In Good Company with Nicolai Tangen - David M. Solomon CEO of Goldman Sachs

Episode Date: March 29, 2022

In this episode, Nicolai Tangen talks to David Solomon, CEO of Goldman Sachs. They discuss the highly competitive financial services industry and how to attract the best talents and give their view on the equity market. They also discuss culture, leadership, inflation and speed! The production team on this episode were PLAN-B’s Tor-Erik Humlen and Olav Haraldsen Roen. Background research was done by Sigurd Brekke and Bård Ove Molberg with additional input from our portfolio manager Frederik Thomasen. This episode was recorded on February 8 2022, before the war between Russia and Ukraine.Links:Watch the episode on YouTube: Norges Bank Investment Management - YouTubeWant to learn more about the fund? The fund | Norges Bank Investment Management (nbim.no)Follow Nicolai Tangen on LinkedIn: Nicolai Tangen | LinkedInFollow NBIM on LinkedIn: Norges Bank Investment Management: Administrator for bedriftsside | LinkedInFollow NBIM on Instagram: Explore Norges Bank Investment Management on Instagram Hosted on Acast. See acast.com/privacy for more information.

Goldman Sachs, one of the most successful banks of all times. And David Seliman, as a CEO, is one of the most successful banks of all times. And David Seliman, as a CEO, is one of the most influential people in global finance. David, we are honored to have you with us. Well, thank you. I'm delighted to be with you today. So one of the things that really impressed me was when I sent you an email to ask whether you wanted to join the podcast. You personally answered within five minutes. And I thought, wow wow that's the kind of stuff that really impresses me because I think speed is a mindset so what do you um what is your view on speed

well first with respect to your email the reason it came back in five minutes is I was probably sitting at my desk doing emails at the moment that you emailed I I don't know that I can I can live up to that standard as people hearing this email me, but I do believe that there's an underlying point there. I operate with this. I respond to all my emails personally, and I try to do it real-time or same day. I think this comes from a client orientation. I've grown up serving clients in a client business. Goldman Sachs is focused on serving our clients. Speed, intensity, commitment, being available, showing up, these things matter.

One of the ways you show up is you're responsive, and you treat everybody exactly the way you want to be treated yourself. I think being responsive in the context of phone calls and emails and all that communication, I think being responsive in the context of phone calls and emails and all that communication, I think it matters. And I think it's a mindset that starts with a client service mindset. And I think that's really culturally core here at the firm. And I think that's the way I've been trained. I think that's the way I've grown up and it continues today.

So what does a day look like for you? I hear rumors, for instance, that you wake up early in the morning and you work out. I do. I'm not a guy that sits still very often. And so exercise and movement and activity is a big part of my life. And so a typical morning, if I was in New York, and this morning would be one, is I'm up 5.45 or 6 o'clock in the morning and I'm in the gym. I happen to have a gym at my apartment. so I'm at the gym in my apartment. Or if the weather's nice, I'm outside doing something. But just 45 minutes or an hour to be moving, get a sweat up, and get something going.

And I just find it clears my mind. It gives me a chance to get going in the day. And then generally a quick shower. It doesn't take me very long to do my hair. So I can get dressed and get out of the house in about 15 minutes. And I usually show up in the office around 7 to 45 in the morning. And I live downtown in New York, close to the office. And then the day's off and running. The day is generally pretty full and back to back-back with a variety of different things. It can be strategic and focused on the business broadly.

It can be focused on our people. It can be focused on clients, but the day is generally pretty full. Most days during the week, I have a call. Usually, that's at 5.30 or 6 o'clock. It can be a call or a meeting with John Waldron, my chief operating officer, and Dennis Goldman, my CFO, and John Rogers, my chief of staff, where we go over an agenda of things we're all trying to drive,

make sure we stay connected each day. And then that's usually followed with a dinner, either with people internally at the firm or with clients, and back home in bed, rinse, wash, and repeat. So when you look at what you do during the day, what do you think makes you an effective leader? Well, I think being an effective leader is less about what you do in the day and more about what you do over time and who you are as a person,

as a business person, and how you interact broadly. I've thought about this a lot during the pandemic. One of the important tenets of leadership is generally when you're exerting leadership on an organization or on people broadly, you're taking them where they don't want to go. If you're taking them to a place that they want to go on their own anyway, they don't really need your leadership. So give an example of a place where people don't want to go,

where you take them. Well, first of all, just looking at our organization broadly, organization is a 150-year-old organization and I'm a steward of that organization. But part of my job is to lead it in a direction that I think strengthens it, leaves it stronger and better than it was when my stewardship started.

