Goldman’s Road Back to Earning Trust, Part II
Update: March 15, 2012, Calling Goldman Sachs’ culture toxic and still focused on making money over clients’ best interests, Greg Smith– an executive director and head of U.S. equity derivatives in Europe, Middle East and Africa — left the firm yesterday. His message was that the SEC investigation, Congressional hearings, the firm’s “rigorous self examination” and efforts to restore reputation and trust, all of which I’ve written about in several previous columns have not moved the firm away from the attitudes that helped create the climate for the economic meltdown in 2008.
On the surface, the Goldman Sach’s Annual Shareholder meeting May 7, 2010 resulted in the status quo: the proposal to separate the role of chairman and CEO was defeated, all the directors were re-elected, and CEO and Chairman Lloyd Blankfein was lectured and criticized by some shareholders, but faced down those who said he should resign.
Most telling is what we can’t see yet, what is happening behind the walls of Goldman’s headquarters and locations around the globe.
At the shareholder meeting, Blankfein said Goldman was undergoing a “rigorous self examination,” reviewing all its business practices. Earlier this week, Blankfein told an elite group of clients that he wanted Goldman to “be the leader in things like ethics, in putting clients first.” And contrary to previous public statements about fighting the SEC lawsuit in the courts, Goldman’s lawyers reportedly met this week with the SEC to talk about settlement.
So let’s consider what Goldman might look like if it was a leader in “things like ethics.”
Four things come immediately to mind:
1. Goldman’s chief ethics officer would report to the Board of Directors and be expected to be a resource and advisor to board discussions involving ethical considerations. Reporting to the board ensures that role independence and that a champion for ethical issues will have a place at the table.
2. The chief ethics officer would have a dotted line reporting relationship to the CEO/chairman and be included in Blankfein’s management committee meetings; however, the ethics officer’s salary would be set by the board who would have the authority to hire and fire that person.
3. The chief ethics officer would be a member of the newly created committee reviewing Goldman’s business standards that Blankfein announced today.
4. As discussed in my previous article on how Goldman can earn back trust, Blankfein would create the tone at the top that makes it safe for employees and leaders to talk honestly about what needs to change or what needs to happen differently for Goldman to be a leader in ethics.
To look at its business practices, Goldman has the choice to re-define its culture. Leaders must figure out what the change is about: just getting regulators off its back, or getting back in touch with what is possible for Goldman as a leader in an industry that has lost public confidence and trust?
Leaders need to decide in the “new” Goldman, what behaviors should be rewarded, what becomes unacceptable, and how do they, and leaders at every level, model and stay aligned with the behaviors that are defined in the revised business standards?
Blankfein said today that there is a disconnect between how the company views itself and how outsiders view it. Ethical behavior and leadership will be essential at Goldman for the reconnect.
Ian Mitroff and Abraham Silvers, in a Financial Times Op Ed last winter, suggest that if we want to prevent future financial crises, we must look at changing the entire system of how people are hired, rewarded, and the environment in which they work.
The question for Goldman is how far is it willing to go to deliver on its pledge to become a leader in ethics.
Gael O’Brien, May 7, 2010