Tag Archives: Goldman Sachs
Schadenfreude. That’s what a lot of people experienced earlier this year, when a mid-level equity derivatives trader used the editorial page of The New York Times to announce – quite publicly – his resignation from Goldman Sachs. In an era of sharp political polarization and growing economic inequality, Goldman is either a lightning rod or whipping boy (depending on your metaphorical preference) for all of the frustrations that ordinary people feel about the lopsided distribution of power and wealth in the United States. It was easy to snicker at the firm’s bad luck. After all, it was Goldman.
But as they say, pride goes before the fall. The advent of the 24-hour news cycle and explosion of social media channels have created a culture in which a single employee can cause virtually any employer irreparable harm in a matter of minutes. All that it takes is a Twitter handle and an Internet connection.
Leaders often cite the importance of culture in driving business performance, but increasingly, employees are calling bull@#!% when what they see doesn’t match what their employers say. Culture doesn’t just happen. Like reputation, companies have to build and earn their workplace environment and ethos. Culture is driven first and foremost by what leaders do – the values they demonstrate, the choices they make. Once a cultural foundation is established, bolstering and protecting that culture is largely about communications: Have you articulated your values and demonstrated them consistently? Do you tie key decisions and events to the cultural “why”? Do you reward employees for living those values? If leadership is the cultural spark, communications fans the flame.
While most people would readily agree on the importance of culture to business performance and to reputation, few act on it. MWW Group surveyed 100 business leaders and professionals on this very topic, and the results were astounding.
Our findings include:
- Three out of four business leaders believe corporate that reputation is substantially driven by their internal corporate culture. In fact, respondents overwhelmingly believe that culture is far more import than trade, industry or consumer media to their reputations. Nearly nine out of ten indicate that communications is a significant driver of culture.
- While three-fifths of respondents are at least moderately concerned that they could experience a “Goldman Sachs”-type incident, 60 percent are not currently considering proactive measures to protect themselves from such an event.
For communications professionals, the implications are clear. We have a mandate to counsel our clients on the interconnectedness of internal culture and external reputation. And we need to be prepared to help them use communications to foster that culture. Acknowledging the central importance of internal culture is only half the game. Without an integrated and ongoing dialogue that conveys the tenets of that culture and draws employees into a conversation about that culture, your company could be the next Goldman Sachs.
I’ve said it before…reputation begins at home.
Chesapeake Energy CEO Gets Fracked
May 2, 2012
In the annals of corporate perks, Chesapeake Energy made the Top 10 list by allowing co-founder and CEO Aubrey McClendon to buy into 2.5 percent of every well the oil and gas company drilled. Even better, Mr. McClendon paid for the very lucrative perk with personal loans he arranged with companies Chesapeake did business with such as Wells Fargo and Goldman Sachs, an innovative new spin on payola.
The story gets even better. At first, the Company, through its general counsel, said that the Chesapeake board “was fully aware” of the very comfy financing arrangements. But then with the glare of media lights and the scorn of shareholders upon them, the board walked it back and provided a public clarification that it was only “generally aware” of the deals that had Mr. McClendon use his stakes in the Chesapeake wells as collateral. Not sure how close “generally” is to “fully” but it looked to provide some cover.
The parsing of words did not do much to quell the shareholder outrage and today word comes that Chesapeake’s directors have forced Mr. McClendon to step down as Chairman. All this comes after shareholder outrage last year forced the board to rejig Mr. McClendon’s compensation to make it performance-based, a concept that seemingly took some time to reach the old-boy and one-girl board in Oklahoma.
Chesapeake, which calls itself “America’s Champion of Natural Gas” on its website homepage, touts “Bold Moves, Big Future” but unfortunately, Mr. McClendon’s bold moves for his personal gain combined with rock-bottom natural gas prices have smacked the Company’s stock price and made many question the oversight and independence of its board. The board of directors’ influence on a corporation’s reputation is probably greater now than it ever has been and missteps can counteract even the best corporate responsibility programs.
