When Goldman Sachs went public 12 years ago this month, an elite group of 221 executives controlled the strategy and shares of the investment bank.
While the clubby culture remains, the tight-knit group has lost its viselike grip on the company , as the wishes of the insular partnership have given way to the demands of the outside shareholders. The roughly 480 partners currently own less than 10 percent of the company, down from approximately 60 percent at the initial public offering in 1999.
Their power base may soon erode further. Senior Goldman executives are considering whether to cull partner-heavy divisions like investment banking, according to people with knowledge of the matter who were not authorized to speak on the record.
The diminished influence of the partnership has forced Goldman, albeit grudgingly, to shed some of its secretive corporate personality, especially in recent years as its opaque business model has come under scrutiny in Washington. Although a small cadre of executives still steers strategy and runs the day-to-day operations, the financial firm now must act more like other publicly traded companies, responding to criticism over pay, adjusting strategy to placate shareholders and dealing with outspoken activists at annual meetings — all of which was unheard of a decade ago.
Girish Reddy, a Goldman partner who left in 2002, said the firm initially underestimated the public scrutiny that would come with an offering.
“Not only was the partnership ownership high, but Goldman didn’t have a lot of products they offered to Main Street America,” said Mr. Reddy, a founder of the hedge fund Prisma Capital Partners. “They didn’t have to be as transparent as others.”
At the time of the market debut, Goldman’s public relations department had just a handful of people. Reporters used to refer to Ed Novotny, the firm’s top spokesman at the time, as Ed “No Comment” Novotny for his default response to most questions about the company.
Today, the team has swelled to dozens of employees, and Goldman has tried to be more vocal, particularly when it believes the company has been maligned. After Foreign Policy magazine published an article last month under the headline “How Goldman Sachs Created the Food Crisis,” a top communications executive, Lucas van Praag, wrote a letter to the editor in the firm’s defense.
In regard to the partnership, a spokesman for Goldman, David Wells, said the group had not “diminished in terms of its leadership of Goldman.” He added that investment banking had always had a disproportionate amount of partners “as it is more dependent upon senior relationships” and that suggesting the division was partner-heavy “ignores the deliberate structure and makeup of the business.”
Most financial companies shed the private partnerships after their I.P.O.’s, transferring the bulk of the ownership to shareholders. But Goldman, the last of the major Wall Street firms to go public, maintained a hybrid model, in part as an incentive for top employees.
The original class — of which 39 remain today although one is no longer a partner — created the modern Goldman. The group has produced all of the firm’s chief executives since the offering, most recently Lloyd C. Blankfein.
The leading contenders and dark-horse candidates to succeed him have also been partners since the initial offering, including Gary D. Cohn, the firm’s president; Michael S. Sherwood and J. Michael Evans, both vice chairmen; David B. Heller, the co-head of securities; and Yoël Zaoui, a top investment banker.
For the first time, though, the board could reach into a younger generation, tapping executives like Harvey M. Schwartz, Edward K. Eisler and Pablo J. Salame, also co-heads of securities — all of whom were not among the original partnership class.
The former partners have become a powerful force on Wall Street and beyond. For example, Henry M. Paulson Jr., a former chief executive at Goldman, and Kendrick R. Wilson III, a senior banker, took on major roles in federal agencies, prompting the moniker Government Sachs during the financial crisis.
Although Goldman executives generally earn fat paychecks, the partnership bestows top pay and prestige. Until 2010, members all received the same base salary, most recently $600,000. They usually take home a disproportionate amount of the firm’s annual profit in the form of bonuses. Another perk: the firm prepares their taxes.
Partnership remains an elite club today. Roughly 100 new partners are tapped every two years in a seven-month process. Candidates are not interviewed and do not even know if they are under consideration. Instead the partnership committee vets potential members, discussing them only with other partners.
“I think the partnership still has a lot of cachet,” said Roy C. Smith, a former Goldman partner who left the firm in 1988 and currently teaches finance at New York University. “Every culture has a hierarchy and typically everyone wants to be in it — and at Goldman that is where the money is.”
An insular but well-connected inner circle.
The insular culture has prompted some criticism. For years, critics have called Goldman a big black box, lacking disclosure and transparency. That reached a fever pitch in 2010, when lawmakers accused Goldman of betting against the housing markets at the expense of its own clients.
At the firm’s annual meeting that year, Mr. Blankfein told shareholders that there was a “disconnect” between how the firm saw itself and how the public did. He added that Goldman needed a “rigorous self-examination.” The firm embarked on an almost eight-month review of its business practices, vowing to be more transparent — another first in the public life of Goldman.
After the study, Goldman produced a 63-page report that listed 39 changes to its practices, largely aimed at bolstering internal controls and disclosure. But it was derided as bluster since Goldman did not reveal much about its operations.
Such moments highlight the conundrum for Goldman, a public company with a private partnership at its core. The firm makes sweeping gestures to emphasize an open nature, but it often falls short in the eyes of others.
Slowly, the public side of Goldman is winning out, as the firm has issued more stock and partners with large stakes leave the firm or sell shares. While the partners controlled the majority of the stock in 1999, today a vast array of institutions like Fidelity, State Street and Capital World Investors are the main owners.
After the I.P.O, the partners also agreed to vote together on issues, casting all of their shares in the same way. The group, which currently owns 9.9 percent of the company, vote in lockstep with only 3.9 percent of their shares now, according to regulatory filings analyzed by The New York Times and Footnoted.com, a division of Morningstar.
But even with the partnership losing power inside Goldman, its reach outside the firm is significant, spanning a cross section of financial firms, government agencies, nonprofits and sport management. The prominent members of the original partnership class are well documented, including a former New Jersey governor, Jon S. Corzine, and John A. Thain, who is now running the lender CIT Group .
But the lesser-known names have proved equally influential, according to a New York Times study of the original class of 221 partners. Roughly 100 are still working in the financial industry, including the hedge fund executives Peter L. Briger Jr. of the Fortress Investment Group , Eric Mindich of Eton Park Capital Management and Jonathan R. Aisbitt of the Man Group.
More than a dozen, including Suzanne M. Nora Johnson, who sits on the board of the insurer American International Group , spend a lot of their time as corporate directors or executives at nonfinancial companies.
Others have moved into public service as diplomats, politicians and top government staffers. Philip D. Murphy, a former finance chairman of the Democratic National Committee, is now the ambassador to Germany. Malcolm B. Turnbull is a member of Parliament in Australia. And 26 more are retired and or managing their own money.
A few members of the I.P.O. class used Goldman riches to indulge their passions. The onetime Goldman banker David M. Baum is publisher and editor in chief of the Golf Odyssey and Golf Vacation Insider newsletters. Lee G. Vance, once a trader at the firm, has written several financial thrillers.
One former Goldman executive is even doing God’s work, as Mr. Blankfein once jokingly described the role of the investment bank. Gregory H. Zehner, a former pastor living in Utah, is writing a book about Christianity.
Ben Protess, Evelyn M. Rusli and Andrew Ross Sorkin contributed reporting.