JOHN WHITEHEAD

John Whitehead, HBS 1947, joined Goldman Sachs when its service offerings were
almost exclusively in commercial paper. He soon created a new-business development
department and then went out and listened to the firms clients, identified new business
lines, and over time developed these into major service offerings. Indeed, its difficult to
imagine the world of Goldman Sachs before such things as Mergers & Acquisitions,
IPOs, and other financial services now so closely associated with the investment banking
industry. After retiring from Goldman Sachs in 1984, John served as deputy secretary of
state during the Reagan administration. In December 2001, he took on the task of
managing the redevelopment of lower Manhattan following the events of September 11.
He described his experiences in a video interview at his Manhattan office in July 2002.
Interviewer: Amy Blitz, HBS Director of Media Development for Entrepreneurial
Management.
The Early Years
I was born in Evanston, Illinois a little more than eighty years ago. My family moved to
New Jersey when I was about two years old, so I dont remember much of my midwestern upbringing. I grew up in Montclair, New Jersey, and went through public schools
there. I had one sister two years younger than I was. My parents were a very loving and
caring set of people, and they had a very close marriage. So it was a happy family life.
Much of my early life took place at the beginning of the Depression. I would say we were
a lower-middle-class income family, although I never thought that we were poor because
so were all our neighbors and all the other people in the area. It seemed like a
comfortable living. My father was unemployed for two years during the depths of the
Depression. That would have been 1932 and 1933, when I was ten and eleven years old. I
vividly remember that we were scrimping and saving. We ate a lot of macaroni and
cheese and fish cakes and not a lot of meat. We had meat about once a week. We had to
operate economically.
If I had to say what it is from that life that made me who I am now, I would say I was
always involved in a whole lot of different activities outside of school. School and family
were probably the core activities and then I was into a whole lot of different things. I
joined the boys choir in my church when I was eight years old. I was a boy soprano
soloist in the choir. When I was twelve years old I joined the Boy Scouts, and the Boy
Scouts have been an important part of my life. I became an Eagle Scout when I was about
fifteen or sixteen years old and Ive always been very proud of that. Ive been active in
scouting in one way or another all my life.
In the neighborhood, we raised racing pigeons. I had a pigeon coop out in back of our
garage. We would race the pigeons in 100- and 200-mile races. The 500-mile race was
the big event of the year. We shipped the pigeons by train overnight down to various
release points on the Pennsylvania Railroad. The stationmaster would release the pigeons
at 5:00 in the morning and these pigeons would fly home. We competed against other

people who were racing pigeons all over northern New Jersey to see whose pigeon came
back the fastest. Racing pigeons is a remarkable hobby. I also collected stamps and coins,
and I was involved in a whole lot of different things. It made life more varied and more
interesting.
Undergraduate Years
I went though grade school and high school in Montclair and I graduated from high
school back in 1939. Then I went off to Haverford College, a small but very high-quality
liberal arts college located outside Philadelphia. I spent four very happy, important years
of my life there. I developed a lot of my basic principles and character traits while I was
there. I wasnt born with anything special in terms of character or anything that I can
remember or recognize. But at Haverford, I learned a lot. Its a Quaker school with a
Quaker background, and I was very impressed with the strong Quaker religious views
that theres good in everybody, that every single individual counts, and that reaching
consensus is more important than having arguments and disagreements. We signed a very
strong honor code at Haverford. You were trusted not to cheat or plagiarize, and to be
proud of your independence in doing your own work.
I majored in economics, but it didnt matter too much at a liberal arts college what you
majored in. You were taking courses in a lot of different fields, and I didnt really
specialize in any one thing. Haverford was all male at the time and went co-ed much
later. When it did, I was chairman of the board and I had to see the college through a
gradual transition to coeducation.
I graduated from college at the beginning of World War II. We actually accelerated our
senior year. Instead of having the summer off between junior and senior year, we had
classes all during the summer so that the class graduated in January of 1943, not in June.
Everybody from the class had to go into service except for a fair number of conscientious
objectors, who were Quakers and opposed going to war. For the most part, they were
assigned to alternative service in peaceful jobs that did not have combat attached to them.
Many of my classmates received that kind of draft classification because they came from
Quaker families. Im an Episcopalian and I was happy to go into the service. No one
relished it, but everybody felt then that it was their duty. Almost 100 percent of the class
was in the service, in one way or another, before the war was over.
The Navy Years
I signed up for the Navy program. On the day I enlisted, I became an instant ensign,
without training. I got my training afterwards. One of the places I went for training was
to the Harvard Business School, where they were teaching Navy accounting. I learned
how to fill out Navy forms, which was mostly what the accounting involved, so that I
could be a supply and disbursing officer on the ship. When I got through with that course,
I was assigned to the U.S.S. Thomas Jefferson. It was an amphibious landing ship, the
kind of big ship that carried lots of small boats on its deck and lowered them down into
the water filled with troops from the mother ship so that they could go off to the beaches
for invasions. My ship and I participated in the invasions of Normandy and Southern
France. Then we went to the Pacific and Iwo Jima and Okinawa.
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The first day I arrived on the ship, I was told that I was in charge of a division of fiftyfour men. I was a young ensign, very green, just out of a three-month training course at
Harvard Business School. I was younger than any of the men in the division. I had less
time on the ship than any of them and I had been in the Navy a shorter period than any of
them. It was a daunting task to be made their commanding officer and to be put in charge.
I had to learn quickly how to deal with that kind of situation, which I faced again many
times in the future. It was very good training. I was barely twenty-one years old when I
was assigned the job and I made mistakes early.
I found that a leader couldnt be too buddy-buddy with the people in his command, even
in the military. A certain amount of distance is what the people in your command expect.
I made the mistake of going on liberty with a group of my men one time, and found that it
was very uncomfortable for us all. The troops expected a certain amount of separation,
and I think thats an important lesson to learn in leadership. You cant be too close to
those you are supervising or it becomes an awkward and difficult relationship. They
expect out of their leader a certain amount of distance, a certain amount of respect, a
level above them. You have to act that way if youre going to be successful. That doesnt
mean you have to be tough, cruel, and authoritative. You can still be kind and thoughtful,
but you have to keep a little aloof from those that you lead to maintain their proper
respect.