Directors need to be not only on top of all that goes on in the companies they serve but also the reputational impact of what they do and what they say. New regulations on things like “say on pay” (as Citigroup recently found out) are just part of the brighter spotlight and great scrutiny on boards. Communications expertise and issues/crisis management counsel must no longer stop at the executive suite. Smart boards, when faced with situations like Chesapeake, need to examine closely not only their words, but the optics, because it all plays out from share price to corporate standing to the bottom line.
What every company should learn from Goldman Sachs
March 14, 2012
I’m sure the water coolers on Wall Street are buzzing over this piece, “Why I am Leaving Goldman Sachs,” which appeared in today’s New York Times. The world’s communal water cooler – Twitter – certainly is.
A damning recitation of changes in culture, lack of ethics and putting profits ahead of people – this piece confirms what we all suspected was happening behind the scenes at the big banks, but until now, couldn’t prove.
It certainly isn’t the first time these accusations have been leveled at Goldman Sachs or any of its investment bank peers. But unlike most exposes, this isn’t informed by unnamed sources or disgruntled employees firing back after dismissal. Rather, this is the tale of an executive who worked his way up from an internship at Goldman Sachs, who once believed so strongly in the core mission of the firm, he appeared in the recruiting video shown at every college campus in the nation.
But after 12 years at the firm, he could no longer look recruits in the eye and tell them Goldman is a great place to work. And so he did the noble thing – he left. And then he wrote this piece, powerful in its simplicity, notable in its lack of exaggerated accusations, and backed by the ultimate action – walking away from a great, presumably high-paying job.
No doubt the pundits and spin doctors will have loads of advice and counsel to help Goldman Sachs counter this piece and discredit its former executive. But these approaches are ill-advised, only reinforcing his main message: the culture at Goldman is indeed, awry.
In my view, his most serious accusation is his assertion that Goldman leadership lost hold of the culture – and replaced it with one where it was all about profits for the firm, not about what was best for the clients.
Let this be a cautionary tale for every professional service company – when you put your own needs ahead of your clients, you’ve lost your way. When that event becomes commonplace, you’ve lost your culture. What comes next? Losing your clients, and ultimately your business.
A professional service firm should be professional, and it must serve. To borrow from SNL’s Coffee Talk – discuss amongst yourselves.
My advice for Goldman? Demonstration is more powerful than discussion. When your reputation is under attack, these issues can only be fixed from the inside out, leading with your policies, your people, and more importantly your practices. To be the gold standard again, Goldman needs to act like it. Employees need to understand that the firm is only as good as the actions and choices of each individual. Reputation, like charity, begins at home.
Next, clients need to be assured that their interests are being served, above all else. That, more than profits, their business is what matters most. But trust isn’t earned in a day – it’s earned every day. So keep working hard every day to build it back.
Finally, understand that there is no silver bullet or easy fix to counter the proponderence of evidence that something is amiss at Goldman Sachs. Might some bold, symbolic moves or changes be helpful? Sure. But, while reputations can be blown in an instant, they can only be repaired slowly, over time. Start now.
It’s earnings season, and despite the daily headlines about the recessionary economy, the earnings reports haven’t been all bad. Today, GM reported that it tripled its profits from last year. Whole Foods reported its best quarter in five years. Goldman Sachs disappointed the street with quarterly earnings of $2.74 billion. MasterCard profits are on the rise. Big oil, same story.
Healthcare, energy, banking and financial services are trending well – something that their investors expect, and appreciate. But how successful is too successful? Particularly when gas and milk are both costing nearly $4 a gallon? When millions of Americans are uninsured or can’t afford their prescriptions because they’ve lost their jobs and can’t afford private healthcare? Do companies run the risk of reputational backlash when their success is perceived as being “on the backs” of their employees, their customers or their communities?
