John C. Whitehead – Then and Now

By Roy C. Smith

John Whitehead died last week at 92. He had many accomplishments, the most important of which to me were his 37 years at Goldman Sachs, more than 18 of which as a member of firm’s important Management Committee. For the last 8 years he was co-Chairman of the firm along with John L. Weinberg, who was Chairman until 1990 and died in 2006 after 40 years with the firm. Whitehead is the last of the “old Wall Street” leaders to go.

John joined the firm in 1947. He became the principal assistant to Sidney Weinberg, a legendary figure who headed the firm for 38 years. John became a partner in 1956 after assisting Mr. Weinberg in one of his signature achievements, advising the Ford family on the initial public offering of the Ford Motor Company.

John headed the Investment Bank Division for many years, and authored Goldman Sachs’ “Our Business Principles,” the first effort by any firm in Wall Street to publish the ethical standards it followed and to which the firm still adheres.  

He was also the driving force behind moving a reluctant Goldman Sachs into becoming “a truly international firm.” He recruited me from the domestic corporate finance department to join this effort at its beginning in 1968 and for 20 years he was my ultimate boss (I had other bosses too).

His constant peroration to me, and others struggling to create an international business from next to nothing, was “just because these companies never hear of you, or Goldman Sachs, or investment banking, doesn’t mean you can't get them to do business with us.”

John retired in 1984, 30 years ago (and 15 before the firm went public), after feeling that investment banking was steadily drifting away from the world of small, intimate firms with which he identified. Even after leaving, John was one of the most visible individuals identified with the industry, of which he was often quite critical.  

Today, Goldman Sachs has about 100 times more revenue and 35 times more people than it did when John retired. Its market capitalization is $83 billion, as compared to about $300 million of total partners capital in 1984. But the firm is not just bigger; it is in a much more global, complex and dangerous business than he had ever imagined it could be. Even so, there are several investment banks that are twice as large as Goldman.

What used to be “global” meant having offices in London, Zurich, Tokyo and Hong Kong. Today’s Goldman Sachs has 39 international offices (23 in emerging market countries) vs. 16 in the US; roughly half the firm’s business-flow originates outside the US.

The business too is certainly more complex. The Glass-Steagall Act was repealed in 1999 and competition for investment banking transactions increased geometrically, putting great pressures on margins and profits. Trading became the dominant investment banking revenue source, thus requiring new management skills in funding and leverage, hedging and controlling risk exposure, handling conflicts of interest, and the sometimes difficult task “of separating “clients” (to whom loyalties were owed) from “counterparties” (to whom they were not).

And certainly the seismic changes since 2008 in the regulatory and litigation environment of the capital markets businesses has introduced compliance burdens and hazards that have not yet reached their outer limits.

Because of these changes, few of today’s leading investment banking firms earn their cost of capital, and the shares of several trade below book value.

Goldman Sachs has survived the crisis and its aftermath better than most. This is partly because the firm’s DNA still carries some of the essential elements from the Whitehead and Weinberg days.  Most important of these may be the goal of professional “exceptionalism” that has, since the beginning, eschewed large mergers, cultural dilution and loss of hands on control, and insisted on the preservation of a “partnership” senior manager compensation system, that is still unique in the industry.

Goldman Sachs has had several leaders since Sidney Weinberg died in 1968; John Whitehead, though a man of many other interests and activities in the last 30 years of his long, rich life, has been one of the most admired and lastingly influential.