Those two years on the boat were an interesting part of my life. The invasions, of course,
added a little excitement to the day. I was assigned as a boat officer in the Normandy
invasion, and I landed a group of LCDPs, which are the little twenty-four-foot landing
craft with the ramp in the front that goes down when you hit the beach. I was assigned to
a group of five LCDPs and we went in and landed in the first wave at Normandy. We got
through that all right. There was heavy fire on the beach and I was very lucky to escape.
Of the troops that we landed, the Navy people were not the real heroes. The real heroes
were the people who landed and stayed on the beach. We in the Navy landed and
withdrew our boats as rapidly as we could, because there was another wave coming in
behind us.
We were in the first wave, and there was heavy mortar fire from one gun emplacement up
at the top of a high rise at the end of the beach. We were being strafed by the gun as the
troops landed. Of the troops that landed out of my little boat, at least half of them were
wounded or killed just getting on the landing craftbefore they got to the beach. It was
rather heavy fire. We came back later in the day and the beach was beginning to get a
little organized. It was still pretty chaotic, but we landed a second group of people from
the ship on the afternoon of D-Day. Then our ship went on to Southern France for an
invasion that everybody forgets took place. It really wasnt terribly necessary. It took
place on August 15, after the June invasion. Then the ship went out to the Pacific, and we
were at the Iwo Jima and Okinawa invasions. None of my division people were killed.
We had people killed on the ship but, fortunately, none of my division was killed.

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As the months went by, there was a rotating crew. Some of the crew that had been on the
ship before me got off and new people came on. As a result, I became more used to the
job, more comfortable with the work, and I better understood what had to be done. Two
years seemed like a very long time back in those days. For a young person, two years
seems like forever. While we were sad that this experience was part of our life now and
we were eager to have the war over and get back to normal lives and begin our careers,
we understood that there was no alternative for us but to continue to fight this war and to
win it, as we did in the end.
I think most Americans dont realize how close the United States came to being defeated
in that war, with the Japanese controlling the Pacific Ocean after Pearl Harbor and
German submarines sighted off the New Jersey coast, where I used to go on seashore
vacations during the summer. We would see submarines out off shore and other people
would report sightings. It would be reported in the papers that there were German
submarines right off the coast. It was very scary, but eventually we prevailed.
The HBS Experience
I didnt have enough points to go back to a civilian service when I came back from the
war, so I had to have a year of shore duty. I got my first choice and was assigned to teach
what I had been doing in the Navy at Harvard Business School. I was on the faculty of
the Business School for a year. I resigned from the faculty when I got through with the
Navy and then I became a student at the Business School. Most people do it in reverse,
but I was on the faculty first.
My experience at HBS was a very good one. I certainly learned a great deal. With a
liberal arts education, I knew absolutely nothing about business. It was all new to me. I
had no background in accounting or any of the tools of business, which I learned at HBS.
I would say one of my strongest memories is of my classmates and the people we got to
know so well. In the Business School, which uses the case method and study groups, you
got to know your classmates very well. We were performing with each other. We got to
hear what our classmates thought and found out what they were really like from their
discussions in the classroom. The sessions we had with small study groups and working
on problems together was also an important part of our learning experience. We learned
as much from our classmates as we did from the instructors.
I still have close relationships with classmates. We just celebrated our fifty-fifth reunion
since graduation from the Business School. I still know and see and remember a number
of classmates. I dont remember exactly how many of us are still here, but I have quite a
few friends from my class. Some of my Business School classmates became friends and
clients during my Goldman Sachs years. For a dozen years, I was on the board of
Household Finance Company, which was a company whose CEO had been a classmate.
Early Career
I started at Goldman Sachs in 1947, when I graduated from Harvard Business School. My
starting salary was $3600 a yearnot $3600 a month. And it wasnt $3600 a day, as they
now earn. It was $3600 a year, and for my class, that was an above-average salary. I was
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the only person Goldman Sachs hired that year. As far as I can remember, not one of the
other investment banking firms recruited at the Business School. Goldman Sachs had
hired one person from the Business School the year before, hired me in my year, and
hired one person from the Business School in the year after me. It was very small.
Goldman Sachs had fewer than 300 people when I started. I believe Morgan Stanley had
only about 150 people at the time. Merrill Lynch was larger because it had a lot of
offices, but in those days they were really known as a retail brokerage firm, not at all as
an investment banker. When I first joined Goldman Sachs, we were known as a
commercial paper house. The only real service Goldman Sachs provided to corporations
was to give them a means of borrowing money at lower rates than they were being
charged by the banks. So Goldman Sachs looked for clients we could persuade to let us
purchase their commercial paper, which we would market for a little profit by charging a
lower rate than the banks were charging first-class customers.
John Weinberg joined the firm about three years after I had, because he was three years
younger. He also graduated from the Harvard Business School. I was assigned by Johns
father, who was then the senior partner and my boss, to take John under my wing and
teach him the ropes. So, being a three-year veteran, I did that, and we had desks that
faced each other starting in 1950 when he joined. We became partners eight or nine years
later and we rose up the ladder together, every step of the way. Each of us had the same
percentage of interest in the firm. Eventually, we decided to be joint co-managing
partners when our predecessor, Gus Levy, suddenly passed away and we had to take over
the management of the firm.
Building the Company
John and I were both very concerned that all the investment banking business the firm
did was the result of his fathers new-business skills. Johns father knew all the
businessmen in the country. He was better known than Goldman Sachs. His name was
Sidney Weinberg and he was probably the best-known investment banker in the country,
although the investment banking industry was not as important in those days as it is
today. Many companies were privately and family owned then, and there were fewer
public companies. Goldman Sachs had always been in the investment banking business
and most of the clients were clients that Sidney brought in. He was the big rainmaker at
Goldman Sachs and he was getting old. John and I worried about what was going to
happen to Goldman Sachs after he was gone, because there was no one else who had any
contacts with top corporate officers making investment banking decisions.
By then, it began to appear that investment banking was going to be my career, instead of
just a temporary job for two or three years while I learned a little bit more about finance
and moved on to a regular, normal job like assistant treasurer of some company. The
longer I was there, the more I realized that this was the place I really wanted to be for all
my life. Sidney saw no need for a new-business department as long as he was bringing in
plenty of business to keep us alive. But I finally persuaded Sidney Weinberg to let me
head up a new-business department.
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So I became the head of this department, which sought business in a way that Wall Street
had never done before, by calling on companies and seeing what we could do for them.
