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In 1994, in the wake of Winkelman's departure from the firm after he'd been passed over for the top job at Goldman in favor of Jon Corzine (now governor of New Jersey), Blankfein was selected to run J. Aron. His appetite for risk quickly surfaced. In 1995 he chided his fellow partners for being too risk-averse and promptly left a conference room where they were meeting to place a multimillion-dollar bet with the firm's money that the dollar would rise against the yen. Blankfein's bet — one of his favorites — paid off, and he impressed his partners as a prudent risk taker. He would do the same thing — exhort them to take greater risks — 10 years later and then persuade them to reverse course after December 2006.
In December 2003 he was named Goldman's chief operating officer and co-president after the departure of John Thain — Blankfein's rival to lead the firm — who left to become CEO of the New York Stock Exchange. By then, Blankfein had impressed Goldman's board of directors and especially Paulson, then the CEO, with his tenacity, ambition and hands-on management style. "Hank became increasingly concerned about whether [John] Thornton or Thain" — the co-presidents of Goldman before Blankfein — "would assume responsibility for the business units and show they could run things," says a former Goldman partner. "Lloyd showed a willingness to assume responsibility." Paulson and Blankfein became an effective team, with Paulson globetrotting and hobnobbing with clients and Blankfein assuming more and more operational control of the firm. Year after year, the company was earning billions. "Lloyd made everything run," says the former partner.
Defending Goldman's Crown
When, in July 2006, president Bush tapped Paulson to be Secretary of the Treasury — in the great Goldman tradition — Blankfein's journey from a Brooklyn housing complex to the pinnacle of American capitalism was complete. By then, all of Blankfein's quirky bad habits had been eliminated too. Blankfein has since become a snappier dresser, has lost weight and has given up smoking and gambling. He shaved his once unsightly beard. "I wasn't going to make myself taller," he once quipped when asked about his transformation. He in effect reduced the risks in his personal life as he ratcheted up the risks — prudent, to be sure — that Goldman was taking under his leadership.
He is now exceedingly wealthy. In 2007, the year of Goldman's record profit, the board paid him $68.5 million, a record payout for a Wall Street CEO. His 3.4 million shares of Goldman are worth about $540 million. He bought a tony $27 million Manhattan apartment at "Wall Street's new power address," as the New York Times called it, 15 Central Park West. He also owns a 6,500-sq.-ft. (600 sq m) home in Sagaponack, N.Y., near the ocean.
Goldman's CEO and other top execs are set for another huge payday this year, although some of his former partners wonder about the backlash against him and the firm as a result. Blankfein is worried too. How is he to juggle the firm's great success — and the attendant increasing bonus expectations of the high achievers working at the firm — with the inevitable public outcry that will result from paying out multiple millions of dollars in bonuses at a time when people all over the country are still reeling from a financial calamity largely of Wall Street's making?
Figuring out how to balance the proper ongoing motivation of some of the nation's best and brightest people with the still simmering public anger toward Wall Street — and, at the moment, toward Goldman Sachs in particular — may be Blankfein's biggest management challenge yet. And he knows it. "Everybody's goal in life is to get 105% credit for all the good things they do and much less recognition for all the bad things they do," he says. "But with us, bizarrely, the view seems to be, What's good is bad and what's bad is good. There's clearly some resentment. There are people who are disposed to think that because we were careful and successfully avoided many of the pitfalls, it should be thought of as some kind of conspiracy."
Blankfein is convinced that Goldman Sachs is good for its clients, for the world's capital markets — and yes, for America as well. "I would like for us to be thought of as always doing the right thing and for people at the firm to be confident that they are doing the right thing," he says. Now if only he could get the public to see things this way too, he'd be all set.
Cohan, a contributing editor at FORTUNE, is the author, most recently, of House of Cards: A Tale of Hubris and Wretched Excess on Wall Street