Goldman Sachs

Business and Society: Taking Responsibility

This is not going to be a long post, because you know what you need to do and what your responsibilities are - both as part of business and part of society.

Recently, I was asked to update a White Paper I wrote a few years ago for the Chartered Institute of Management Accountants on corporate reputation. Part of what I was asked to update are the case studies - and that got me looking closely at what had changed in the years since I first wrote the thing. And that got me looking at Goldman Sachs.

Did you know that within a month period Lloyd Blankfein, Goldman's CEO, gave an interview where he explained that people were going to have to lower their expectations of the government help they receive (everything from Medicare and Social Security to Veteran's benefits, Disability and Food Stamps) because the Government simply can't afford it and made the decision to pay his executives their 2012 bonuses a month early so that they would miss the tax increase that was occurring as of January 1, 2013?

The optics of the decision were bad enough.

It's the fact that he preceded it by telling those who can't afford multi-million dollar homes, let alone multi-thousand dollar suits, that they have to change their expectations...because people like him were going to make decisions making sure that others' living expenses couldn't be met...that makes it worse.

Because it didn't matter. Not to him and not to his company.

That has to stop. Business leaders - at all levels from micros- and SMBs to multi-nationals - in all industries and sectors need to recognize that they have a greater responsibility to society than just making their businesses a success.

That shareholders are societal stakeholders, too - and that the other stakeholders who don't hold shares are directly and immediately impacted by the financial and other decisions that executives and board members make.

There's nothing wrong with making money. In fact, there's nothing wrong with making lots of money if that's what you want to do.

But this is more. This is a business industry-driven social change that looks beyond the next day's profits or next quarter's analyst meeting and recognizes that there really is such a thing as a greater good that business - more than any other entity - is designed to achieve.

Do that. Look at the decisions you make - from employee benefits to environmental impact and beyond - to see exactly what impact you and your business are making on your world every day.

Then make it better.
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Reputation: Why It Matters and How You Can Manage It (CIMA original version - I'll let you know when the update is live)
Reputation and Profits: The "Good Corporate Citizenship" Question (llk)

Genius or Sucker? The Dilemma of Being a Goldman Sachs Client

So there you are - a bazillionnaire. Or, possibly, someone responsible for overseeing the bazillions of others. Like the investment manager of a pension fund.

You're always being approached by the Big Boys - from investment banks to private equity houses. They want your money. And why wouldn't they? After all, their job is to turn your money into more.

But for whom?

That's the big question - now more than ever - if your bazillions ever touch the corporate shores of Goldman Sachs.

All because of Greg Smith.

If you've missed the excitement, Mr. Smith resigned from Goldman in a big way. Fifteen minutes after emailing his resignation to management, his NY Times Op-Ed piece was published.

That one little piece of personal journalism led to media hordes over-crowding outside Goldman's portals, innumerable articles being written on every conceivable platform and medium and commentators of all kinds (yours truly included) talking about the lessons learned and yet to be learned.

Which brings us back to our bazillionnaire Goldman client - because, let's face it, Goldman only deals with bazillionnaires. Even the low end of the 1% isn't that interesting to them.

The question for this person, based on all the media coverage, is: So? Are you a genius or a sucker for doing business with these guys?

Why that has become just as compelling a question as the hue and cry that Mr. Smith's writing raised is because it makes one wonder.

Here's a company that has been indicted and settled with the Government (to the tune of $550 million) as a result of their 'questionable' practices toward their clients. Like selling an investment instrument to their clients that another client developed specifically to bet against the suckers who were doing the buying.

Nothing like having your cake and eating it, too - especially because Goldman was making money on all sides of the deal.

And that's just one case. There are others still pending.

Because what everyone learned is that rich people are just as big suckers as everyone else when they get just the right pitch from just the right person. Or company.

Which leads us to the clients - anonymous and otherwise, individual and institutional - who are telling anyone who's willing to listen that they know what Goldman is doing. That they've known it all along. That there's no surprise there.

And that means, of course, that even as they were doing business with Goldman, they didn't trust them as far as they could throw them.

Or so one hopes - especially if that client is a fund manager who has just dumped a good portion of what will be your retirement into Goldman's - or, to be fair, most any other investment bank's or broker's - hands.

Where does that leave us?

