Goldman Sachs

Question1. During 2008 the financial services industry and the securities markets were adversely affected by significant declines in the values of nearly all asset classes and by a serious lack of liquidity (Goldman Saks, Form 10-K, 2008, P 75). The mood of the economy was characterized by fear and uncertainty. Fears of a financial meltdown grew as American giant financial institutions fell one after another and the U.S government had to step in and bailed out some the big banks in order to alleviate the crisis. Goldman Sachs managed to weather the financial crisis and produced a profit of 11.6 billion in 2007 while many of its competitors were not so fortunate.

The market disruptions in 2008 have led to new regulations. As of September 21, 2008, Goldman Sachs became a bank holding company under the BHC Act, and the Federal Reserve Board became the primary U.S. regulator of Goldman Sachs. Prior to September 21, 2008, Goldman Sachs was subject to regulation by the SEC. The BHC Act generally restricts Goldman Sachs from engaging in business activities other than the business of banking and certain closely related activities.

The composition of net revenues for Goldman Sachs has varied over time due to fluctuations in the U.S. and the global economic, and market conditions. Their net revenues were $22.22 billion in 2008, a decrease of 52% compared with 2007 reflecting a particularly difficult operating environment. In 2009 net revenues were $45.17 billion, more than double the amount in 2008, reflecting strong results and performance. (Goldman Sachs, Form 10-k, 2009, p77).

A major strength and principal reason for the success of Goldman Sachs is the quality and dedication of the people and the shared sense of being part of a team. The organization is known for its flat management structure that promotes employee involvement through a decentralized decision-making process.

Question2. A flat organization uses fewer levels of management which results in more administrative responsibility for managers. Instead of having CEO, President, Vice-President, Directors, etc... they have top managers dealing directly with workers and eliminating middle managers. Although decision-making is a speedy task in flat organizations, decision-making sometime are slower than the average for Goldman Sachs but deemed necessary to make healthy business. The use of this system allows better communication, flexibility, and productivity than a hierarchical organization.

Goldman Sachs uses a decentralized decision-making process which involves the decisions of lower-level managers and employees. Top management may be overwhelmed with decision-making when it is centralized. Decentralized decision-making increases the flexibility of the company and promotes a faster response for environmental changes that may take place. Decentralizing also promote better decision-making because the lower-level managers deal with the situation on a day to day basis. Eliminating the middle management allows a direct communication flow to top management about decisions that are made in an expeditious manner.

Per Griffin (2010), Hierarchical management has many layers of management. With added levels of management research has shown that companies using hierarchical management have communication barriers. Communication is a barrier because you have to go through the increased levels of management for information to be passed on. Also companies spend more money paying the extra levels of management versus eliminating the middle management to save money. Seeing as flat organizations have no middle management, decision-making is beneficial as a quick decision can be made among the top management. According to Pisano, Gary P. & Verganti, Roberto (2008) "Flat modes are also appropriate when partners all have a vested interest in how a particular problem is solved and will participate only if they get some say in the decisions."

Making a major decision is always a tough task. It took fifteen years for Goldman Sachs to come to the agreement for the company to go public. The agreement was made on the grounds that, financially, the initial public hearing (IPO) would disburse 5-10 billion and the partners would receive a payout of 50 million to 100 million each and culturally, there will still be a group of managers who maintain the policies and regulate corporate transactions as usual. Under these terms, the company was able to keep the flat structure.

In time of crisis, Goldman Sachs is able to make decisions that benefit the company. For example, in 2007 Goldman used different techniques to minimize the exposure to subprime mortgage back securities. When the CFO David Viniar predicted that the home mortgage market was weakening the management was able to put in place a strategy to cut losses. In flat management everyone had to come to a consensus and as a result the decisions that were made were decisions that positively impact the company. This decisions-making strategy allowed the company to sustain a healthy and profitable environment.

Question3. In additions to the flat management style, the culture of ownership of Goldman Sachs help it to be successful. Goldman Sachs culture was derived from its family owned business. All partners invest their own money into the company and are not able to cash in their capital unless they retire or unless they have left the company. All the leaders in the company have their money invested in the company so the success of the company affects them directly. Goldman Sachs believes that making the people part owners of the company will