Goldman's Email Problem: Why Do Execs Document Their Stupidity?

Last Updated Apr 29, 2010 12:11 PM EDT

Watching Goldman Sachs executives defend themselves in front of a Senate subcommittee today, I was struck by a question that comes up again and again these days: Why do otherwise intelligent, competent executives document their stupidity and, sometimes, illegal actions, in emails?

Here are just a few notable examples of how top executives who are brilliant enough to make fortunes for themselves and billions of dollars for investors, sometimes damn themselves by putting in writing stuff they probably shouldn't even be thinking about, let alone doing.

In the case of Goldman, at this point, it's all about public perception as the federal government builds its case for Wall Street reform. Still, federal lawmakers must have had a field day picking the juicy stuff out of nearly 20 million pages of emails and documents handed over by the premier banking firm.

The most damning communications were related to what Goldman executives referred to as "the big short," its hedge against the coming mortgage collapse. Here are a few excerpts, from the Wall Street Journal:
"The whole building is about to collapse anytime now." - Email from Goldman VP Fabrice Tourre
"Of course we didn't dodge the mortgage mess. We lost money, then made more than we lost because of shorts." - Email from Goldman CEO Lloyd Blankfein
"Could/should we have cleaned up these books before and are we doing enough right now to sell off cats and dogs in other books throughout the divisions.'' - Email from Blankfein

"[B]oy that timberwo[l]f was one shi**y deal." - Email from former head of Americas sales and trading for Goldman, Thomas Montag, referring to a $1 billion CDO Goldman sold that, according to Bloomberg, lost 80% of its value within five months.

"They structured like mad and travelled the world, and worked their tails off to make some lemonade from some big old lemons." - Email from former Goldman mortgage chief, Daniel Sparks
Emails also figured prominently in the SEC's case against famed Merrill Lynch analyst Henry Blodget and NY Attorney General Eliot Spitzer's case against Salomon Smith Barney / Citigroup analyst Jack Grubman. Both were related to investment banks using inflated analyst ratings and reports to garner investment banking business.

This phenomenon is by no means limited to Wall Street firms. During the Justice Department's late 90s antitrust case against Microsoft, email records were used to show how Microsoft illegally leveraged Windows to win the Web browser war against then-dominant rival Netscape. Emails were even used to refute quite a bit of Bill Gates' direct testimony:
I was quite frank with him [Scott Cook, CEO of Intuit] that if he had a favor we could do for him -- to do that in return for switching browsers in the next few months I would be open to doing that. - Microsoft CEO Bill Gates

We are not leveraging Windows ... We do not use our strength - which is that we have an installed base of Windows and we have a strong OEM shipment channel for Windows. Pitting browser against browser is hard since Netscape has 80% marketshare -- I am convinced we have to use Windows - this is the one thing they don't have -- We have to be competitive with features, but we need something more - Windows integration. - Email from Microsoft SVP James Allchin to Group VP Paul Maritz
As a former executive, I've had best practices for keeping on the straight and narrow drummed into me by more lawyers and general counsels than you can imagine. First and foremost, that means keeping your actions on the right side of the law. That said, public perception can still be a harsh judge.

So, there's a lesson here, not just for executive officers and directors, but for everyone who lives and works in a nation governed by laws and influenced by the media. If you don't want it plastered across the front page of the Wall Street Journal, then don't put it in writing. Period.

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