My investments include a large position in Goldman Sachs. Why? It’s really about what separates Goldman from the rest — three words: Strong. Enduring. Principles. My investment in Goldman Sachs revolves around the firm’s rock-solid business principles — the foundation behind its long-term success and reputation.
Principles — codified experiences — are the standards that govern everything we do. They strongly impact daily practices and deliver a compass for actions taken and decisions to be made in an uncertain environment that is characterized by much dynamism. Principles can be seen as the nervous system of the firm. They provide energy to walk the talk. And under today’s challenging circumstances, it is the intangibles that count most toward ensuring enduring success.
When the environment and business grow more and more complex, structure, rules, procedures, and systems become progressively less effective as a device for unifying a firm or ensuring smooth teamwork (crucial in investment banking). Implementing the right principles — not just lip service platitudes — makes a firm great. “On Becoming Extraordinary — Decoding Goldman Sachs and other Star Professional Service Firms” argues — backed by extensive field research — that professional service firms will be more successful when held together with this powerful glue.
‘Star’ or elite professional service firms have a powerful identity owing to their strong business principles. Such a set of principles ensures that they all march to the same drummer; it creates high levels of loyalty and motivation, and provides the firm with structure and controls, without the need for too many formal rules and stifling procedures.
Adherence to sound principles is the hallmark of outstanding management — as an investor and hedge fund manager, you need to dig deep into this ‘soft’ topic with ‘hard’ P&L and competitive consequences. Unsound principles erode client trust and, in the long run, undermine a firm’s reputation and morale. And although principles are the building blocks of firms like Goldman Sachs, they are not the proverbial magic silver bullet. How they are used determines the results and makes a difference. Ultimately, that makes a respected firm prestigious.
The interesting thing about principles is that there is really nothing all that unique about them. In fact, they are universal and timeless. However, firms like Goldman Sachs are masters in applying them rigorously, consistently, and coherently. Principles need decisions followed by actions; otherwise, they are merely conceptual, looking great on paper or a tablet or smartphone screen. There is nothing revolutionary about getting into shape. If there is a magic formula, then that is it. Doing it, that is what matters. More details on the effectiveness of Goldman’s business principles at www.pieterklaasjagersma.com/decoding-goldman-sachs.