In an Uncertain World (15 page)

Absolutely key to our partnership was that when we disagreed, neither of us had his ego invested in winning. Steve and I had a rule that the one who felt more strongly would prevail, or at least have the decision more toward his direction. If one of us felt 80–20 and the other 60–40, the 60–40 one would say, “I sort of disagree, but if you're eighty–twenty we'll do it your way—or someplace in between, but more your way than mine.” In the rare cases when we disagreed and both felt strongly, we worked it out. Another proviso was that we usually—although not always—deferred to the more risk-averse position.

On maintaining a meritocracy, protecting the culture of the firm, and focusing on our customers, we agreed. But within those parameters, our views sometimes differed. As an example, Steve strongly favored greater differentiation in partnership shares, based on meaningful distinctions in performance. I, on the other hand, thought the possible ill will of those not favored outweighed the benefit of favoring the best performers—except where the difference was truly major. Over the years, I had seen partners who earned millions of dollars a year become deeply unhappy over tiny distinctions in partnership shares. (Bob Strauss once captured this dynamic when he said that a lawyer at his firm earning $90,000 a year—this was some time ago—and offered a $10,000 raise with the stipulation that a peer next door would get a $20,000 raise would prefer no raise at all to someone on his own level being paid even more.) Steve referred to my inclination to avoid conflict-provoking distinctions as “solving for maximum social harmony.” Because he felt more strongly than I did, we agreed to increase differentiation, although less than Steve would have done on his own.

My partnership with Steve was in some respects a forerunner of the relationship I had as Treasury Secretary with Larry Summers and Alan Greenspan. None of these people is a shrinking violet. But because of mutual respect, trust, and our analytic approach to issues, these relationships worked. Alan had somewhat different starting points on some issues, but through financial crises, G-7 meetings, currency interventions, and much else, we almost always analyzed our way through to agreement. Steve and I didn't worry that someone might consider one of us weak because the other's view had prevailed, nor did Larry, Alan, or I. The overriding drive in both relationships was to reach the best decision.

   

WHEN STEVE AND I first became co-chairmen, I found the difference between the senior position and what we had been doing far greater than I had expected. With John Weinberg as senior partner, the ultimate approval and responsibility were his, even if we had operating responsibility. Once Steve and I became senior partners, the ultimate responsibility was ours. Larry Summers said the same thing to me about becoming Treasury Secretary. When he was deputy secretary, he felt that the difference between his job and mine was small. After becoming Secretary, he realized that the difference was enormous.

In those days, Larry Tisch, the CEO of Loews Corporation and later of CBS, used to tell me, “Bob, you worry too much.” I'd say, “Larry, you don't understand. There's a lot to worry about.” One worrisome issue was Goldman's lack of a permanent capital base. A firm like ours needed a lot of capital to support what had become a massive global trading operation, to withstand difficult times, and, later, to be competitive in investment banking with the commercial banks. As it was a private partnership, each new retiree could withdraw his share of the capital within a relatively brief period. In a public company, capital remains in the company, and a retiree simply sells his stock on the public market. If conditions were difficult and partners became nervous, Goldman could face a run on the bank. Building capital is thus far more difficult in a private firm. And finally, the partners were at risk not only for the money in the firm but for their entire net worth—a source of great concern in the Penn Central bankruptcy. For these same reasons—as well as the simple desire to cash out—all of our major competitors had already gone public or merged into larger concerns. Steve and I were convinced that the way to deal with these issues was to become a limited-liability corporation and sell stock to the public.

One argument against going public was the flexibility of being able to periodically adjust partnership percentages among the partners, to reflect performance and changes in seniority. Another was the mystique of being private—especially after all the other big Wall Street firms had gone public or merged. The initial public offering proposal presented in 1986 was rejected, largely because the younger partners wanted to preserve flexibility so their stakes could grow more easily. And that structure continued to work for more than a decade. Years after both of us had left, the inevitable eventually happened and Goldman finally did go public.

