Goldman Sachs Group Inc. (NYSE: GS) just months ago settled with the SEC and paid the largest fine in history. Today, the firm continues to change the way it does business in an effort to restore the glory, and confidence of investors. Goldman’s last effort is an ad campaign, carefully crafted to show that the firm creates jobs in a troubled economic time. In addition, the firm has pledged to change the way it relates to clients, investors, and analysts.
Following the SEC allegations in May, Chief Executive Lloyd Blankfein commented “there is a disconnect between how we view the firm and how the broader public perceives our roles and activities.” The criticism of Goldman has been loud and consistent for nearly two years. Couple the public opinion of banks with Goldman’s role in the subprime mortgage derivatives, and the storied firm has faced unprecedented waves of critics.
To improve investor relations practices, the firm hired a new vice president who has publicly advocated some changes Goldman has resisted in the past. Bess Joffe, who started at Goldman this month, had worked for London-based shareholder-advocacy firm Hermes Equity Ownership Services, and pushed companies to change their boards and to improve disclosure in the past. While at Hermes, the Canadian-trained attorney was involved in a successful push last year by shareholders of Bank of America Corp. (NYSE: BAC) to split the roles of chairman and chief executive amid several investigations into the bank’s CEO at the time, Kenneth Lewis. Ms. Joffe has acknowledged there is no one blanket solution for every firm, and earlier this year the firm’s shareholders voted against a proposal to split the roles.
Hermes is well known for having been vocal about banking-industry pay and risk management. The group believes pay should be tied to creating value for shareholders over the long term, not just short-term earnings. Charles Elson, head of the John L. Weinberg Center for Corporate Governance at the University of Delaware commented “Hiring Bess was a smart move. The question is whether they listen to her or not.”
Goldman’s Business Standards Committee is examining conflicts of interest and attempting to set guidelines for the firm’s activities involving structured products such as collateralized debt obligations. It is also deciding whether or not to make more disclosures in its financial reporting. Outsiders question the effectiveness of this committee though, citing the fact that it is staffed mostly by insiders at the firm therefore less likely to pose fresh independent ideas that often come from external board members.