And so for me, that required a mindset that was a little longer term in nature, a little more investing in the future of the organization broadly. And so if you think about this organization, historically, this organization was a private partnership for 130 years. And the way private partnerships work is they really work on a year-to-year basis because the whole incentive arrangement is for the benefit of the partners each year. You don't know two years later whether you're going to be a partner, so you're really focused on what's happening that year or the next year as a partner because you did what you did.

At the end of the year, the organization paid all the people, and then what was left went to the partners as equity in the business. A partnership has a tendency to breed a shorter term mindset. Goldman Sachs made a transition from being a partnership to a public company in 1999 when it went public. But from 1999 to 2008, the firm grew 17% compounded on the top line. And that allowed the firm to operate as a public company exactly the way it did as a private partnership because everything was working. When you're growing that fast on the top line, everything works. You think you're brilliant because everything's all working when you have that kind of growth. Another question on leadership. You are known, of course,

not only as the CEO of Goldman Sachs, but also as an accomplished DJ. And I think you said that it's important to bring, you know, your authentic self to work. Tell us what it does to you as a leader to kind of level with the rest of the people? Well, I think, and this goes to what I was talking about before when you were asking about leadership broadly, you're trying to take people to a place where they don't want

to go. One of the ways to help people think about things differently is for people to be able to relate to you, for you to be relatable to them directly. One of the things I just observed, and this has certainly evolved a lot as I talk to and interact with a lot of my peers. If you go back 25 years ago, the CEO of a big public company was almost up in an ivory tower, kind of isolated and removed and almost untouchable. And we live in a much more transparent world. And people want to be able to relate to the people that are leading them.

And I think one of the things, and this was not planned because my DJing and music was a hobby. And it only got exposed because I became more visible as a professional. I mean, my friends knew, but it wasn't something that was really visible broadly because I wasn't a visible guy until I had a job that made me more visible in the business community as a public figure. But I noticed that people's behavior in the organization shifted as they knew a little bit about me as a real person. And I find now that young people are just much more comfortable coming up and talking to me. And it usually starts with, hey, I like your music, or hey, I want to talk about music. It doesn't start with, hey, I want to talk about business. And that to me, it's just easier to connect. And so I'm sure as a 60-year-old guy

who's the CEO of a big company, if you're a 24-year-old employee, and by the way, 50% of our employees are in their 20s when you look around the world at our 45,000 employees. I think having senior leadership at the firm that's more human, more authentic, more approachable, I think it helps our organization. And I think others and other organizations, as I talk to others that are my peers, I think people are agreeing that just being yourself, being a human being helps you lead an organization.

So for sure, we need to tell the young people on the program here that they should just keep on DJing. Well, I wouldn't say that if they're a DJ, they should keep on DJing. But what I would say, and I think it's absolutely true, is there's no reason why you shouldn't pursue things in your life that you're passionate about. I agree entirely. Having a very, very serious business career and pursuing personal passions, one has nothing to do with the other, and you absolutely, in your life, should be able to pursue both. I agree. And look, in the journey of a life, there are going to be different times in different places. My kids are grown now, and I have different flexibility than I had when I was

40 years old, had young kids, was working very hard, balancing all that. No, there wouldn't have been a lot of time for some of the things that I do now. But I do think it's hugely important that everyone is passionate about things that they really enjoy and that they find time to pursue their passion. And I wouldn't exclude any activity or separate any activity. Pursuing passions helps you, I think, be more successful, more motivated, more able to really lead from a business perspective. Can we spend a few minutes on governance? As you know, we are the Norwegian Sovereign Wealth Fund. We run the money on behalf of the Norwegian population.

