Leadership Development at

Goldman Sachs

Objectives To assess the drivers of Goldman Sachs’s business success by studying the

firm’s history, business, strategy, people, formal organization, and culture in order to create a development program proposal.

To address the constraint that the managers, the company most wants to develop are among its busiest employees and most important revenue generators for the firm. Any development program that is designed therefore must be aligned with the everyday responsibilities and tasks of GS managers.

To consider the basic assumptions and tradeoffs behind systematic leadership development programs in large organizations.

To understand the challenges of developing a systematic approach to developing leaders in an organization that has little history with such formal approaches.

The competitive context in which GS operates also serves to illustrate, how dramatic changes in the industry force significant adjustments in strategy, and in turn require leaders to consider changes to the organizational system to maintain alignment.

Leadership: Learned or Innate?

To succeed at John Kotter’s well-known definition of leadership as

the art of managing change, leaders must have skills in

interpersonal judgment, self-awareness, and learning

ability. Most such skills can be developed, though some innate

qualities, such as curiosity and cognitive ability, typically cannot.

Firms that subscribe to the theory that star leaders are born, not

made, tend to recruit high performers from competitors or simply

hope that over time, they’ll discover a few stars among their

hordes of new junior hires. But other research finds that star

performers and average workers have similar innate abilities. Stars

demonstrate superior performance because they approach their

jobs differently.

A global study found that 90% of the difference in performance

between star and average employees was due to non-cognitive

factors.

Leadership Development & Training To develop the leadership abilities they lack, managers

must be put in circumstances where their existing skills and perspectives are inadequate. If managers are never forced out of their comfort zone, they will continue to employ strategies that have served them well in the past.

Three important sources of challenge are novelty, stretch goals, and conflict. Yet the stress of such challenges tends to impair the ability to learn new skills. Instead, the support of colleagues confirms the value of developmental experiences and helps to reinforce positive change.

Support of one’s immediate superior is critically important. In addition to informal support, structured formal feedback is powerful developmental tool. Anonymous multi-rater feedback tends to provide the most complete picture of an individual’s performance.

Training is best affected with active learning techniques. Action

learning may include case studies, role-plays, or

simulations, and stresses interactive experiences that allow

participants to practice new behaviors in a context relevant to

their work environment. Structuring these activities around

problems is among the best ways to train, because it greatly

enhances the transferability of newly acquired skills into the

trainee’s work environment.

Support for training activities is most critical after the program

has ended. Without appropriate opportunities to use new skills

and rewards for doing so successfully, it is unlikely that skills

acquired during training will be transferred back to the work

environment.

Indeed, on the job experiences are the primary route to

leadership development at many organizations precisely

because succeeding at challenging assignments has been

repeatedly linked to later success.

Building Blocks of Leadership Development

Organization

al

Strategy

• Choice of

markets

• Positioning

relative to

competitors

Organizational

Capabilities

• Organizational

attributes

needed for

successful

execution of

chosen strategy

Leadership

Competencies

• Skills required

of executives to

develop and

maintain

organizational

capabilities

Organizational

Context

• People

• Systems

• Culture

• Formal Organization

IntegratedDevelopmental

Experiences

• Feedback

• Training

• Job

assignments

• Mentoring

Individual

Differences

• Skills

• Personality

• Work orientation

A

S

S

E

S

S

M

E

N

T

Source: Adapted from The Next Generation: Accelerating the

Development of Rising Leaders issued by Corporate Leadership

Council, 1997

CHALLENGE

S

U

P

P

O

R

T

Features of organizational context defining

effective leadership

Knowledge of strategy is fundamental to effective leadership and will

leave managers prepared to understand the needs of their organization.

Next, the organization must translate strategy into specific organizational

capabilities, skills that the organization requires in order to

maintain a competitive advantage. For example, a strategy based on

international expansion might require the organization to be able to

effectively enter new markets, recruit and train a cross-cultural workforce,

or pursue joint venture opportunities. Without these capabilities, the

organization will not reach its strategic goals.

Understanding of organizational capacities can help identify the

competencies that future leaders will require. Some capacities will

require leaders able to manage conflict, promote innovation, or

communicate effectively. Other capacities require specific technical skills.

Development efforts should therefore focus on building those capacities

with the greatest potential impact on organizational capabilities.

Need for adopting a systematic approach to

developing leaders

GS had to respond strategically to its rapidly changing competitive

environment during the 1990s. As the banking industry consolidated and

commercial opportunities exploded, GS realized that it had to grow in both

size and scope in order to compete. To do this, the company:

1. Created a new class of leaders in 1996 (MDs). The company also briefly

experimented with a few senior “lateral hires” in 1996 for the first time

ever–with great caution and mixed reviews. These outsiders had the talent

and skills, but it was very difficult to align them with GS culture.

2. Went public in 1999 (to ensure a permanent source of capital to fuel

growth).

3. Grew headcount exponentially.

To manage this increasingly complex organization and to lead GS in an

increasingly complex world of complicated banking products and foreign

markets, the strategic HR challenge became growing enough leaders, and

growing them quickly enough to manage this growth without destroying the

culture that had sustained GS success for almost a hundred and fifty years.

