Yesterday, a young executive at Goldman Sachs, Greg Smith, resigned in a very public way. He wrote an op-ed in the New York Times titled “Why I am Leaving Goldman Sachs.” In essence he accused the leadership of Goldman Sachs of destroying the internal moral fiber of the firm, putting profit before meeting the needs of customers, and he cited the open contempt that Goldman personnel feel toward their clients. It is a sad commentary.

The readers of this blog who are most concerned with “lean” and continuous improvement may ask, “So what does this have to do with continuous improvement?” Trust me, it does!

Step back a moment to frame this issue. The material progress of a company, country or civilization is directly related to its moral character, its culture. But, not in an instantaneous and direct way. Rather, one is the antecedent to the other.

The historian H. G. Wells made the following observation about the decline of Rome: “After the fall of Carthage the Roman imagination went wild with the hitherto unknown possibilities of finance. Money, like most other inventions, had ‘happened’ to mankind, and men had still to develop – today they have still to perfect – the science and morality of money. What happened to Rome? Various answers are made – a decline in religion, a decline from the virtues of their forefathers, and the like. We, who can look at the problem with a larger perspective, can see what had happened to Rome was ‘money.’ Money had floated the Romans off the firm ground.”

Some years ago I was speaking at a conference and this was a time when I was involved at Honda American Manufacturing. I mentioned to the audience that every morning every Honda associate meets with his or her team for fifteen minutes to discuss how they could correct any problems discovered the day before, how they could improve their work.

Immediately after I said this a hand shot up from the audience. I saw his name tag said “General Motors.” I called on him and he said “Cost justify those meetings. I can tell you that at General Motors we know the costs of stopping that line for even one second. If you can’t cost justify it, it won’t happen at General Motors.” I could only reply by telling him that he had me, I couldn’t cost justify it, I only knew that they did it.

Of course, he was right. General Motors cost justified everything. GM was run by financial managers, with the Chairman drawn from the financial group and with a financial background. He knew money, not how to make cars.

A month later I was at Honda and asked Scott Whitlock then Executive VP of Manufacturing the same question. How do you cost justify those meetings? Of course, at this time Honda America Manufacturing was led by Iri Irimajir, an engineer and Formula One engine designer, who designed an engine being produced at the very time. Scott looked at me and said “Why would anyone ask such a question?” Which of course made me feel stupid! He then said, “We just have faith, that if every day, every associate thinks about how to improve his work, we will make better cars.”

At that same time the work hours required for auto assembly at Honda was about 12 hours per car. At GM it was in the range of 22-24. Yet, at GM it was about money.

Money had “happened” to GM and the dominance of money, versus serving customers with great cars, drove GM to bankruptcy while Honda’s market share continually rose.

In 53 BC Marcus Licinius Crassus, considered the wealthiest man in Rome, and who had gained his wealth through the lending of money, who knew money better than anyone, led the Roman army against the presumed to be inferior Scythians at Carrhae where they were led into hot sand and the immobile Romans repeatedly charged on foot the Scythian cavalry that circled and fired arrows into the legions. Twenty thousand Romans were killed and ten thousand more carried into slavery, among them the wealthiest of all.

When those who lead the operations of a company are more expert in money than they are in the operations that serve customers, you are likely in decline and will not recover until your leaders care more about customer service, are expert in the operations that serve those customers, than about money. Then, money will follow.

Greg Smith said of Goldman Sachs “To put the problem in the simplest terms, the interests of the client continue to be sidelined in the way the firm operates and thinks about making money. Goldman Sachs is one of the world’s largest and most important investment banks and it is too integral to global finance to continue to act this way. The firm has veered so far from the place I joined right out of college that I can no longer in good conscience say that I identify with what it stands for.”

“It might sound surprising to a skeptical public, but culture was always a vital part of Goldman Sachs’s success. It revolved around teamwork, integrity, a spirit of humility, and always doing right by our clients. The culture was the secret sauce that made this place great and allowed us to earn our clients’ trust for 143 years. It wasn’t just about making money; this alone will not sustain a firm for so long. It had something to do with pride and belief in the organization. I am sad to say that I look around today and see virtually no trace of the culture that made me love working for this firm for many years. I no longer have the pride, or the belief.”

I have no direct knowledge of the culture of Goldman Sachs. But the fact that an executive is sufficiently motivated, negatively motivated, to publish a piece like this in the New York Times is a red flag that should trigger intense self-reflection by that firm’s leaders. It should also be a cause for all corporate leaders to reflect on their own culture, the values they imprint on their associates, particularly their young recruits.

Social capital, internal trust among members of the firm, and external trust, or what may be called brand equity, are the leading indicators that precede a decline in innovation and service; and that in turn precedes the decline in financial success. You don’t get money by focusing on money. You get money by following the path of dedicating yourself to service, service to your customers and service to your associates, and then money will follow. Those who lead the firm must be expert in what precedes money, not in the counting of fruits after the harvest created by others.