Usually companies came to Wall Street and visited an investment banker, but we had an
aggressive approach to selling investment banking services. We started with four newbusiness people. We split the country into four regions, each new-business person in
charge of a region, and then we assigned the Fortune 500 companies, giving 125
companies to each of the four people. They began to call on these companies and it took
a long time to develop relationships. We added to the four and pretty soon there were ten,
then twenty, and the new-business department continued to grow. People had a certain
number of assignments and they spent their time with the companies in their territory that
they thought represented the best prospects for us.
Spotting New Opportunities
We began, as I said, with just commercial paper services. That was really the only service
until we began to find that when companies merged, they sometimes needed the services
of an investment banker. I remember assigning one young fellow, who later became an
important partner, to keep records about companies that might want to merge with a
larger company or might be interested in acquisitions. And then we tried to match them
up. We were doing this before anybody thought that there might be business for
investment bankers in the merger field. So we were among the first to get into making
mergers a service.
I believe we pioneered two innovations in the structure of investment banking. The first
was the idea of soliciting business. In our new-business department we had a team of
people who aggressively solicited investment banking business from companies. These
were younger people who probably couldnt get in to see the CEO, but they could get in
to see an assistant treasurer or something and work on that relationship so that they could
move up their level of contact until they finally got to know the top decision makers.
They moved up their contact level by giving clients good ideas and by impressing them
with their knowledge. It proved to be a successful technique and it was very pioneering in
Wall Street. Nobody else did that for quite a long time.
The second innovative thing we did was when a new-business person landed a project
and the company said, Yes, we want Goldman Sachs to handle the public offering for
our family-owned company, the responsibility for carrying out the business switched at
Goldman Sachs from the new-business department to another department that was expert
in handling public offerings and all the technical aspects of things that had to be done to
manage a public offering. The new-business man, instead of handling the business that he
had brought in, which was the traditional way of doing it, was on to get the next client.
He was soliciting other companies and trying to develop business elsewhere while the
responsibility for carrying out the business passed to others in the firm.
I likened this process to Procter & Gambles, which has a sales force, but the salesmen
dont manufacture the soap. When the salesman made a soap sale, the order went to a
manufacturing plant. What Goldman Sachs did was to set up manufacturing plants for
public offerings. We had a manufacturing plant for commercial paper already. We set up
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a manufacturing plant for mergers and acquisitions as that business grew, and
manufacturing plants for private placements, and real estate financing. We created all
kinds of specialty manufacturing plants, each turning out a different product. I believe we
gave better service to the client than we would have if one individual had followed
through and tried to do everything. Our technical level of expertise was very high doing it
the way we were doing it. It worked. We rapidly gained a share of market in many of
these areas.
As far as the products are concerned, I think we were pioneering in a number of areas,
but other people also pioneered new ideas and new kinds of stocks and bonds. I believe
Goldman Sachs gets credit, back in the years before my time, for creating the first
preferred stocks that were sold for companies. Often, preferred stocks were sold in the
company before the common stocks had a market. Sometimes, though, there would be
convertible preferred stocks, and there would be an added value that came from the stock
interest that a preferred shareholder would get if he converted it to preferred shares.
But as far as new products were concerned, I never felt that we had to be first when we
did something. We had a reputation for being absolutely first-class in everything we did,
but we didnt have to be first with every idea. In fact, I enjoyed it when our competitors
had the new idea and tried it out first. If the new idea worked, I was proud of the fact that
we had the marketing organization that could sell their idea in the market. After all,
nothing was patented in the way of financial ideas. Everybody knew that once the idea
had been tried on one company and it was successful, we would quickly spread the news
about this new product. Our competitors often didnt have the marketing organization
they needed to do that. So we could end up with the lions share of business in a new
product, even though someone else had the idea first. If a new idea was a failure, we did
not have egg on our face like they did. They were embarrassed and their reputations
would suffer from having a bright idea that was not successful in the marketplace.
We played to our strengths, which were our marketing skills. The products we provided
werent particularly new. There was nothing too particularly distinctive about any of our
services. Everybody did the same thing. But if you marketed them better, you would have
a better share of the market. Thats what we did at Goldman Sachs.
Leading the Company
In December 1975, Gus Levy, who succeeded Sidney Weinberg for eight years after
Sidney retired, had a stroke and, within a week, died. After the stroke, he was
incapacitated and we realized that he was very unlikely to come back. John Weinberg and
I met. He and I had the next-highest percentages in the firms partnership arrangements,
none of which was known to the public. We asked ourselves, Well, what are we going to
do? Its up to us to take over. We had no board of directors to make a decision on
succession. We decided to appoint ourselves.
I was three years older than John, I had been at Goldman Sachs three years longer than he
had, and I was probably better known in the outside world because I had been chairman
of the Securities Industry Association and an industry spokesman in Washington and all
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those things. I was probably better known than John was. So my natural instinct was to
say, John, Im probably going to have to take over as chairman. But I realized that that
would denigrate John and make him the number two man instead of one of the two next
people in line. I was perfectly happy with being a co-chairman with John. We were close
friends. We had the same vision about what the firm could be and we knew what roads
we were eager to go down. So we decided to do it together. That was a rather unique
thing to do. People didnt think of co-CEOs as being a good idea at all and the few
examples of people who had tried it had usually not been successful because egos got in
the way. Neither of us had big egos. We were both happy to share the responsibilities.
Being co-CEOs worked out very well. Our talents fit well with each other. John could do
things I couldnt do as well, and I could do things that John couldnt do as well, and so
together we were an excellent team. And we both had the same prestige as chairman.
John was a great business getter. He had many very large and important clients. I was
more the planner and the strategic person and the leader of budgeting and forecasting and
so on. So we worked very well together. We didnt say, Well, OK. Lets do it together.
Ill run this part of the firm and you run that part of the firm and together well have a
fine firm. That would have been a normal thing to say, but we didnt do it that way,
because we both realized that if we did, wed end up competing with each other for the
use of the firms capital and for people within the firm. Divvying up the leadership would
make things more competitive than we wanted it to be. Instead, we both said, We will
run it together. The decision of one of us is the same as the decision of both of us. If
either of us is in doubt as to how the other one would feel, we will talk with each other,
settle it, and then decide. Thats what we did and it worked very well.
What made it work was that we were both in charge, together, of everything. If you try to
split it up, its hard to prevent a competitive atmosphere from developing. We rarely had
an argument. We had differences, but if John felt really strongly about something, I
would defer to him. If I felt really strongly about something, he would defer to me.
