06 MarControl III – The #11 Tram Problem or “We don’t need another hero”
A Goldman Sachs partner worrying about trams. Actually it’s personal and he wants to know who knows what you are doing.
There is a Zurich theme to this week’s post. No bad guys, just good ones and ladies. Trams in general are a prominent feature in Zurich and the #11 is a fixture downtown at Paradeplatz, close to where Goldman Sachs opened its new private banking operation in 1992 and across from the cafe where a certain Ms. Tina Turner, a long time local resident would take her morning coffee. For those less acquainted with the City of Gnomes, Paradeplatz is to Zurich what “the City” is to London or “Wall Street” is to New York. Even though not all the firms are situated there, it is a handy collective term and probably better than “Gnome Central”.
Trams, banking and Goldman Sachs partners. What on earth might they have in common? Are people more important than the institution? No they are not and no institution should manoeuvre themselves into a situation where that is the case. It has been said of McKinsey and of Goldman Sachs that in order of importance it is the clients, the Firm (always capitalised) and you. If you were Kenny Dalglish at Liverpool you’d say its the Football Club, the Fans and you. So it follows that you want to be sure the Firm can survive and is not dependent on certain people being around. Goldman Sachs was good at this; in my early years a couple of private bankers defected to another white-shoe firm. One was a guy who never helped me (See this previous post: KYC). When they left they were able to take only a small share of their client assets with them. Client assets are one thing, but there are also people assets, even if you allow for the almighty stupid comment made by Hank Paulson about only 20% of the people adding value. Firms need “institutional memory”; how to get things done around here.
In the early 90’s, Goldman Sachs decided that it needed a proper Swiss bank to complement the existing, traditional US style private client business in its broker-dealer entity. After much soul searching, and more than a few bucks spent on marketing gurus, the creatively named Goldman Sachs & Co Bank was created. Funny thing was they had to have a living Goldman and a living Sachs as active partners to do that. So one lucky guy, called Goldman, but not a partner, was elevated to the partnership to help out. In name only, with his resignation signed the same day and gathering dust in the vault since then. So, the infrastructure side of the Firm set about building a bank. Quite an adventure and in fact a bit of a bottomless bit in terms of development cost; with a local manager showing all the whimsy in picking a system provider that Roman Abramovich has in picking football managers and players. So this little adventure in a far flung part of the Holy Goldman Empire got its share of scrutiny and that meant lots of personal visits from Goldman Sachs partners who wanted to know what was being done with their investment dollars. Actually some 20 million of those greenbacks per year to build this fine thing.
Banks are pretty complex beasts, so every single discipline inside a bank was involved; trading, IT, Operations, Finance, Compliance, Legal and Marketing. The whole shebang. So as developments progressed and we got closer to the launch, the partner in charge of what was then termed OT&F, Angelo De Caro, came over to Zurich to get a first hand update on the readiness of the infrastructure side of the business. What the Japanese would call genchi genbutsu, “go and see”. He had all the managers attend a meeting in the boardroom. Not quite the Apprentice with the not so cuddly Alan Sugar, but a similarly intimidating setting. Now you would think that the higher up the Firm you go, the harder the questions get. Not a jot of it. They get simpler, much simpler. Much as Angelo had come to know those of us leading the charge in Zurich and as much more contact as we had in a small office than we would have had in one of the major offices, such as London, he was more worried about institution than the people per se. He picked on the first guy at the table, a long time Goldman guy called Joe Bergen who worked in Operations Control, ensuring that what we had in the books and ledgers was the truth: “Joe Bergen, what happens if you fall under the #11 tram on the way home?” Joe, not quite getting the implication of the question, mumbled something like: “Sorry Angelo, what are you driving at?” “Joe, if you get hit by a tram who knows how to do your job?”
The questions didn’t get harder, they got easier, because the key concern was what the technical literature would call “key man risk” or “key man dependency”. Sitting in Zurich and putting that concern in local terms was a canny master stroke, and uncommonly local for the average American. Now had Angelo known that Ms. Turner was, and still is, a local resident he might have burst into song and said: “We don’t need another hero!” Institutions should not depend on super human acts or heroics; Joe always being there to ensure things get done and knowing just how to work with and around the systems. In fairness, this trap is especially hard to avoid when you are starting out, but is still a serious potential point of failure.
Lessons Learned: Institutional memory is a good thing. To ensure the Firm can survive even if its leading lights are off the field, temporarily or permanently or even in pastures new, make sure you have multiple people trained on each task. When you first start something new, be it a new business or a new process, write down as much as you can in advance. Inevitably, it will not survive the first engagement with the day to day of the first weeks of Operation, but it will start you off.
Epilogue: So clever and succinct was that use of the #11 tram as a potential threat, that the phrase the “#11 tram problem” pretty much stuck with all of us who were around at the time.