The answer is: With a system that is gamed by the institutions that pay big bucks to hold the cards by pushing legislation exactly where they want it to be. On their side. With no accountability in sight.

Until that changes, all the Greg Smith's and unhappy bazillionnaire clients will just have to take it as it comes.

As suckers.

[This article was published on Technorati.]

Goldman Sachs' Culture: When Making Money Isn't Enough

You know you've hit a nerve when not only are the Twitter stream and blogosphere overrun with comments and links - but the originating publication has to close its comments on your article because the volume has become too much...and run a live blog on the commentary that has ensued.

Normally, you'd think that this is a Lady Gaga announcement about her new Foundation getting her Little Monsters going. Or Justin Bieber doing something Justin Bierber-ish. Or something.

But no. This is Greg Smith's doing.

Who's Greg Smith? You might well ask - because, until today, unless you knew who he was there was no way you'd know his name. Or need to. Or care.

Mr. Smith is - until tomorrow - an executive director of Goldman Sachs and head of their US equity derivatives business in Europe, Middle East and Asia.

Now, because he's written an Op-Ed piece for the NY Times taking the lid off of Goldman so that we can all see what he's been seeing - and what has led him to decide to resign - there's no stopping the commentary. For the business and finance types - and everybody who's still angry at all the banks and investment houses that caused the 2008 crash - he's the ultimate celebrity.

It's better than who the contestants are for this round of "Dancing with the Stars"...by a long shot.

In fact, as interesting as what Mr. Smith has to say - and he doesn't pull his punches - the reaction from within and outside Goldman is just as compelling.

First, let's start with what Mr. Smith wrote about his soon-to-be former employer. Then we'll take on what his well-written rant has wrought.

Integrity and Disillusionment

When Mr. Smith joined Goldman twelve years ago, it was an organization that respected its clients.  Now, not so much.  In fact, from what he describes, not at all.

How could they be respected when it's acceptable for staff to refer to them as "muppets" and the best way to move up Goldman's corporate ladder is by:
  1. Persuading clients to invest in stocks or other products Goldman is trying to "get rid of" because they don't have a lot of potential profits
  2. Getting your clients to trade "whatever will bring the biggest profit to Goldman" and
  3. Trading any "illiquid, opaque product with a three letter acronym."
What he describes - and is the basis of his decision - is that any integrity attached to selling clients a product that is in their best interests is gone.  That's because the culture has shifted so that the only focus is on making money for the organization, itself.  Not its clients.  For Goldman.

Which makes its clients roadkill.  Institutionalized roadkill.

He puts the blame for this directly on the current CEO, Lloyd C. Blankfein, and President, Gary D. Cohn.  As far as Smith is concerned, the two titans leading the organization lost sight of what had been the culture long ago - and this is the outcome.

For Mr. Smith, who had real pride in having gotten a job at Goldman, moving up the ranks and, most particularly, pitching the company as the go-to answer for best-of-the best graduating students, his own integrity was on the line.  His disillusionment with this company he loved - and which had treated him so well - was complete.

Which leads us to what the rest of the world has to say.

From Within and Without

Not unexpectedly, Goldman is doing its best to counter the arguments that Smith put forward.  Citing everything from employee surveys to their own personal commitment to clients, Blankfein, Cohn, et al are doing their best to make it seem as if:
  • what Mr. Smith describes is a surprise to them
  • there's no basis for his comments and,
  • he never said anything about it to them anyway - so  there was no way they could have known of his perception or his disillusion...
...which, of course, is wrong.  So they say.

As for the rest of the writing/blogging/Tweeting/commenting world, the reaction depends, in part, on which side your bread is buttered.

For those who want to stay in good with Goldman (which, after all, is still one of the largest, most successful investment banks in the world), the tendency is to demean Smith.  That's typical and to be expected.

Among the financial types, there's a lot of skepticism with not a lot of support for Mr. Smith or his position.  Of those, though, the most surprising to me came from Joshua Brown on his blog, The Reformed Broker.

Brown is a Vice President at Fusion Analytics and the author of Backstage Wall Street - an expose of how Wall Street really works.  So, while he states, quite correctly, that there's nothing new in financial service companies like Goldman being out for themselves - to the point that he cites Goldman's complicity in moving the 1929 Crash forward after they had protected their assets - given his intolerance for the behaviors of his Wall Street brethren, his impatience with Mr. Smith's Op-Ed was unexpected.  At least to me.