   

IN EARLY 1988, I met Governor Michael Dukakis a few times and was impressed with his intelligence. Although I shared the popular view that he was somewhat stiff as a candidate, I raised money and contributed a bit of advice to his campaign. At one point, Dukakis was way ahead of George Bush in the polls, and after his defeat many in the party felt bitterly toward him for the way he had handled his candidacy. Issues about his campaign aside, I still thought that expressing moderate Democratic views—or, for that matter, any sensible views that reflected the complexity of the underlying issues—in ways that resonated politically was extremely difficult. The political system's bipartisan failure to address the growing deficit demonstrated the imperative need to figure out how to do so. The country remained in denial about serious social issues as well. Our public education system was deeply troubled, and life in the inner cities was getting worse. I wondered whether the country would muster the political will to address its problems. The alternative to facing up to these problems, as I discussed at a dinner Bob Strauss held for me in Washington after I became co-head of Goldman Sachs, was the risk of inexorable national decline.

I hadn't decided among the Democrats who were considering running in 1992, but I was looking around. I hosted—along with David Sawyer, a well-known Democratic political consultant and Oscar-nominated documentary filmmaker who died at a young age—a series of small dinners at which roughly fifteen business and media people talked with candidates and potential candidates. Among others, we had Senators Tom Harkin (D-IA), Dale Bumpers (D-AR), Joe Biden (D-DE), and Bob Kerrey (D-NE). Bill Clinton was our guest at dinner in mid-1991 and was enormously impressive. I've been to many events where a candidate spends much of the time talking. For more than three hours, Clinton engaged in a real dialogue—a serious give-and-take—on the issues important to us. At the end of the dinner, I said to Lew Kaden, a New York lawyer and Columbia law professor deeply involved in Democratic politics, “This guy Clinton is amazing. It's remarkable how well he understands this stuff.” But Clinton expressed uncertainty about running because of the effect a campaign might have on his family.

Almost a year later, in May 1992, when Clinton had not only decided to run but had pretty much locked up the nomination, he drew together a few so-called advisers in Little Rock to discuss economic issues. The group included several Wall Street investment bankers—Roger Altman and my fellow Goldman Sachs partners Ken Brody and Barrie Wigmore—as well as a centrist economist named Rob Shapiro and three friends of Clinton's, Robert Reich, Ira Magaziner, and Derek Shearer, who had well-developed views on an active role for government. I had no illusions about our position as “advisers.” We were mainly surrogates intended to lend credibility to Clinton's economic policies, which, in reality, were set inside the campaign organization. But at this meeting, Clinton took the extraordinary step of taking a day off from the campaign—with no media coverage—to assess his economic proposals and see whether positions developed under the pressure of the campaign made sense for governing. He wanted to stop running for a day in order to check his course.

Doing that showed remarkable seriousness of purpose for a candidate in the midst of a campaign. The group of us flew to Little Rock and spent a number of hours with the governor and Hillary, whom I had never met before. Our group had a range of opinions, but we agreed on the most important issues—the importance of deficit reduction, the need for greater investment in education and health care, and the benefits of trade liberalization. These remained the central components of Clinton's economic strategy for his eight years in office. Within the context of that consensus, there were differences in emphasis. Ken Brody, Rob Shapiro, Roger Altman, and I emphasized reestablishing fiscal discipline more strongly. Reich, Ira Magaziner, and Derek Shearer tilted somewhat more toward investment in education and training.

Our group was asked to draft an economic statement that subsequently evolved into the economic section of the campaign platform, “Putting People First.” I suggested that Ken Brody, who shared my focus on deficit reduction, draft the document. But Gene Sperling, who had just joined the campaign and instantly became its economic engine, became the chief draftsman, with some input from the rest of us. I'd known Gene slightly from the Dukakis campaign, where he had played a more junior role. Gene was bright, knowledgeable about economics, extraordinarily productive, and highly adept at crafting a message. He was also slightly disheveled and almost impossible to get on the phone except in the middle of the night. When, or whether, he slept was a great mystery. But on a substantive, as opposed to a stylistic level, Gene was well ordered. He understood what an economic platform for a campaign should look like and how to meld economic policy, politics, and communication.