Now, how do you set appropriate levels of compensation in a firm like Goldman's, which is so successful? I mean, what is the right type of pay? And is there such a thing as too high pay? Well, I think there absolutely can be too high pay. I think we start with a couple of base principles. First of all, we operate in a market system and we're evaluated on the competitiveness

of the overall package we offer employees. And by the way, it's pay, it's compensation, it's experience, it's long-term wealth creation, it's benefits. There's a whole package of things that you're judged on every year because you can look at your attrition and you can look at how your attrition moves up and down. And I assure you, when your compensation is not competitive, your attrition moves up. When your compensation is overly generous, your attrition moves down. But the point is, it's got to be a pay-for-performance culture. Our culture is deeply rooted in pay-for-performance.

When we deliver for our stakeholders, for our shareholders, our people are very well rewarded. When it doesn't work, we've got a lot of variable comp in our system. deliver for our stakeholders, for our shareholders, our people are very well rewarded. And when it doesn't work, we've got a lot of variable comp in our system. And so I think we generally get it more right than wrong. But it's a very, very competitive world, competitive marketplace, and we try to strike the right balance. And we do a lot of benchmarking and a lot of very thoughtful process around thinking about that. And when we outperform, we think our people deserve to be paid better on a relative basis. And when we underperform, we believe they don't.

Now, how important are the views of large institutional investors like ourselves when it comes to the decisions that you make as a CEO? Well, I think you've always got to be listening to your stakeholders. And you certainly have to be listening to your shareholders. And you certainly have to be listening to your shareholders, and you certainly have to be listening to institutional investors broadly. And it's a data input, but I think you have to do the right things for the organization and the medium in the long term. And you have to listen to what's on everybody's mind in the short term. But generally

speaking, you guys obviously wouldn't be in this category because you have a steward responsibility in a different set. But generally speaking, institutional investors are very focused on this, you're a next. And so putting an organization like yours aside, many investors really want to know, they want to know what our returns are going to be in 2022 and maybe 2023. And so if I'm making investments for 2025, 2026, 2027, 2028 to really grow the firm and the franchise, there's always going to be pressure from institutions as to how is that affecting returns in the short run. And you've got to strike the right balance. You have to listen, but you have to do what you think is right for the organization in the medium and long term.

You have to take a long-term view. Well, we for sure do that. We have at least a 30-year view, which is pretty fantastic in this industry. Now, last year, we started to publish our voting intentions five days before shareholder meetings. And one of our voting principles

is that the board should exercise what we call objective judgment and be able to make decisions independently of management. Now, we therefore believe that the roles of chairperson and CEO should not be held by the same individual. So as a matter of fact, we voted against yourself being reappointed as chairman, since you are also the CEO. Why are we wrong in thinking this? Well, there are different models and different places and different structures. We have a lead director who exerts an enormous amount of influence over the board and our processes.

But in the context of our business and the way we run our business, we've run it very effectively through three leaders as a public company now, where the chairman and the CEO roles were not split and we operated with a lead director. And so we think we do it very effectively. We think it works for us. We think it works in the context of the way we run our governance process. There are others that would choose a different process. But I think if you look at our book value growth over three years, five years, 10 years, 20 years, our book value growth has delivered very well. And we think the governance structure that we have in place has worked and has protected that. And so we obviously listen to inputs like those, but it would be a place where we have a slightly different view than you. Absolutely. Absolutely.

But that doesn't mean we're right or you're right. It just means we have a different view and both views are views that are worthy of attention and thought. Now, moving on to a place where there certainly are different views, capital markets. That's kind of different views that actually make these markets. Now, what is your general view on equity and bond markets just now? And what kind of a market environment should we expect going forward? Well, we're in a little bit of a transition, obviously, because we've gone from a period, if you really want to step up at a very high level, and I know you guys think about things over 30-year trend periods,

I think we've set the table for a broadly different environment for a meaningful period of time. And just at a very high level, thinking about markets here in the US, I think about, or even global markets, I think about the period after World War II and the environment that ran after World War II up to the mid-60s,

where we really were rebuilding the world and you had a growth dynamic based on that kind of reconstruction of the order coming out of World War II. It shifted in the late 60s for a variety of reasons. And we really ran from the late 60s to the early 80s with inflation above trend, you know, very, very brutal inflation in some places. That obviously is very, you know, it's punitive to economic growth. It's punitive to asset appreciation. If you go back and you look at 1970 to 1980,

almost any asset you owned during that 10-year period decreased in value. If you owned U.S. equities in that 10-year period, they were worth close to 50% less in 1980 than they were in 1970. Interest rates were extremely high. And so that was a certain macro environment that we all had to operate in. Right around when I started getting out of school, 1982, 1984, we entered this environment where really for the last 35 years, interest rates have generally come down, going to make generalization, generally come down, and inflation has generally been below trend or below target. There are obviously exceptions, little windows, but we've generally operated in an environment like that. And I think for a variety of reasons, coming out of the financial crisis and the policy action that was taken and was sustained over the last decade, we were just starting to work our way through that. And then we obviously had to deal with the pandemic.