This is a tricky equation. A growing profitable business creates and preserves jobs, provides much needed tax revenue to our communities and fuels growth of our stock markets and our economy. I think the answer to this question is “it depends.” When necessities like food, gas, healthcare and heating your home are viewed as “unaffordable” for many Americans, record earnings growth, big bonuses and other symbols of so-called “corporate greed” can create real reputational challenges. This is where the communications becomes very important…the difference between applause and reputational backlash is all about context. What will the Company do with those record profits? Who will benefit (in addition to the shareholders and leaders of the company)? What new employee programs can be funded? How many people will be hired? What investments will you make in the future?
This is why investor relations and financial communications professionals can no longer just think about their messaging and narrative exclusively through the lenses of Wall Street’s response – management’s commentary and company news spreads through the twitter-verse in minutes. Your financial performance is relevant to consumers, communities, regulators and elected officials. And it is reflected in both your valuation and your reputation.
The Oracle of Omaha Redux
May 2, 2011
What a difference a month makes. Last month Warren Buffett was praising David Sokol, his erstwhile successor who made a hasty departure amid the scent of an insider trading scandal, as a great guy whose purchase of Lubrizol shares prior to the Oracle of Omaha buying the Company “were not in any way unlawful.” At this weekend’s Berkshire Hathaway annual meeting, normally a lovefest for 40,000 Buffett shareholders and devotees, the Oracle used words like “inexplicable”, “inexcusable” and “very damning evidence” to describe Sokol and what now looks like share purchases that will end with a perp walk.
Buffett is legendary for his investment acumen and vigilance regarding his and his firm’s reputation. After a month in the media spotlight regarding the Sokol/Lubrizol affair where questions swirled about what the Oracle knew and when he knew it, whether he was just getting too old and was off his game, or whether he was just a hypocrite when it came to Sokol, Buffett came clean and admitted that he “obviously made a big mistake.” Time will tell whether Buffett’s reputation took a hit. He has built up considerable good will over the years and the Sokol fiasco as well as the big hit to Berkshire Hathaway profits in the first quarter as a result of insurance losses will likely not do lasting damage to the man or his company’s reputation.
The Sokol/Lubrizol affair is just the latest example of the response to a crisis situation creating seemingly more problems for a company and its executives than the crisis itself (think Toyota, BP, Goldman Sachs and Johnson & Johnson). Crisis communications 101 teaches that you take control of the message quickly, be transparent, only release information on what you know and never speculate. From the start, Berkshire Hathaway dropped the ball, whether due to Buffett’s loyalty to a key member of his team or just not knowing the facts. The media jumped all over the issue and for a month reveled in discussing the seamy details and timeline of events, repeating Buffett’s reputation mantra and highlighting the ode to Sokol in the company’s press release.
Now, a few weeks late, Buffett has held forth on the issue and provided a mea culpa. Charlie Munger, Buffett’s right hand man summed it all up nicely at the annual meeting in typical Berkshire Hathaway understatement when he admitted that it “wasn’t the most clever press release in the world.” It also wasn’t the most clever way to respond to a crisis and that should be the lesson for the normally very clever Oracle and the rest of us.
Goldman Sachs – Vampire Squid or Snake Pit?
April 15, 2011
While it pales in comparison to Rolling Stone reporter Mike Taibbi’s famous description of Goldman Sachs as “a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money,” Senator Carl Levin (D-MI) added his take with the release of yesterday’s Senate report on the financial crisis calling the House of Blankfein “a financial snake pit rife with greed, conflicts of interest, and wrongdoing.” The report itself points accusing fingers across Wall Street for everything short of murder in the run-up to the financial crisis and lambasts Washington for either being too cozy with bankers or asleep at the wheel. Yet the most robust criticism and best reading is that related to Goldman Sachs.
In his remarks, longtime anti-Goldman crusader Levin spoke of DOJ and SEC investigations and perjury charges from misleading testimony before Congress. This has led some commentators to get almost giddy about a new round of perp walks for some of investment banking’s glitterati.