Mostly, we agreed more or less automatically with each other, but occasionally, when
there were differences, the strength of how strongly we felt about it would determine
which way we would go. I think he prevailed on some things and was right, and I
prevailed on other things and was right, but those differences were very rare.
We had a management committee to whom we reported. We met every Monday morning.
We had an agenda, we went down the agenda, we made decisions as a group, and John
and I tried not to dominate the committee because we wanted their input. It was very
important to have the input of everybody on the management committee. There were
seven of us, then nine of us and then eleven. It got bigger as the firms diversity grew.
Growing the Company
During the eight years of our leadership, the firm continued to develop. We made no
major changes in strategy. We made the first important acquisition that Goldman Sachs
had ever made. We bought a company called J. Aron, which had been in three different
businesses that Goldman Sachs had never been in. Since the acquisition, those businesses
have become very important parts of the firm. They were the largest trader in the world
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of gold and they made markets in buying and selling gold, which is a huge volume of
business every day. They also traded in commodities such as cocoa, coffee, and oil.
Finally, they traded in foreign exchange, which is dealing in different currencies and
exchanging one currency for another. J. Aron was in those three businesses, which
Goldman Sachs wasnt in at all, so they gave us a little stake in those businesses.
Goldman Sachs had such a thriving domestic business that we were laggards in doing
business internationally. We finally woke up one day and found that Morgan Stanley, our
intense competitor, was doing business for one of our clients, selling a Eurobond in
Europe, but we werent involved in it. If I remember correctly, the client was General
Electric. General Electric had turned to Morgan Stanley because Goldman Sachs didnt
have any international offices for selling a Eurobond issue, which had to be sold entirely
outside the United States. In a hurry, we decided that if we were going to satisfy our
clients who were going international with their financing, wed better move. So we
opened an office in London and it grew to be several times as large as Goldman Sachs
was when I joined it, with over 1,000 people, now several thousand people. Then we
opened an office in Tokyo and other offices came along after that. Goldman Sachs now
operates internationally all over the world, and its share of markets around the world is
about the same as its share of the market in the United States.
In business, so many brilliant ideas are done for defensive reasons instead of offensive
reasons. If you look back to the origin of an idea, you do something because you fear that
your competitor will get ahead of you if you dont do it. Then, if it turns out well, it looks
like a brilliant decision that you made, even if you didnt foresee it. We found that
commercial paper, the original backbone of our business from when we started back in
the 1860s, was a product that could be done for European issuers as well as for U.S.
issuers. Since none of our major competitors dealt in commercial paper, we used that
capability as a door opener to do business internationally with companies that might not
otherwise have done business with us. We began to issue commercial paper for leading
foreign companies and leading government entities of international governments, so that
became an important part of our business and a wonderful foot in the door to do more
business with these international companies. When we got our new-business organization
going in Europe, we had one person assigned to each of the countries, all operating out of
London at first. We had a French man assigned to France and a German assigned to
Germany and so on. It worked very well.
Any investment banking firm serves two classes of customers. First are the companies or
organizations that need money and need to issue securities. Second are the investor
clients who invest in securities. An investment banker is a middleman between the
issuers of securities, who need money, and the investors, who have money to invest.
Investment bankers put the two together. Thats the basic function of investment banking.
In the United States, we use a very competitive investment banking firm and many
different decision makers to control the allocation of capital. In a Communist society, the
government would control the allocation of capital and decide which industries should
get money and which should not. The investment banking industry performs that same
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function in the United States, and it functions much better because it allocates capital
where the need exists.
Entrepreneurship at Goldman Sachs
I believe Goldman Sachs was very entrepreneurial, even though people dont think of a
big institution as being entrepreneurial. We had the advantage of being able to be
entrepreneurial because we had a lot of money. We were able to risk the possibility of
failure, whereas a new company, starting off, doesnt have the reserves we had. We had a
particular way of starting a new enterprise within Goldman Sachs if one of our people
as often happenedcame to us and said, Why dont we do such and such? or It seems
to me theres a little niche to be filled here in the market so why dont we get started?
An example is when somebody came to us and said, Why dont we offer the British the
ability to buy American stocks in sterling so that we could offer them so many shares of
General Motors for so many pounds. That way, they dont have to worry about
converting pounds into dollars to buy the shares. We would do that for them and we
would have a package fee if we did. I would say, Well that sounds like a good idea.
Why dont you, in your spare time, develop a memo that would say how you think we
should get started in this. After we looked at that memo, we would say, This really
looks good. Youve got a good plan to start in slowly. So go ahead and get three people
who would be excited to work on this idea. We told them they would probably find their
people within Goldman Sachs, without having to hire new people. Then that little group
would spend the next year or so performing the first steps of the plan. After a year, wed
look to see how it was working. If it was working successfully, as in this particular
example, we would expand the venture. We would say, OK, now youve been doing this
with sterling with five companies stocks. How can you export this for investors in Japan
so that they can buy U.S. stocks in yen?
Gradually, the venture would expand until it wasnt a little group, but a department. Then
wed coordinate it. Sometimes wed put the venture in a separate department, sometimes
we would incorporate it within another department. The person who had the courage to
risk his career getting it started for several years would become the head of that
operation, and, if it continued to grow, his success would grow with it. We tried not to be
too harsh with them if it didnt work out, since they were still good people. So they still
had jobs but it would be a setback to them. They might have lost a couple of years of
potential progress and they might have to go back to doing what they were doing before.
People saw that rewards came from having bright ideas and being allowed to pursue
them. If they could really build a successful little business within the structure of the
firm, they would get to be a partner.
Ethics in Business
Ive always believed strongly in business ethics. For example, there was an era when
there were lots of hostile takeovers. Companies would wake up one morning and find that
some other company had made a tender offer for all their shares at a price above the
market. The company would oppose the bid and say it was worth much more than what
was being offered and it would urge stockholders not to tender their stock. We had
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observed that unfriendly tender offers never worked out very well. The management of
the company being acquired was so alienated towards the acquirer that they would leave.
As a result, the acquirer was left with the shell of a business with no management. The
acquirer was not so stocked with extra talent that it could just put new management into
the company it had acquired, and so the takeover would often run downhill.