And with COVID broadly, there was a bunch of central bank policy action, fiscal policy action around the world. We've put real inflation back into the economy. I don't think it's transitory. I don't think it has to be as punitive as it was in the 1970s. But the policy decisions we take from here will have an impact on how we sort out this next period. But I think that we have, from a combination of, you know, monetary and fiscal policy and also the geopolitical environment, you know, I think we've got headwinds to growth broadly as we kind of sort through the actions that we've taken over the last 10 to 15 years.

And we've set the table for, I think, a different operating environment. And I think it's going to be harder. It's been easier to earn above-trend returns in markets. And I think we're going to go through a period where it might be harder to earn those above-trend returns. But in the distribution, I think there's a greater chance that there's going to be headwinds there. Yeah. I'm in the same camp. But if you look at inflation as it happens just now and the possibility of coming back to some kind of 70s environment, how long time do you think such a difficult period could last? Well, part of it, I think, part of it depends on the policy actions that central banks and governments take from here. And this could be something that we can

work our way through over the next 12 to 24 months. It could be something that we can work our way through, you know, over the next 12 to 24 months. It could be something that sustains longer. But the policy decisions and the actions we take will have an impact on that journey. And it's very, very hard to predict. But if you look at our economic forecasts, you know, we're a little bit more conservative on growth as you look forward into 2023. We're a little bit more conservative on growth as you look forward into 2023. Even the second half of 2022, as we come out of the pandemic, I think there's all sorts of friction. There's no demand issue at the moment, but lots of supply friction.

It's going to take a while. As I talk to CEOs, it feels like it's going to take a while to work through some of that. We'll see. Money has been very, very available, very, very inexpensive. It's created a lot of asset inflation. And we're starting to unwind some of that. And I think there's a scenario where we can work through it in the next couple of years. I think there's a scenario where it's harder. And we have a longer term period where growth's a little bit below trend. And it's harder to make money in a variety of asset classes as an investor in the short or medium term.

Now, as the CEO of Goldman Sachs, how negative can you actually be on the market? Well, I wouldn't say I'm negative on the market. I mean, if you ask me broadly to think about the next decade, I'd still be long equities, I'd be long U.S. equities, for sure with a decade view, but you're asking more in the context of the current environment, thinking the next 12, 24, 36 months. You and I would agree it's been very, very easy over the last five years to be long almost any asset and generally find yourself in a better position in a relatively short period of time, I think there's going to be headwinds for that. But generally speaking, I'm a glass half full guy.

I think we find ways to grind through this stuff. And I think we'll find a way to grind through it here. I don't have a crystal ball to predict whether we can do that in the short term or it's going to take longer. We'll make some policy errors that create more friction. We'll have to see. Now, if we shift gears and talk a bit about Goldman's as a firm,

what is the secret sauce if you try to distill it down? The people. It's the people. And how do you make sure that you continue to have the best people? Well, we work very, very hard at it. And I think we're extremely

lucky that we've got an incredible ecosystem where we're able to attract super talented people who are young and are coming out of school. I think we have one of the great platforms for young people to come, to learn, to grow, to meet other people, to gain experience. Many of them do that for a few years, for five years, for 10 years. They go off and do something else. A small slice of them stay here and build careers. But it's that ecosystem of super talented people. It's a collaborative culture. It's a culture of excellence that really helps us thrive. And we've found a model that's worked for us over a very long period of time, and we invest heavily in trying to support it. We don't always get it perfectly right, but I wake up every day feeling incredibly proud of the people of this organization, how hard they work, how committed they are to excellence, how committed they are to client service. And if we can keep that differentiation, if clients continue to tell me that they really see a difference in

the quality of our people, the quality of the work that they do, we'll win more than our fair share. But David, wouldn't you argue that all banks try to do that? So why are you more successful than the other banks? Actually, I wouldn't argue that all banks try to do that. I think that some institutions, not being specific to any, but some institutions actually think that the capital and the institution, okay, is more valuable than the people. And if this organization, our culture, our ethos, the way we run the organization, the way we think about it, of course, we need capital. Of course, we need technology. But if you have those things and you have really great differentiated people and you marry them together, you're able to deliver a better outcome for clients.

