Tuesday, January 17, 2006

Two Leadership Lessons from Goldman Sachs

A colleague just loaned me the book Goldman Sachs: The Culture of Success, written by Lisa Endlich in 1999. I usually get bored with sequential historical recitations in corporate biographies but this book provides some valuable insights for any leader who wants to create a high-performance culture. Here’s two of my favorites:

1. A human resources vice president at Goldman Sachs said: “The firm demands that you be a contributor. No one can survive as just an employee.”

Wonderfully put. In your organization, can people survive (or even worse, get promoted) if they are simply “employees” who “do their job”? One of your most important steps as leader is to convey the message that everyone on staff, managers included, will be judged by their contributions to the success and prosperity of the organization. If they can document value-creating contributions, reward them like crazy. If they can’t, despite your efforts to help and mentor, then shepherd them out.

2. One of most senior partners at Goldman Sachs said: “It is vital that information flows smoothly within our firm: horizontally (across departmental, divisional, and geographical boundaries) as well as vertically (so that people on the front line feel comfortable in passing necessary but unpleasant information upward, or in making controversial suggestions).”

Wonderfully put. The more the bottlenecks to the fast unfettered flow of information, the more pernicious the brakes on an organization's progress. The bottlenecks can be procedural, structural, habitual, or personal, but they all act to create “friction”. Processes and systems that deny people access to information, managers who are never confronted about acting as lone wolves who won’t collaborate, cultures marked by secrets and “closed door” decision-making—these are all part and parcel of friction. Michael Dell once told me that one his most pressing duties at Dell was to reduce friction in his company.

Lisa Endlich herself made the following comment in the book: “Thus it stood to reason that those organizations with the least amount of friction in the flow of information would find the greatest success. Friction resulted from cultures in which employees were not used to a continuous dialogue and in which their efforts to communicate among themselves were neither encouraged nor rewarded. [In contrast, Goldman Sach’s] culture, its high degree of integration and the tangible rewards bestowed on those who cooperate, allowed it to move away from the pack in the early part of the 1990’s.”

So regardless of your industry, keep in mind two great leadership principles: One, hire and reward primarily on the basis of peoples’ contribution to the success of the organization. Two, focus on reducing bottlenecks, hurdles, and any other sources of friction that slow down the free flow of communication, information, and collaboration.


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