A focus of the Senate report was Goldman’s bet against the mortgage market while it also was playing games with its clients and the market in general. Goldman reaped some killer profits but in the last few years, it has been those who have shorted the reputation of the former paragon of investment banking and its beleaguered CEO Blankfein, who have been the winners.
A Goldman statement regarding the Senate report said that the firm “disagreed with many of the conclusions,” but said it did “take seriously the issues explored by the subcommittee.” So what does Goldman do now?
In reaction to the Goldman-bashing of the past few years, the firm has issued a number of mea culpas (and refrained from referring anymore to doing God’s work), published a list of 39 things it promises to do better in managing conflicts and client relationships, initiated some big ticket philanthropic efforts to rebuild its image and even paid $550 million to the SEC for indiscretions with CDOs. It all hasn’t bought them much loving.
Since words, self-improvement plans and throwing around a lot of money has not worked, it may be time for Goldman’s board to consider some changes on the executive wing. New leadership, a more humble approach and some quick and decisive action on the issues raised in the Senate report could stop the reputational bleeding at Goldman and help the firm take the initial steps to rebuild its reputation. We may still see a perp walk but perhaps the allusions to squids and snakes will begin to fade away.
The Importance of Context
January 20, 2010
The New York Post is reporting that Goldman Sachs is delaying its bonus announcement until after it reports earnings – and after the other big banks report theirs. The official party line is this:
“It’s important to have context of earnings before we start communicating compensation.”
Ahhhhh, the elusive but all important context.
In the area of reputation management, we talk about context, and things like benchmarking, a lot. In fact, we often counsel clients that when handling an important issue, context is king. Stakeholders need to understand what to think about your news, and how it stacks up to others, and where it fits into the bigger story of your reputation. The notion of context is pervasive and accepted — we see performance relative to peers reflected in share price valuation, teachers who grade on a curve, and even employee performance evaluations.
But in this case, the idea of waiting for context feels like a parlor trick designed to allow Goldman’s peers to take the lion’s share of public reaction to the fact that the banks are giving bonuses at all. This storm started brewing 2009 when the banks accepted TARP funds, and as coincidentally began repaying them as discussion of Wall Street bonuses in Washington heated up, in what some would describe as another parlor trick – repay the money to avoid government intervention and public backlash.
In a time when 10% of Americans are out of work, home foreclosures are at a record high and consumer fear about their economic futures is palpable, the banking industry takes great reputation risk in doling out checks to their executives.
No doubt the decision makers at Goldman are thinking that reporting good results will give them the permission – I mean context – to award those bonuses. But what they fail to recognize is that the perception by everyone except perhaps their shareholders (and presumably their bonus eligible employees) will be that those profits, in this environment, are hardly a badge of honor. Big healthcare companies will face the same dilemma and the correlating reputational risks.
Herein lies the dilemma. While our capitalistic society rewards initiative, success and profits are good (in theory) – there are certain industries that can be dinged for being too successful, and too profitable – particularly when it can be perceived as coming on the backs of the average working person on Main Street USA. So when those profits coincide with people losing their homes, foregoing their prescriptions or medical care, and an increasing number of unemployed and uninsured, the very things that can build reputation can also diminish it.
Just a generation ago, achieving home ownership was the American Dream….it is now an expectation. In America, healthcare is viewed as a right, not a privilege. When Americans find these things out of reach, it is easy to demonize the big corporate machines for “putting profits ahead of people” – regardless of the fact that the fundamental principles of our system that fuel that American Dream require it.
Noticeably absent from all of this discussion is the role that companies like Goldman Sachs and other large corporations play in creating good jobs, support community and philanthropic initiatives that would otherwise go unfunded, and improving lives. These things are true, and they are important. Just not in this context. After all, context is king.
Carreen Winters can be reached at firstname.lastname@example.org.