We decided that we simply would not represent any company making an unfriendly
tender. We adopted that policy. I felt strongly that to do otherwise would be to assist in
an undesirable fad in Wall Street and that we would live to regret it. I also thought that
we would alienate our clients who didnt like to see their investment banker out making
surprise raids on other companies. When we adopted this policy, we lost some business at
the beginning. Also, when one of our clients decided to make an unfriendly tender offer,
we had to turn them down. That was hard to do, because the client would then go to a
competitor who would get a foot in the clients door for future business. But that didnt
happen too often.
Of course, because we didnt do unfriendly tenders, we were the preferred firm to defend
companies who received an unfriendly tender from somebody else. We ended up getting
far more business as a result of being only on the defensive. A company knew that we
would never turn around and raid them on behalf of somebody else, because we didnt
ever represent a raider. It was a good policy and it led me to adopt the phrase Good
ethics is good business. What we thought was somewhat of an ethical consideration,
which is that hostile takeovers dont work, that they are undesirable, and that they make
everybody angry, turned out to be a good business decision as well.
Goldman Sachs always seemed to me to have high ethical standards. We were a
partnership. We didnt have stockholders to worry about so we always tried to put the
clients interests first. What the client was interested in doing was what we were
interested in doing. We thought that if our clients did well, we would do well. We
believed in treating our people fairly and we believed in sharing profits and decisions.
We probably created more millionaires at Goldman Sachs than in any other organization.
I suppose that was because we gave talented people opportunities to be financially
successful.
There came a time when we were growing quite rapidly and I realized that if we grew at
10 percent a year and had a turnover of say, 5 percent a year, then 15 percent of our
people every year would be new and in three years, 45 percent of our people would have
been there less than three years. I wondered how our staff would ever be inculcated with
the principles that defined Goldman Sachs.
One day I wrote the principles down and called it a code of conduct. I didnt create the
principles, my predecessors did. Goldman Sachs always stood for these principles. In the
first draft, there were ten principles and somebody told me that it looked too much like
the Ten Commandments, so I made it into twelve. I believe its up to fourteen now
because the lawyers got hold of it and theyve changed a few words and added to it a
little bit. In any case, Im very proud of that. We got approval from the management
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committee and we sent it out to all the employees. We actually sent it to their homes,
thinking that they might want to share it with their spouses and their children to show that
they worked for a fine firm with high standards. So that was a good way to distribute it.
At the time, we required all of our department heads to meet with their people to discuss
just how that code of conduct fit with their day-to-day business and whether or not they
might be doing things that were in violation of the code.
Our industry is one in which the services of the leading investment bankers are all pretty
much the same. So Ive always believed that ones reputation is extremely important and
that decisions are often made according to the general reputation a firm has, not so much
by the fact that they will perform a service a little cheaper or a little faster. Reputation is
what matters. People want to do business with bankers who have fine reputations. As a
result, I was always very conscious of the reputation that Goldman Sachs had and ethical
conduct was extremely important to us. We would bend over backwards to be sure that
our standards were just as high as they could possibly be.
The recent disclosures of companies like the dot-coms, Enron, WorldCom, Tyco, and the
others that have had, what seem to me to be, outrageous failures of ethical conduct, is just
completely abhorrent to me. I cant believe that distinguished American people and
distinguished American companies were involved in this kind of thing. I feel insulted,
basically, by what these people, who are my former colleagues, have been doing. To
mislead the public into thinking that they were doing better than they really were is
outrageous conduct. Their behavior has damaged the system. It has discouraged many
families from investing in stocks at all. We have this marvelous system of peoples
capitalism, where stock holdings are very widespread and small investors place their life
savings in these stocks. To have these disclosures badly damages that system. I believe it
will take a long time to restore public confidence. Confidence will be restored. The
system is not rotten. The system is good. We shouldnt throw the baby out with the bath
water. We should just heavily penalize the miscreants who have done these awful things,
and we should also encourage fair conduct.
Having said that, I dont think you can legislate good ethics. A person who wants to
operate unethically will get around every kind of regulation that man can devise. You just
have to impress upon people that theyre going to be in trouble if they do unethical
things. Self-regulation is very important. Codes of conduct are very important. I wish that
industries like the banking industry would develop their own codes of conduct to set high
standards without making them regulations.
I have a theory, as some others do, that a code of conduct should be set forth by the
industries themselves, and that when a company doesnt comply with any part of the code
of conduct, it would have to disclose in its proxy statement the reason for its noncompliance. For example, if the code of conduct said that a majority of the board should
be public and outside directors but the company did not have that, it would have to
explain why or at least disclose that fact. There could be exceptions but they should be
disclosed and explained.
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I was very proud that Hank Paulson, the current Goldman Sachs chairman, took some
courage to come out and show his outrage at Enron and the others before everybody else
caught on. I was very proud to see him do it. He was a real leader in the industry for
addressing these abuses.
Recruiting the Best
We had a wonderful team at Goldman Sachs. We had very talented people. We always
emphasized people. We spent an inordinate amount of time every year recruiting the best
people who were coming out of the best business schools. For many years, weve had
teams of people covering each of the business schools. All during the school year, these
teams of people would visit the business schools and talk with the professors and ask,
Whos your best student? Why do you think hes so good? The teams would meet with
individual students who appeared to be outstanding, get to know them, and maybe
persuade them to spend a summer at Goldman Sachs to see how they did. Then during
the recruiting season, in the students second year at the school, the teams would arrange
for the best students we were interested in to come to the firm and visit with a dozen
different people so that we could make our final selections about how many people we
would hire and in which departments they would be hired. Hiring was a key decision. I
always used to say that if we have the best people, well be the best investment banking
firm. If we dont have the best people, theres no way we can be the best investment
banking firm.
But we always emphasized teams as well. Im reminded of a story about one of our
employees. She had been a friend of my daughters so I knew her quite well when she
came to Goldman Sachs. She was doing well as a commercial paper salesman. One day
she called me up andshe calls me John, because were friendsshe said, John, I just
did something thats a real achievement for me. I just sold my first million dollar piece of
commercial paper. I said, Janet, congratulations, but at Goldman Sachs, we say we.
We sold this. We were a team everywhere, not a big I. That perspective helped. It was
good business because it meant that a client wasnt saying, I want so-and-so to work on
my merger because I hear hes very good. Instead, the client knew that having a
Goldman Sachs team working on his merger was what he wanted, and he left it up to us
to determine who should be on the team. Our team culture made it easier to operate the
business successfully since we could pick the team instead of letting the client decide.
