GS Goldman Sachs Group Inc

By Liz Hoffman 

NEW YORK -- Lloyd Blankfein secured the survival of Goldman Sachs Group Inc. by leading it through the financial crisis. The challenge for its next leader: how to thrive in a radically altered postcrisis world.

The bank on Tuesday said David M. Solomon, Goldman's president and chief operating officer, will take over as chief executive from Mr. Blankfein. The move puts a symbolic cap on Goldman's postcrisis era and will fuel the firm's continued evolution from a secretive trading powerhouse into a more nimble and entrepreneurial place.

In formally choosing Mr. Solomon, 56 years old, Goldman is tapping a proven business-builder who has spoken forcefully about the need for the firm to be less stuck in its ways. Neither a sharp-elbowed trader nor genteel banker in the classic mold -- he moonlights as a dance-club DJ -- he came to Goldman as a rare outside partner in 1999 and has spent nearly his entire career there in management jobs.

He has already been sketching out an agenda that would push the firm to be more organized, decisive and open. Insiders expect him to impose a corporate discipline that Goldman, which spent decades as a loosely run partnership, has been slow to embrace. One of his first moves, according to people familiar with the matter, is to demand three-year operating budgets from Goldman's division heads.

He has tipped to close associates that he is likely to prune Goldman's storied management committee, whose membership has swelled in the past decade, and refocus power among executives who run businesses. He has built a strategy team to scout new business ideas and acquisitions; pushed to include more women in the firm's senior ranks; and is considering an investor day for 2019, lifting the secrecy that once bolstered Goldman's mythic status but has worn thin as profits shrank.

"Everything's on the table," Mr. Solomon has lately told top executives.

Mr. Solomon became the heir apparent earlier this year, winning a 15-month audition that pitted him against co-president Harvey Schwartz, who resigned in March when the outcome became clear. Tuesday's announcement formalizes that arrangement, setting Mr. Solomon up to take control when Mr. Blankfein departs Sept. 30.

Under Mr. Blankfein, Goldman came to dominate Wall Street with a mix of trading prowess and political clout. But it has struggled in the world created by the financial crisis and is reaching to unfamiliar areas such as consumer and commercial banking to replace billions of dollars of trading profits that are unlikely to return.

A combination of calm markets, tough regulation and changing client behavior has wreaked havoc on securities desks across Wall Street, hitting trading-heavy Goldman the hardest.

Its fixed-income division, which buys and sells corporate bonds, oil, interest-rate swaps, among other things, once churned out $1 billion every 10 days or so. Last year, that took them an average of 10 weeks.

In search of new profits, Goldman is making a belated push into consumer banking and corporate cash management, hoping to challenge Main Street giants such as JPMorgan Chase & Co. and Citigroup Inc. on their turf. The firm aims to add $5 billion in annual revenue by 2020 and is under pressure to show it can build new business and hit targets.

In a first for Goldman, its succession saga has played out in public view. It was a quick and undramatic transition when Mr. Blankfein took over in 2006 from Henry M. Paulson Jr., who was tapped as the Bush administration's Treasury secretary. Goldman was still a private company when Mr. Paulson wrested control from Jon Corzine in 1999. And for much of its history, power rested with its partnership rather than a sole leader.

This time, Mr. Blankfein, 63, and the 56-year-old Mr. Solomon have been working from neighboring glass-walled offices on the 41st floor of Goldman's New York headquarters. Mr. Blankfein, who has joked in the past that he intended to die at his desk, has seemed at times ambivalent about handing over the reins.

At a meeting this spring of the firm's management committee, Mr. Blankfein addressed news articles, including a March report in The Wall Street Journal, that said he planned to step down later this year.

"We're just going to have to deal with it for a little while," he said of the media attention, according to people briefed on his remarks. Then the CEO addressed Mr. Solomon, who was dialing in from Saudi Arabia, quipping: "But meanwhile, David, maybe you should just stay over there."

Mr. Solomon came to Wall Street in the mid-1980s and spent his early years in the mercenary world of junk debt. He played social planner to a group of college friends, organizing ski trips to Vermont and summer rentals in the Hamptons, where roommates would wake up to find him mowing the lawn.

After stints at Salomon Brothers and Bear Stearns, he joined Goldman as a partner -- it is unusual for an outsider to join at that rank -- and set about building a junk-bond business. He then ran its investment-banking division for a decade, turning it from a loose collection of fiefs into a professionalized force that is the largest on Wall Street by revenue.

Mr. Solomon had a strict policy of giving zero bonuses to the bottom 5% of employees and aggressively clawed back stock from bankers who left Goldman to start their own firms. He helped build a corporate lending and debt-underwriting business -- a risky area that Goldman, notoriously tightfisted on loans, had avoided in the past -- that generated record revenues last year.

In 2012, he took over the planning of a West Coast conference aimed at entrepreneurs that Goldman hoped could strengthen its ties to promising startups.

