No doubt Goldman Sachs was hoping for a better PR year in 2011, but a Facebook offering debacle and a widely-criticized business practice review set the bank off on a rocky start. So what good can come from the fumbles? Leadership lessons for us all.
By Eleanor Bloxham, contributor
The calendar pages have turned to a new year and already Goldman Sachs has found itself in hot water, again.
No doubt, Goldman (GS) was hoping for a better PR year in 2011 and frankly, many people were pulling for them to have one. (We like to see companies turn around and overcome their struggles.)
So what good can come from their missteps? Leadership lessons for us all.
Lesson One: Results count more than membership.
Goldman’s 67-page business practice review has some big name contributors, including Arthur Levitt, senior advisor of The Carlyle Group and former chair of the SEC, and oversight from notables such as Goldman director and author of Authentic Leadership Bill George.
But that hasn’t stopped criticism of the report.
Just as a board of directors will be judged by its actions — not the big names that sit on it — all groups are ultimately judged on their results, not their membership.
In the past, this wasn’t always the case. But with the host of disappointments from household names during the last decade — and amazing success stories from upstarts and relative unknowns like Facebook – results-based judgment has become nearly universal.
Lesson Two: A failed defense may not be your best “new strategy.”
All last year, Goldman defended itself on the Abacus case, and, more generally, on its involvement in the financial crisis, by saying it was simply doing what its clients wanted.
Most people found that to be a weak defense of its actions given the ripple effect on both the markets and the economy and the widespread harm caused by the financial crisis.
Yet the very first section of the new Goldman business practices report (after the structure of the report section) is entitled Client Relationships and Responsibilities. The report states: “We believe the recommendations contained in this report represent a fundamental re-commitment by Goldman Sachs: a re-commitment to our clients and the primacy of their interests.”
Lesson Three: Stand for something. You can’t please all possible clients all the time.
While the business practices report discusses the primacy of client interests, this approach fails to recognize that different potential Goldman clients can have very different interests. In fact, in defense of its actions last year, Goldman itself reminded its accusers that clients often take opposite sides of the same deal. (The report generally punts on this issue, saying senior management or an appropriate committee will decide how to respond.)
So when Goldman is saying it has made “a re-commitment to our clients and the primacy of their interests,” which of its clients’ interests are primary?
Lee Scott, a Goldman board member and chairman of Wal-Mart (WMT), helped oversee the business practices report and should understand the importance of the question: who is the client we are trying to serve?
Wal-Mart doesn’t try to serve all possible clients. It tries to serve its target clients well: those who want low, low prices. Wal-Mart doesn’t make every potential client primary. It chooses who it is (i.e. its mission) and then does its best to attract the people who want what it offers.
That’s something every company must do — it must stand for something that potential clients can then choose to support or not.
Lesson Four: Remember that clients aren’t your only stakeholders.
The business practice review report had five major recommendations: strengthening client relationships, strengthening reputational excellence, strengthening committee governance, enhancing transparency and disclosure, and strengthening training and professional development. Other than enhancing transparency, all of these recommendations concentrated on improving client relations, missing big opportunities with other stakeholders.
Goldman had the same mindset with the Facebook offering. Beyond their Facebook client, they ought to have focused on the impact on the markets, regulations and regulators, the general public, other clients and the media. Too narrow a focus, even a good one, will lead to a negative outcome.
Wal-Mart learned that lesson when environmentalists teamed up with other coalitions to fight the company’s practices in the last decade. The company realized they had to consider stakeholders aside from their target customers.
Lesson Five: Pursue a broad vision that inspires support. Why not do God’s work?
Last year, CEO of Goldman Lloyd Blankfein said Goldman was doing God’s work. For that choice remark, he caught all kinds of heat. But what if, in reviewing their business practices, Goldman Sachs stopped to ask, out of curiosity, what that would actually entail? While some may debate this point, the phrase “doing God’s work” typically implies pursuing a vision that inspires.
Goldman’s business practices report recognizes that sometimes a product shouldn’t be introduced to the market. But in their Facebook offering, Goldman had the opportunity to recognize the bigger issues at stake, the implications of a workaround and a private deal for Facebook. The company had the opportunity to consider whether to do business in a way that had positive or negative implications for transparency and rights in our capital markets.
John Whitehead, former co-chair of Goldman Sachs would have considered these points. During his tenure, he actively turned away client business when he thought accepting that business would have negative capital market implications by limiting shareholder rights. He refused to underwrite business that did not include equal rights for shareholders.
Wrestling with bigger vision questions and making tough decisions is what defines the character of a company, not whether they are meeting the needs of one client or another.
Whenever a corporation stumbles, there is no cause for celebration, but there are benefits in the lessons to be learned. Goldman just gave us some lessons this year a bit earlier than they were hoping to.
Eleanor Bloxham is CEO of The Value Alliance and Corporate Governance Alliance, a board advisory firm.