Which leads us to the leadership lessons learned from this very big and public debacle for Goldman.  If you're the leader of your organization:
  1. Make sure you're clear about what you want your organizational culture to be, and
  2. Make sure your employees know - and are rewarded - for perpetuating that culture.
Most important, if the culture of your organization is not something you'd want discussed by everyone and their cousin on the front page of every newspaper, blog and Google News search, either do something about it or find a way to rewrite your employee handbook's section on proprietary information, non-disclosure and confidentiality.

Because, if you don't, one day you may find yourself with a Greg Smith on your hands.  And it's not pretty.

Just ask the boys at Goldman.

[An earlier version of this article appeared on Technorati.]

Goldman Sachs, Facebook and the IPO - 2012 It Is


It's official. Sort of.

According to a CNBC Report, Facebook is most likely having its IPO in the first quarter of 2012. And Goldman Sachs will be leading the way.

Not, necessarily, that Facebook particularly wants it to happen then. It's that it's going to have to - because of 'the 500 rule.'

You see, by law - the 1934 Securities and Exchange Act, to be specific - when a company has 500 investors, they can't be considered private any longer. By law, they're considered public. And that means an IPO.

Nice for Facebook, though, its valuation is coming in at over $100 billion.  Especially since, not that long ago, its valuation was only $75 billion.

Which brings us back to Goldman Sachs.  Because the game changed - and the Facebook valuation skyrocketed - when Goldman established a fund, first, of $375 million of its own and its clients' money to invest in Facebook and then an additional Facebook investment fund of $1.5 billion.  But that was for its foreign investment clients only.

Because of that pesky 500 rule...which they tried to get around by saying that with all the investors being foreign, the fund, itself, could be considered one investor!

You gotta love Goldman.   And Facebook.  They're quite the pair.

Too bad "friending" Facebook won't give you the inside track for "friends and family" share access for the IPO.  Now that would be a "Like" that everyone would want!


(Originally published on Technorati.)

How Warren Buffett Makes Goldman Sachs Look Good

When Goldman Sachs' reputation as 'honest brokers' started being shredded by their real and perceived actions leading up to, during and after the 2008 economic crash, they had to do something. Fast.

And they did. To show their commitment as citizens, they introduced 10,000 Small Businesses, a $500 million investment "to help create jobs and economic opportunity in the United States."

To be fair, this is a good thing.  Investment is always good - particularly in small businesses.

But don't mistake Goldman's largesse for pure-play money - either their own or others.  According to their materials, the "investment" includes:
  • Practical business and management curriculum
  • Access to capital
  • Critical support and consulting services.

And while that's good, too, they don't specify how much investment goes into each category.

But, they do bring Big Name guests.  Like Warren Buffett.

Buffett, you may recall, saved Goldman's bacon when the crash occurred by lending the firm $5 billion in 2008 when they needed a cash infusion.  That was one seriously good investment for Buffett's Berkshire Hathaway Corporation as it netted Berkshire a $5.64 billion payback less than three years later.

Buffett took a lot of grief from that decision - not least at his annual shareholder meetings. Because Buffett, whose reputation he keeps sterling, was suddenly seen as complicit in helping the company that had become the poster child for greed.

Now, that's in the process of changing.

The 10,000 Small Businesses initiative has graduated its first class of 30 small business owners - and they come from New Orleans.

It's a PR move that can only bring good reactions.  After all, it's Goldman Sachs helping New Orleans which is still recovering from the Hurricane Katrina aftermath - all being fronted by Warren Buffett giving words of encouragement and advice.

That's no small thing.  Buffett is known for making his corporate purchases based as much on the target company's management - and particularly its senior executive team - as he is on the numbers they produce.  Because Buffett always keeps the management team intact.  After all, they created the success. 

Why would he want to get rid of them?

(Full disclosure: One of my client companies was purchased by Berkshire Hathaway.)

Whether Goldman Sachs will ever completely recover its reputation in the eyes of the wider public is still an open question.  But, for the moment, the feel-good factor is there and they're moving in the right direction.

At least as far as small businesses are concerned.

(Originally published on Technorati.)