Goldman Sachs Group Inc.'s leaders have touted the importance of technology, and the promotion of Chief Information Officer R. Martin Chavez to CFO could turn its eventual CEO succession into a three-man race.
Goldman on Dec. 14 announced management changes that included Co-Head of Investment Banking David Solomon and CFO Harvey Schwartz being named presidents and co-COOs. The changes take effect Jan. 1, 2017, and on that day, Chavez will start as deputy CFO through April before taking over the CFO role when Schwartz transitions out of the position.
The moves were precipitated by President and COO Gary Cohn agreeing to join Donald Trump's administration as an assistant to the president for economic policy and director of the National Economic Council. By replacing Cohn with Solomon and Schwartz, Goldman selected logical choices, said Sandler O'Neill & Partners LP analyst Jeffery Harte.
"Those were the two names at the top of the list," Harte said.
Solomon and Schwartz are Goldman veterans who have held leadership roles in the company's revenue-generating securities and investment banking businesses for years. Solomon joined as a partner in 1999 and has worked as co-head of the investment banking division since 2006. Schwartz, who became a managing director at Goldman in 1999, held such positions as global co-head of securities and head of securities sales before assuming the CFO role in 2013.
Goldman previously had co-lieutenants below the CEO, but Cohn had held the president and COO titles himself since 2009 when Jon Winkelried left the company. Harte noted that the president and COO role is effectively the heir apparent to the CEO position, but he does not expect Goldman Chairman and CEO Lloyd Blankfein to step aside anytime soon.
"I'm still measuring Lloyd's tenure in years left, not quarters," Harte said.
When Goldman does eventually need a replacement, Chavez could find himself in the running, said Paul Gulberg, an independent research analyst. Gulberg said Chavez has already been a rumored successor, and through the CFO position, he will gain a better understanding of the company's entire operations.
As chief information officer, Chavez is responsible for the technology division. Gulberg said he is certain that Chavez has the ability to succeed in the CFO role, but he noted that his background is different than other top Goldman brass.
"He's more of a techy guy than a suit-and-tie banker," Gulberg said.
But Goldman leaders have been increasingly touting the importance of technology at the company.
During a conference presentation in February, Blankfein said the technology staff accounts for 25% of Goldman's headcount for good reason. He added that technology plays a vital role in decision-making, working with clients and meeting regulatory expectations.
"It is absolutely critical in our stress-testing processes," he said.
Goldman has also used technology to pursue a new revenue stream through its online lending platform, which it built in house, and to take out cost. During an investor conference in May, Cohn noted that an "electronic evolution" has impacted certain fixed-income, currency and commodities products, and Goldman had been able to reduce FICC headcount by 10% from 2012 through 2015 while compensation from the business dropped more than twice that amount. Atlantic Equities LLP analyst Christopher Wheeler noted that Goldman was able to make the compensation reductions in part by replacing traders with technicians from the desk.
"Chavez and his team have been a big part of that," he said.
Wheeler added that Chavez's promotion underscores the company's dedication to technology. Gulberg agreed.
"[Goldman] has been spending a lot of money and resources building up the technology, and that's where they believe the future is," Gulberg said.