In terms of my role as co-chair, decisions at Goldman Sachs dont come to the top unless
theyre difficult decisions or unless there are people who disagree. You have to spend a
lot of time listening to peoples views and to why they think their view is better than the
other fellows. The decisions that came to us usually involved situations in which one
department wanted to do something and another department didnt want them to do it.
Each department had good reasons so somebody had to decide which way to go in that
particular case. John and I would do a lot of listening. Sometimes, if the decision seemed
to be an important policy decision, the whole management committee was involved. To
make a decision, we had to keep in mind, Put your clients interests first. Whats in the
clients best interest? Sometimes there were two clients and they were interested in the
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same transaction, so we would have to find a way of getting out of that little pickle. We
always tried to act carefully and in the right way, the proper way.
I always say, Listen more and talk less. You never learn anything when youre talking.
Youre just saying what you already know or think you already know. But if you listen,
thats when you learn. If you want to make a good decision, solve a problem, then do a
lot of listening to the people involved. Eventually, if you do that, a solution will come to
you. You can make this person happy and you can also make that person happy and still
do the right thing.
Near-Death Business Experiences
We had a number of near-death business experiences and one real death while I was at
Goldman Sachs. Penn Central went bankrupt and Goldman Sachs had millions of dollars
outstanding in Penn Central commercial paper. The investors in that paper looked to us,
because wed sold them the Penn Central commercial paper. At the time, there was more
commercial paper outstanding than Goldman Sachs had capital. This was a big problem. I
cant remember how many different owners of commercial paper we had to deal with, but
I think we paid off some of the smaller ones. That seemed like the right thing to do. To
reduce the number of damaged people, we then paid off individuals who owned the paper
first, at 100 cents on the dollar. A market began to spring up outside of Goldman Sachs
that was paying something like thirty cents on the dollar, so we tried to offer prices that
were a little better for the defaulted commercial paper we had issued.
Eventually, some of the owners whose papers were still outstanding sued us. We had a
court case, which we lost. In a very pioneering decision, the judge agreed that Goldman
Sachs had not known that Penn Central was going to go bankrupt, which was the charge,
but he said that we should have known that Penn Central was going to go bankrupt if we
were continuing to sell their commercial paper. Thats a rather scary principle in the
whole banking world. The idea that if you buy a stock for a customer and it goes down
because of bad news, then the customer can come back and say, You, Goldman Sachs,
should have known. You shouldnt have handled that brokerage transaction for us. The
courts decision would mean a calamity in a down market, so the principle has not
prevailed in the law. That case was not overturned, but other cases have basically
eliminated the risk it posed to investment banks.
If we had been more careful, we probably would have found that Penn Central was in
serious financial trouble. I think we knew Penn Central had a cash crisis, but we thought
there were sufficient assets behind them to more than meet their debts. It turned out that
those assets werent as valuable as they thought and the assets couldnt be sold off for
cash as quickly as they had hoped, so they had to go bankrupt. They didnt have enough
cash to meet their payroll. As a result of the case, we insisted on more information from
companies than we had been getting and we hired new people to handle the research. To
this day, Goldman Sachs is still an important commercial paper dealer, although as a
percentage of the firm, the business has declined. We now get all the information we
want from a company or we wont buy their paper. We also stopped selling the paper of a
marginal company or a company where we think there might be a credit risk.
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Managing Leadership Transition

In 1984, I had been with Goldman Sachs for thirty-seven years. I felt that Id been there
long enough. John Weinberg and I were the co-chairmen and there was another pair of
people that were very competentBob Rubin and Steve Friedman. They were emerging
as the people that should succeed us, Bob Rubin on the trading side and Steve Friedman
on the investment banking side. They worked well with each other. I was three years
older than John, and so we both didnt want to retire at the same time. Since I was older,
it was up to me to make the first move. I dont think anybody thought I would leave as
early as I did. I was sixty-two in 1984. It came as a surprise to everybody. But I had
begun to feel that Id done it long enough.
I remember in early 1984 we had our annual planning sessions. It was a long weekend.
At 5:00 on Sunday afternoon, we were reviewing the budget of our Albany office. I
thought, God, this is the last time Im going to go through this. I had done these branch
office reviews for years. They started at 9:00 on Saturday morning and went all through
the weekend. One branch office after another made presentations of their plans and their
budget and we would approve or modify them. We started with the big branches, while
we were wide awake, and we ended up with the other small ones.
That weekend is when I really made up my mind to retire. I might or might not have
pursued it, but as the year went on, I thought to myself that it really was time to do it. I
had no plans but I was thinking thirty-seven years was a long time with one company.
Also, we had been very successful. I believe our revenues and profits had grown every
year during the eight years that John and I were co-chairmen and we had really become
one of the top firms in the world. I thought it was time to leave. I think I began to feel
that maybe I was a little too cautious and a little too conservative. Things were very
good. The outlook seemed fine and we had a wonderful group of people. I was saying
no quite a lot and yes not as often as I used to. I was beginning to feel that I might be
too cautious rather than properly balanced.
I decided that it was time for me to retire. Theres no way to do the job half time. If
youve been the chairman, youre either in or out. I talked with John and told him my
plan and he tried to dissuade me from doing it. But I was going to leave and John was
going to be the single chairman and Bob Rubin and Steve Friedman would become vicechairmen. This would all happen more or less at the same time so that people would see
that when John, in due course, retired, the other two would take over.
I think the other partners in the firm accepted this as being a rational, gradual way of
transition that would not be disruptive in any way. Our fiscal year always ended in
November. I didnt want to announce my retirement prematurely because you become a
fifth wheel when you announce your retirement. Nobody consults you any more. So I
waited until about August of that year and then I announced it. That gave people warning
about the selection of new partners that would take place in November. Everybody knew
that I would be leaving and that the firm would have another chunk of partnership
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interest to hand out to others. They also knew that I wouldnt be involved in the process.
So thats how I handled my retirement.
Later Career
In retirement, I had thought that my life would phase down. I was tired from a lot of
work. I had been very busy. I still was on a lot of boards and I would be gradually getting
off those. I decided I was going to write a book on the social responsibilities of business,
and it was going to talk about responsibilities to your employees and to your customers,
not just to your stockholders. I showed the first chapter to McGraw-Hill and they gave
me an advance to complete it. I returned the advance a few months later. That first
chapter still sits in the bottom drawer of my desk. Its too late to write the book now
because other people have written it, and social responsibilities of business have
advanced quite a lot in the years since 1984.
