To those doubting that an investment in ethics has a sizeable business return or that ethical leadership is a legitimate risk mitigation strategy, consider the gargantuan distraction and investment of human and financial capital Goldman Sachs must make as a result of the events of the last two weeks. A recent example, the firm has hired crisis management expert Mark Fabiani who handled President Bill Clinton’s Whitewater scandal.
Since April 16, 2010 Goldman Sachs stock has dropped 21 points. Impacting the plunge was the SEC fraud suit and the announcement the Justice Department was opening a criminal investigation of the mortgage securities the firm arranged.
Goldman’s scant evidence of ethical standards and behavior in its responses to the Senate Permanent Subcommittee on Investigations and the impact of the downgrading of its Tiffany reputation on the company are discussed in previous columns.
Bad PR and trying to manage the fallout of federal scrutiny are top issues for Goldman, but equally critical is what the 140-year old icon will do to begin to earn back trust. Watching Chairman and CEO Lloyd Blankfein answer questions last week before the Senate subcommittee was like watching the scene in “The Wizard of Oz” when Toto pulls the curtain back to reveal that the actual “wizard” is just a small man using a big machine to create the illusion of omnipotence.
Blankfein’s leadership is under attack. As earning back trust starts with him, his job becomes more difficult. To begin the process, he’ll need to suspend the conviction that Goldman is right so he can listen to information he would otherwise not hear as he seeks to make the best decisions. Essential to that will be his creating a safe environment where truth can be spoken to power.
Here are five suggestions:
1. The Annual Shareholders’ meeting on May 7, 2010 is a critical forum. By Blankfein’s authenticity, vision, and commitment, it must be clear what Goldman intends to do to regain trust. Media reports indicate Goldman intends to change some practices to ensure investors understand risk involved. Whatever changes made need to go far enough to be best practices in the industry, not just what should have been in place all along.
2. Blankfein should look at Goldman’s culture and how ethical behavior shows up. He should invite some renown ethics thought leaders to meet with him privately to give counsel, starting with a member of his board, Bill George. Others whose insights on ethics and trust would be valuable include Keith Darcy, W. Michael Hoffman and R. Edward Freeman. Freeman has been a leader in the Business Roundtable’s Institute of Corporate Ethics’ report on The Dynamics of Public Trust in Business.
3. Blankfein should meet individually with a few dozen of Goldman’s opinion leaders – men and women at various levels in the organization who have influence rather than authority – to give him off-the-record insight into how Goldman can do a better job of articulating and modeling internally and with clients the values of “honesty” and “integrity” the firm says is part of its 14 Business Principles.
4. Regulatory reform will happen with or without Goldman’s leadership so Blankfein should determine if he wants Goldman to be known for stepping up to help Wall Street begin to regain public and federal confidence. If so, Goldman will have to show dynamic leadership previously missing. Blankfein could start by taking Sen. Carl Levin (D-Michigan) up on his invitation for Goldman to help senators cut thorough the complexity as they seek to understand his industry and create effective regulatory reform.
5. Blankfein and his legal team and other advisors need to determine the financial and reputation costs of a vigorous defense of the SEC fraud charges versus a settlement. Having been cast as the poster child of greed and perceived unethical behavior, the symbol of a Wall Street run wild, Goldman could choose to define for itself a leadership role in helping the SEC ensure that loopholes and technicalities don’t create opportunities for investors to be defrauded. Or, given its rich expertise and thought capital, Goldman could develop a 10 point plan to improve industry transparency and offer it to the SEC.
Earning back trust isn’t hard. You just have to deserve it.
Gael O’Brien, May 3, 2010