So what type of people, if you can choose, exactly what type of characteristics are you looking for? So if you can choose, so exactly what type of characteristics are you looking for? Well, certainly you want people that are smart and that are motivated and that are actually passionate about the work. But those are broad things. I think that if I could boil it down to something that I've seen over and over and over again in my career makes a difference, it's grit. There's a characteristic of grit and perseverance. And you see it when you look at people's life experiences.

Sometimes you see it in people that have achieved an enormous amount in sport in some way, shape, or form because of the amount of work and perseverance and discipline it took to get there. Sometimes you see it because someone's had an enormous hardship in their life and they found a way to work around that, recover and move forward. But I think grit's a differentiator. And there's a real sense of commitment to growing, to learning, to bringing

excellence to what you do, to having kind of a journey mindset where you realize your life is a journey, it's not a fixed path, and you're always trying to learn and grow and feel, how can I do better? How can I self-improve? Those are characteristics I think you can look for in people. And I think when you find people that have that package often,

not always, but often, you can get better relative performance. How do you encourage these high-performing individuals to work together effectively as teams? Well, it's part of the ethos of the culture. It's one of the reasons why I've been so forward on wanting to bring people back together and bring people back in the office. We have a very young workforce, and the apprenticeship and the collaboration differentiate us. And that's much harder to do on a remote basis. And so despite the way sometimes portrayed, I'm not, I'm not zealous about the fact that everybody's got to be in the office all the time, but fundamentally we're a collaborative come together culture and that

differentiates us all the things we've been talking about. And so, you know, we are focused on making Goldman Sachs as good as it can be and our goal of serving our clients at the highest level possible. And that requires us to bring people together and have them work collaboratively. And so, it's something that's just core to how we operate and how we work and how we communicate as an organization. Very transparent organization, very communicative organization, very flat organization. How do you measure performance then? And how do you say goodbye to the people who you don't consider good enough? Well, there are a variety of things that happen naturally in an organizational process.

And so there are people that don't keep pace or they don't find that this environment, the intensity of the environment, the culture of the environment, it doesn't fit them, and they opt out. And often it can be those that don't fit that or don't want to operate in that kind of collaborative, high-performance culture. And it's not for everybody, for sure. We go through a process every year where people are reviewed and they're evaluated by their

peers, by their superiors, et cetera. We give people developmental feedback in a very active way in three conversations over the course of a year. We're constantly trying to help people grow and improve. But every year, we also look and we see where there are people that we don't think are performing at the level that we want. And we have a process of going through and always trying to strengthen and upgrade the organization.

Now, despite that, you have been really vocal in terms of trying to get people to have a better work-life balance. Do you want to tell us just what you've been doing here? Well, one of the things that's changed, and I've observed this, I've talked a lot about it over the course of the last 10-plus years because this started, in my mind, I started thinking about this differently when I became the head of investment banking back in 2006. We're talking about 15 years ago at this point. But when I started in the business, I got out of school in 1984. When I started in the business in 1984, it was a very different thing.

When you worked very hard, but the moment you walked out of the office, you were done. There were no cell phones. There were no pagers. There was no BlackBerry. There was no iPhone. You were done. The only way somebody could get a hold of you was to call you at your home phone. By the way, then you had to pick up the phone because we all had answering machines. You could

screen your calls and you could very well not be home, even if you were home. Those were the days. Those were the days. There were boundaries that were created and the world moved at a different pace. But the technology, which obviously advances and you can't go backward, leaves us all completely connected 24-7. And that's a hard thing for people to manage. And I think particularly as people come out of school and they go out of university and they go into the professional workforce, it's a skill to learn to manage that connectivity responsibly. It's a skill to learn how to strike the balance and create boundaries. We talked about speed and responsibly. It's a skill to learn how to strike the balance and create