Government Service
Four months after I retired, I was sitting in my office. It was about 6:00 p.m. and I was
about to pack up and go home. The phone rang and it was George Schultz, who was the
secretary of state. I had known George Schultz, but not well. He had been secretary of the
treasury for four years and its incumbent on the head of an investment banking firm to
know the secretary of the treasury. I had also met him once or twice when he was
secretary of labor. I was not a close friend but we knew each other. So, George is on the
phone and he asks me, Can you be in my office tomorrow morning at 8:00? I thought
quickly and realized there was no way I could get there by shuttle in the morning so Id
have to go down that night. But this was the secretary of state so I said, Sure, and he
said, Good. Ill see you then. Hes a man of few words. I could sense that he was about
to hang up and I said, But George, if you could tell me what its about, I could be
thinking about it before I get there. He said, Its not something I can talk about on the
phone. So I said, OK, Ill see you tomorrow morning, and we both hung up.
I sat there for a minute and I thought, What could this be? I decided that it must be that
either Argentina or Brazil was going bankrupt and the secretary of state was consulting
me as a just-retired, distinguished investment banker on what to do when a country
announces that its bankrupt. I thought hed ask questions like, What happens? What
should the United States of America do about it? I was quite sure that thats why he had
called, so I picked up the phone, called the library, and asked them to get me all the stuff
they had on the current economic situations of Brazil and Argentina. In fifteen minutes,
the assistant librarian showed up at my desk with two big manila folders full of material.
I called my wife and I told her I wouldnt be home that night, which was something she
had gotten used to, and I took a taxi out to LaGuardia and caught the shuttle down to
Washington. I checked into my hotel, all the time studying these folders full of material
about Argentina and Brazil.
I got up the next morning, took a taxi over to the State Department, went upstairs to
George Schultzs very fancy secretary-of-state office, and as I walked in, he got up,
shook my hand, and said he was glad to see me. Then he said, Come on, were going
over to see the president. I had these two manila folders under my arm. I said, See the
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president? and he said, Yes, and he didnt say anything more. So we went down in his
private elevator to the garage, got in his car, and set off, followed by the Secret Service
car behind us. We pulled into the White House driveway, went in the front door, walked
right into the Oval Office, and there was the president. Just the three of us together in the
Oval Office: Reagan, Schultz, and me. I still had the manila folders and Reagan said to
Schultz, Have you told him yet? Schultz said, No.
I felt a little embarrassed about the manila folders so I put them down and President
Reagan said, We want you to come down here to Washington, join our team, and be the
deputy secretary of state, number two job in the State Department. He said, Its very
important to us. Theres a vacancy in that job now and we need a person like you with
experience. Schultz talked about how we would do it together as partners, I would have
half the responsibility and, whenever he was out of Washington, I would be the active
secretary of state. He dressed it up to sound like a really good job. I said, But Mr.
President, foreign policy is not my background. If you had asked me to do something in
the Treasury Department or at the Federal Reserve Bank or at the World Bankthose are
banks. I know how to run a bank. But for this job Im really a fish out of water. I could
see out of the corner of my eye that Schultz is now scowling at me for demeaning myself
like this, and Reagan replied very charmingly, Well there arent any openings there.
So that put me back in my place.
I had only one option, so I said, Well, I will certainly think seriously about it, but I need
to talk to my family. Actually, Im going off on a ten-day trip, three days in Hong Kong
and seven days in Japan. Its sort of my farewell swing to offices in those countries to say
goodbye to all my friends. The president said, Well, ten days is an awful long time.
Theres a vacancy now and we really need you. Why dont you go to Hong Kong and
come back after three days in Hong Kong? Meanwhile, announcements had already
gone out for a big dinner in Japan and I was expected at a whole bunch of meetings there,
but what can you say? I said, Well, OK. Ill think about it for three days and Ill have
my answer then. Reagan says, All right. Fine. I have a hole in my calendar on Friday at
3:15. I told him Id meet him then.
So off I go to Hong Kong and I spend three days thinking about it and quizzing the
foreign service officer in charge of our Hong Kong State Department base on what it is
like to be in the foreign service. I came back and decided I would do it. I talked to my
family by long distance about it and appeared in Schultzs office at 3:00 ready to go over
to the White House. He said, All right, come on. Same thing happens: we get into the
car, Secret Service follows us, we drive up to the White House, go into the Oval Office
again. I told Schultz on the way over that I had decided to accept and he was happy. At
the Oval Office, Reagan comes in and Schultz doesnt say a word to him. Reagan doesnt
know my decision so he says, Well, its nice to see you again. Its 3:15 and I told my
secretary that if were not out of here at 3:30, she should cancel my 3:30 appointment.
Ive told her that until we come out she should cancel all the rest of my appointments
through dinner and into the evening and up until 10:00. At 10:00 I go to bed, so you have
to be out of here by 10:00. Weve got nearly seven hours, so where do we start?
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Apparently, the president thought he still had to sell me on the job. I said, Well, I told
George on the way over that I have decided to accept. The president said, Terrific,
terrific. Thats just wonderful and Im so glad to hear it. The president looked at his
watch and said, Well, weve got twelve more minutes, because the whole discussion
took only three minutes. So he said, Lets go out in the rose garden. It was April and it
was a beautiful spring day in Washington. All the flowers were out in the rose garden,
and the president opened up the French doors and we walked out into the garden. He put
his arm around my shoulder and he said, You know, youve made the same kind of
decision that I had to make. When I finished being governor, I was looking forward to
going back to my ranch. Then these guys came and told me that I had to run for
president. I didnt really want to, but they convinced me that I had to. So I did, and here I
am. Now youve made the same kind of decision and I welcome you to the team. If I
hadnt been a Reagan fan before that, I certainly was from that moment on.
We had a wonderful four years in D.C. It was a very, very happy time for me. I loved
every day of it, and Schultz treated me with great respect and kindness. He is a wonderful
man to work with and to work for. When he was out of Washington, I was the acting
secretary and he wanted me to handle everything that came up. We like to think that we
ended the Cold War during those four years. Gorbachev deserves more credit than any
American does because he basically threw in the towel and recognized, wisely, that he
was never going to prevail in this Cold War. There was no way that he could successfully
compete against the United States and win. There has been some chaos in the years since
he did that, but its turning out to be pretty democratic now. I never imagined that the
Cold War would end during my lifetime. When I got to Washington, it had been going on
for nearly fifty years. It looked like it was endless. The situation was better cold than hot,
and the effort was to just keep it cold and not let it boil over. To end it was a surprise. It
was certainly the major accomplishment in those four years, and I was lucky enough to
play a small part.
