time recently, that engagement, high morale, call it what you will, and ethics…can be quite unrelated.  This goes against what I thought I knew, but life always proves me wrong when I think I am sure about something.   The reason I thought ethics was important in engagement was that there is evidence, which I presented in my book,  that ethical companies are seen as very attractive to some people, and they engage more because the company lives sustainability, fair trade, no- sweatshops, Green values.  This is especially true for younger workers for whom these things seem to be especially important.   Clearly though, as we saw at Enron, some people have values which are quite different and they find a place where those values are being lived, and those values have nothing to do with fair trade and so on;  they have to do with winning at any price, lying and cheating.  Witness the gung-ho Enron energy traders who delighted in getting large areas of California to be “browned out” (lose electricity) by their trading prowess.  They gave names to trades which have been immortalized in books such as “The Smartest People in the Room“.  They actually were thrilled that “Grandma”, three states away from their Houston offices, would have no power.

I know that some of you reading this would say, these people were out of control, they were deranged in some way.  I would say that much of the time they probably exhibited many of the traits of an engaged work force, as we currently define them.  Engagement definitions, as far as I can tell, make no mention of ethics or morals. It’s clear therefore that lack of a moral compass does not have to deny someone the chance to be engaged.  “Values” for one person can mean honesty and fairness, for another (usually unconsciously of course, most would not openly admit such a thing), hiding the truth and greed. Yes, ethics can engage certain people, those for whom this is important.  But there are obviously more than a few people who don’t care about that, who care about making money and doing what they can to advance, and whatever the company wants them to do, and to hell with ethics.  Companies and individuals with these values will, inevitably, find each other.

Perhaps we can take comfort in the fact that this never ends well.  There is a form of “corporate karma”.  Enron went bankrupt and its auditor went out of business;  sadly many innocent people who were probably very ethical and might have known nothing of the fraud being conducted on other floors of their Houston tower, lost their jobs and retirement plans.  Many Goldman people are certainly this way too, they are honest and ethical people.  But Goldman’s reputation, especially on Main Street, has been devastated by the activity of some.  How endemic this is in the firm, we may never know.  They have become the poster child for bad behavior, even though many on Wall Street see what they did as “business as usual”, and their alumni who have access to television pulpits (such as the frantic Jim Cramer) defend them, as one would expect.   So what is to be done?   I am not saying that we need to extend the definition of employee engagement to include ethics;   I am saying though that we need to be mindful of this.  We love football teams which win within the rules of the game; we hate those that cheat, those that secretly film another team’s practice to gain advantage against them.   Even Goldman has very recently said it plans to go deep into its culture and make some changes.  I hope they do.  “Engaged” employees who lack the “moral” root of the word “morale”, that’s not a long term strategy for any organization, no matter how successful they are for a while.

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  1. I began to think about this angle when researching all the various meanings of engagement and the example of military engagement stood out. Not that military engagement cannot be ethical, but as you point out, engagement does not require ethical standards or protocol. I agree that we need to be more clear about the goals we set around engagement and not make broad assumptions that this will produce moral or ethical behaviors. Great post David!

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