Will McDonough, then a Goldman vice president, described an early planning call. "David swoops in such as a general, barking orders, assigning responsibilities," said Mr. McDonough, who is now CEO of a blockchain business. "He saw the idea had legs and brought this intense discipline to it. I remember being taken aback, but it worked."

Today the Builders + Innovators Summit is a must-attend for startup founders and venture capitalists and has become a significant feeder for Goldman's investment-banking business.

Off duty, Mr. Solomon skis Aspen bowls and kite-surfs and spins records in Baker's Bay, the Bahamas enclave where he has a home. Under the stage name D-Sol, he recently released his first single, a remix of the Fleetwood Mac song "Don't Stop," on the streaming service Spotify. His third New York restaurant, Legacy Records, recently opened on Manhattan's West side.

"A perpetual motion machine," said longtime friend and Hilton Worldwide Holdings Inc. Chief Executive Christopher Nassetta.

Mr. Blankfein leaves Goldman on firmer footing than he found it, though it took a near-death experience to get there. Goldman was at the forefront of the derivatives-trading boom that sowed the seeds of the financial crisis, and emerged browbeaten but intact, having avoided the billion-dollar losses that hit rivals. Its relative fortunes earned it a political lashing and cast Mr. Blankfein as a central villain of the meltdown, an image he spent years trying to shed.

He grew a beard and joined Twitter. Goldman has spent millions of dollars sponsoring female entrepreneurs and small businesses, in part aiming to rehabilitate its image and gain goodwill in Washington. Earlier this year, it began streaming conversations between its executives and celebrities and business leaders including General Motors Co. Chief Executive Mary Barra and soccer star David Beckham on Hulu.

Mr. Solomon wasn't the obvious choice to succeed Mr. Blankfein. Goldman insiders gave the edge to Mr. Schwartz, who had followed in Mr. Blankfein's footsteps through the firm's trading arm and spent four years as its chief financial officer, learning the businesses and dealing with investors and regulators. Throughout much of the 15 months they competed for the top job, Mr. Solomon told associates he believed the job was Mr. Schwartz's to lose.

Mr. Solomon had previously considered leaving Goldman, but turned down a chance to run Sheldon Adelson's casino empire in 2014, and later pursued a top job at private-equity firm TPG.

His patience paid off with one of the most coveted jobs in finance. Despite Goldman's challenges, it remains a powerful symbol on Wall Street, and the men who have run it -- the firm has never had a female CEO -- are often looked to as a senior voice in the industry.

Mr. Solomon has wasted no time rethinking some of the firm's oldest traditions.

Big companies including JPMorgan and Walmart Inc. hold annual "investor days," where shareholders and analysts get updates and meet with executives. Goldman never has. Mr. Solomon has asked executives to plan one, possibly as soon as next year, people familiar with the matter said.

Goldman's division heads typically prepare annual budgets. Mr. Solomon wants three years of revenue and cost projections, hiring plans and client coverage initiatives, according to people familiar with the matter.

He is also discussing changes to Goldman's powerful management committee, according to people briefed on the matter. The group meets weekly on Monday mornings and is a carry-over from Goldman's days as a private firm, when a small group of partners set firm strategy.

Over the past decade it has swelled from fewer than a dozen executives, each running a major business line, to more than 30. About one-third of its members don't oversee a revenue-producing unit or region, and critics say Mr. Blankfein has used committee seats more to soothe egos and send signals to underlings and regulators than to run the firm's day-to-day affairs.

A Goldman spokesman declined to make Mr. Blankfein available for comment.

Mr. Solomon has discussed paring the committee or creating a smaller group of top managers that would meet separately, people familiar with the matter said. Executives from nonrevenue divisions such as human resources and legal might be shifted to a broader, less-powerful operating committee.

That would echo a move Mr. Solomon made while running the investment-banking division. Frustrated its leadership was too big and lumbering, he created a smaller brain trust of top executives, a move that bruised some egos but sped up decision-making.

And as discussions get under way about the selection of the 2018 partner class, Mr. Solomon has advocated for a smaller one -- almost certainly under 100 -- with a higher allotment of bankers, traders and other revenue-generating employees and fewer slots for functions including compliance and operations, according to people familiar with the discussions.

Mr. Solomon has taken up diversity as an issue, particularly the lack of women in senior roles at Goldman. The incoming class of college graduates that will join Goldman this fall is 48% women, and the firm has set a goal of parity by 2021.

He urged the promotion of Beth Hammack to become Goldman's treasurer last fall over the objections of Mr. Blankfein, who felt Ms. Hammack was more valuable on the trading floor, where she was one of just a handful of senior women, according to people familiar with the matter. Mr. Solomon argued her promotion would send a message that Goldman was serious about closing the gender gap in its upper ranks, the people said.

"We're at a point in time where 'enough already,' " he told PayPal CEO Dan Schulman in a video chat last month. "I have trouble talking to my daughters about this and explaining why, for so long, we haven't made more progress on this front."

Write to Liz Hoffman at liz.hoffman@wsj.com

(END) Dow Jones Newswires

July 17, 2018 10:38 ET (14:38 GMT)

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