One rough spot came during the Iran-Contra hearings. The State Department was called
to testify before the House Foreign Relations Committee. Schultz was planning to go on a
trip and so was the number three person, Mike Armacost. So I was going to testify. The
testimony was about our objective with Iran, which was basically to find potential
moderate leaders who would be less extreme than Mr. Khomeini. We added some more
details about what our policy was, which had nothing to do with Iran-Contra. It took me
about fifteen minutes to read the testimony into the record and Id thought there would be
another fifteen minutes of Q & A. Well, three hours later I was still on the stand. When
they ask questions in the committee, they alternate Republican, Democrat. Every member
of the committee was there. There was as big an array of television cameras as Ive ever
seen at a hearing. The committee asked me a lot of questions. Then, finally, Congressman
Torricelli said, The president said at his press conference last week that he had seen
some moderation of the extreme anti-American policy towards the United States. Is that
your impression? When I answered, I did not choose my words carefully. Well, I hate
to disagree with my president, I said, but from what Ive seen, there has not been any
moderation of Iranian attitudes. Theyre still as strongly anti-American as always.
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I said what I knew the facts to be but I immediately knew that I could have better worded
my response. Three hours of testimony were all forgotten. I went home that night and this
little phrase, I hate to disagree with my president..., led off the evening news on every
television channel, and in the papers the next morning. The statement proved that there
were, indeed, differences between the White House and the State Department. So my
statement was a triumph for the press, who look for conflict even when very little exists.
Mine was the first Iran-Contra testimony and it was a painful thing. I thought the
publicity was so harsh and so extensive that I hand wrote a note to the president and said,
I apologize for putting what I said the way I did. I just want you to know that I fully
agree with your policies on Iran. I had the note delivered to his secretary so I was sure
he would get it. Anyhow, the president did not fire me. He was understanding about it.
Nonprofit Focus
After my term in office was over, I spent the next ten or twelve years involved in a lot of
different organizations. I was chairman for a lot of different organizations, mostly in the
nonprofit world. I had already done business and I didnt want to go back on corporate
boards. I had already done federal government service and I didnt want to do that any
more. So, I was chairman for the Federal Reserve Bank in New York, the Mellon
Foundation, the United Nations Association, the Asia Society, the Harvard Board of
Overseers, the Haverford Board of Managers, and several other organizationsnot all at
the same time, but at various times during the next twelve years. I learned a lot about
what it takes to manage a nonprofit well and started my social enterprise program at HBS
to train young people for careers in nonprofit management as well as for-profit
management. Nonprofits are run by people who are dedicated to the cause but who
almost always dont know very much about how to manage things. The skills, the nuts
and bolts of good management, will improve the performance of nonprofit organizations
immeasurably. Im convinced that many things that are now done by the government can
better be done by nonprofit organizations. I hope thats what happens in years ahead.
Rebuilding Lower Manhattan
My new job started on December 1 last year. I had a phone call from the governor of
New York and he said, John, congratulations. I said, Governor, thank you very much,
but what for? And he said, Youve been selected to head this new board to redevelop
lower Manhattan after the 9/11 disaster. I said, Oh, thanks very much, Governor, but
Im about to be eighty years old and Im tapering off. Ive just retired as chairman of all
my boards and, one by one, Ive found good people to take my place. Im drifting into a
nice retirement career after not retiring several times earlier when I should have.
The governor said, Well, theres one more thing youve got to do, and thats this. I
reminded him, You said this is a ten-year job. Do you really want me down there at the
end of ten years in my wheelchair, pointing my cane and saying, Golly, I should have
built this building here and not over there. Ill just be a nuisance to you. He said, No,
no. You cant push it off because of your age. I asked him how long I had to think about
it. Well, he said, Ive called the press conference for Friday. It was Wednesday. He
said, Ive told the press were going to make an announcement about whos going to be
on the board of the Lower Manhattan Development Corporation. I had planned to make
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the announcement that you would be the chairman. I certainly hope I dont have to go out
there and say, Our principal candidate just turned us down.
I could feel the pressure building. Then after his call, a half dozen other people called me
up within the next hour. The governor had sent around a memo asking people to call me.
The memo assigned people times to call so that one person would call me at 4:10, and
somebody else would call at 4:20, and the memo gave them talking points to use to
convince me. After the third or fourth call, I sensed a pattern. And I accepted the job. We
had no office, no staff, no money, nothing. It was a business start-up. We now have an
office at One Liberty Plaza, which overlooks the site. We have a staff and were up to
twenty-eight people after seven months in business. Thats about where were going to
stop. We have money because Congress in its wisdom put $2 billion in our treasury and
we have found that, in the political world, if you have $2 billion it results in some respect
being paid to you. Were off to a good start.
Just as Ive done when managing other things, we had a period at the beginning when we
listened to the various constituencies we have. We have families of victims, who are one
constituency. We have residents, who are a second constituency. We have commuters
who come into the city in the morning and leave at night and theyre handicapped by
transportation problems. We have the restaurant and small-business owners who operate
shops all over the area. Many of them had to close down temporarily and theyre now
reopening. Ive listened to what all these groups need urgently and what they would like
to see in the long run that will make their lives better than they were before 9/11.
We did a lot of listening and no decision making. Then, starting several months ago, we
began to make some decisions. Were in a long decision-making process now. We have a
big announcement coming up about six alternatives for what will be built on the site and
well take a lot of flak because there will be something in each of those plans that people
wont like. Well narrow down to three plans, which will probably be different from the
six that we present originally. By December 31, 2002, well have one final plan that we
will publish, hold hearings on, and then proceed with.
Summary Reflections
I think entrepreneurial spirit is an important thing, but you dont have to start your own
company to be an entrepreneur. You can be an entrepreneur in a big company as well as
in a small company. Being an entrepreneur, being willing to take entrepreneurial risks
and not just be the caretaker of a big company, is very important. And its very important
to think of new products and new ways of doing things that would be beneficial to your
customers, your employees, your shareholders, and your industry.

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