boundaries. We talked about speed and responsiveness. I think that matters, but setting boundaries and giving yourself a healthy balance so that you can continue to do this for a long time. You can be healthy. You can do it in a sustainable way. That's something you have to work at. We've tried over time to create boundaries, give people guidelines, and try to help people get their life set up in a way where you can work very, very hard. We're not going to shy away from the fact

that this is a place where people work very hard, and there's obviously a lot of opportunity that comes out of that, but also there have to be boundaries, and it has to be done in a sustainable way. There have to be boundaries, and it has to be done in a sustainable way. Now, just moving into the last portion here, we got a lot of young listeners and students.

What generally is your advice to these guys? Because they all want to be the CEO of Goldman Sachs one day. Or the Norwegian Solomon Wealth Fund. What should they be doing? Well, I think, first of all, as a young person, it's important to do a couple of really, really base things. Find a place where you can go work with great people, where you can learn, where you can grow, where you can build a personal and professional network, and kind of put your head down and don't be in a hurry. It's a long journey, and you don't know where it's going to take you.

And certainly, I never aspired to be the CEO of Goldman Sachs. In fact, when I was coming out of school, I interviewed for Goldman Sachs, and I didn't get a job. When I was out of school for a year and a half, I interviewed at Goldman Sachs to get a job laterally, and I didn't get a job. When I was out of school for a year and a half, I interviewed at Goldman Sachs to get a job laterally, and I didn't get a job. So I wasn't offered a job at Goldman Sachs until I was in my late 30s.

So that's what you call grit. Well, I found a path into the business. I found that I really enjoyed the business. I enjoyed the people interaction. I enjoyed the intellectual stimulation. I enjoyed the intellectual stimulation. I enjoyed the fact that every day was different. I enjoyed the fact that I was learning and growing and meeting people. And so whatever you choose to pursue, find something that interests you. Take a long-term view. Don't be in a hurry. And just remember that it's not a straight line.

It's a journey with its ups and downs, and you never know what's going to come your way, but there'll be lots of interesting choices along the road. Be patient, work hard, be persistent, have grit. I've heard you say once that if you are happy two-thirds of the time, that's good enough. I really believe this professionally. I tell a story, it's an anecdotal story, about a woman who I knew who came into my office,

who had been at the firm for a couple of years. And she came into my office. I happen to know her, I knew her growing up as a child. So she came to see me. And she said to me, I want to talk about what I'm going to do next. And I said to her, okay, that's great she said to me, I want to, I want to talk about, you know, what I'm going to do next. Um, and I said to her, okay, that's great. But let me ask you a little bit about what you're doing. You know, how do you like your job? Oh, I love it. The work's so interesting, super interesting.

I, I, I, I find it really motivating. I like what I'm doing. I really like the work. I'm like, that's great. How do you like your boss? And this was a, this was a young woman. Oh my God, that's great. How do you like your boss? And this was a young woman. Oh my God, she's amazing. I feel so lucky that I'm being mentored

by a senior woman who's experienced and she really watches out for me and she's teaching me and I really like working for her. I was like, that's great. How do you like the people you're working with? Oh my goodness, I've made so many new friends. We go out at night, on the weekends

and we work really hard together and we go have fun. I really feel so lucky. It's such an amazing group of people. My advice was go back to work. If all those things are working, keep going and see what comes. Why would you take yourself off a track where you're enjoying it, you're learning, you like who you work for, you like who you're working with? Let it play out a little bit. Be a little bit more patient and stay with it because, generally speaking, in a career, there are lots of times when you don't have those things.

You don't like some of the people you're working with. You don't like your boss. I think one of the great lessons that everyone has to work through in a career is when you're working for someone and you don't like working for them. The easy thing to do is to just quit or walk away from it. The better thing to do is to figure out how to make it work and to try to see what you can learn from that dynamic. And so I think if you've got it kind of working, if you feel good about it, you know, most of the time, two thirds of the time, as you say, 75% of the time, you're probably in a pretty good place. David, I think that's fantastic advice and a great place to end. Thank you so much for joining us today and all the best going forward. Thank you, Nikolaj. It was great to be with you.

Good to see you. Absolutely. Take care now.