The Congruence Model of Organizational Alignment

Strategic Choices

• Continue to be a leading

full service investment bank

• Domestic and International

Growth

• High achievers

• Select people

one by one

• No prima

donnas

• Developed

through

apprenticeship

• Training on-the-

job

• Recent lateral

hires

• Low Turnover

Top clients

• High client service

• Top execution

Traditional partnership structure moved

to recent IPO

• 15-member Management Committees

and ad hoc committees

• Decentralized and low bureaucracy

• Co-heads

• Pay for performance and 360-degeree

performance reviews

• New title of MDs

Teamwork

• Integrity and

honesty

• Reputation

• P&L based

culture

• High standards

• Self-criticism

• Team work

• Norms, Values

•Communicatio

n

Networks

• Informal Roles

• Informal Power

CRITICAL

TASKS

PEOPLE CULTURE

FORMAL

ORGANIZATION

Among the design elements are include:

• Form and location: Should GS create a new space for its development program? What are

the implications of (not) doing so? Should this be a full blown “corporate university” or some

less grandiose space? Why?

• Structure and governance: Should the leadership development program be integrated

under the existing GS human resources function, HCM, or stand alone as a separate entity?

Why? Should the staff be large or small? Headed by a chief learning officer of some sort, or

led by existing HCM staff?

• Faculty mix and content delivery: Who should teach the program? Should instructors

or facilitators come from within GS or from the outside? Why?

• Leadership model: Should GS make use of existing training technologies or grow its own?

• Length: How long should any given training period last? Why? Should duration vary by

content? How?

• Program content: Should program content emphasize technical skills, GS culture, or

something else? If something else, what? Why?

• What is the appropriate mix of methods and programs? How much of GS leadership

development should rely on formal classroom training? On executive coaching? Special job

assignments? Action learning (on the job training)? Something else? Why?

• Target audience: MDs only? Broad cross section of the firm? Dependent on program

content relating to function, business, or geography? Closed to outsiders? Open to clients?

Others?

• Name: What should the program be called, and why?

Leadership Development at Goldman Sachs, Design Worksheet

1. Form & Location?- Construct Corporate University or Use Existing Facilities

2. Structure & Governance?

o Integrated under HCM or Organized as separate stand-alone group

o Large or Small staff

o Hire Chief Learning Officer (CLO) or HCM-led initiative

3. Faculty Mix? (content delivery)- Mostly Internal or External

4. Leadership Model?

Adopt off-the-shelf model or Grow your own

5. Length? (of developmental interventions)- Short or Long

_________ average length (in hours, days, weeks, months)

6. Program Content? Focus of Development

Technical Skills or Shared Culture or _______________ (something else?)

7. Appropriate Mix of Methods/Programs?

o Formal Classroom Programs _____ %

o Executive Coaching _____ %

o Job Rotations (special assignments) _____ %

o Action Learning (on the job training) _____ %

o Other? _____ %

8. Target Audience? (mix): Who attends (with whom)?

Broad (from across the firm) or Customized (e.g. by function, business, or geography)

Restricted to GS MDs or Invite clients as well

9. Name the Initiative: _________________________________

(suggest a name for GS’s new Leadership Development Initiative)

Leadership Development at Goldman Sachs, Completed Design Worksheet

1. Form & Location?

Construct Corporate University or Use Existing Facilities

2. Structure & Governance?

o Integrated under HCM or Organized as separate stand-alone group

o Large or Small staff

o Hire Chief Learning Officer (CLO) or HCM-led initiative

3. Faculty Mix? (content delivery)- Mostly Internal or External

4. Leadership Model?

Adopt off-the-shelf model or Grow your own

5. Length? (of developmental interventions)- Short or Long

90 mins – 1.5 days average length (in hours, days, weeks, months)

6. Program Content? Focus of Development

Technical Skills or Shared Culture or __A REAL MIX___ (something else?)

7. Appropriate Mix of Methods/Programs?

o Formal Classroom Programs <10 %

o Executive Coaching 20 %

o Job Rotations (special assignments) 20 %

o Action Learning (on the job training) 20 %

o Other? 20 %

8. Target Audience? (mix): Who attends (with whom)?

Broad (from across the firm) or Customized (e.g. by function, business, or geography)

Restricted to GS MDs or Invite clients as well

9. Name the Initiative: Pine Street

(suggest a name for GS’s new Leadership Development Initiative)

Learning’s Understanding the advantages and disadvantages of tightly aligned

organizational systems.

Understanding the implications for internal alignment when industry

changes demand significant shifts in strategy.

Competing with alignment along the horizontal (soft) dimensions of

the congruence model produces competitive advantages that are

difficult to copy.

Raising fundamental issues of leadership development. Is it really

possible to “accelerate” the development of leaders, particularly

leaders as senior as managing directors at GS? What can you actually

achieve with a more systematic approach to leadership development

at this level?

Practice designing a subsystem (here a leadership development

program) within a tightly aligned organization. All critical design

features must be consistent with other aspects of the broader

organizational system.