Gene would sometimes have the “outside advisers” talk to the press when Clinton discussed economic issues or announced a new proposal. And so I began learning how to engage with the media in a Washington context. Gene told me that it was crucial to get my points across in my response to questions—in effect, to be responsive but from my point of view. Throughout my years in Washington, I never lost my wariness of the media, developed from my earlier experience in crisis response at Goldman, but I did develop great respect for many of the people who covered us and tried to respond seriously to those who were serious with us. One of the ironies of my time in Washington is that by the time I left, I felt that some of the most knowledgeable and interesting people I had gotten to know there were journalists, while at the same time I continued to have reservations about the way the media as a whole functioned.

I spent election night in Little Rock, celebrating Clinton's victory. A couple of weeks later, I was summoned back to meet with the President-elect. His mood was upbeat, and he jokingly said, “I'm the leader of the free world,” as I shook his hand. We talked for a couple of hours, hardly at all about economic policy, which I told Judy seemed rather peculiar. I wasn't even quite sure what his purpose in seeing me had been. Later I realized that this had indeed been an interview and served a less obvious but important managerial purpose: Clinton was getting a sense of what I'd be like to work with and how I would work with others—a sensitivity about personalities and the interaction of administration members I would observe many times in the years ahead. I remember Clinton noting that despite being a senior partner at Goldman Sachs, I'd developed very comfortable working relationships with Gene and other younger people on the Little Rock campaign staff, such as Gene's deputy Sylvia Mathews. In fact, I liked working with more junior people, who were often closer to the specifics of what was going on and had more time to speak with me. I thought—correctly—that I had much to learn from Gene and Sylvia about politics, campaigns, and much else.

I left the meeting more impressed than ever with the President-elect, but without any idea of what, if anything, would happen next. Clinton did ask who I thought should be Treasury Secretary. I felt I didn't have the experience in dealing with Congress, the media, policy, or politics to handle the job at that point and I recommended Senator Lloyd Bentsen (D-TX), whom I knew pretty well and respected, and who as chairman of the Senate Finance Committee was well equipped for the job. I also remember talking to Clinton about coordinating the many offices and agencies that participate in economic policy. Clinton wanted to create an Economic Security Council—renamed the National Economic Council after the campaign—to do for economic policy what the National Security Council did to coordinate foreign policy.

Shortly thereafter, Warren Christopher, the head of Clinton's transition team, called to sound me out about jobs. I wasn't at all sure I would be offered a position, although I was certainly interested. Christopher, whom I already knew from being on the board of the Carnegie Corporation, which he chaired, said, “If you don't become Treasury Secretary, would you be interested in running the National Economic Council at the White House?” I told Chris, as everyone calls him, that I would. Some time later, I was in Frankfurt, Germany, on a business trip, when the phone rang in my hotel room at 2:30 in the morning. Chris was calling to formally offer me the NEC job. Without any further deliberation, I said yes. Then I went back to sleep.

Christopher had seemed surprised that I'd been receptive when he first raised the NEC job. He may have thought that, as a senior partner at Goldman Sachs, I would consider a staff position at the White House, as opposed to a cabinet post, a step down, even though all economic policy was to be coordinated through the NEC. In retrospect, although not for reasons of status, I might have been wiser to think more seriously about the pluses and minuses of the NEC job before agreeing. For starters, Judy and I hadn't fully discussed this—she was more surprised than Christopher when I called from Germany and told her I'd accepted the job. Beyond that, a rigorous weighing of all factors might have led me to conclude that the odds of succeeding were not so high. The NEC was a new idea, and I was untested in Washington. Many cabinet officers and senior White House staff could view the NEC as an added layer or a diminution of their authority.