In January 2011, Bill George, former Chairman & CEO of Medtronic’s, Professor of Management Practice at Harvard Business School and author of True North, joined us on the McCuistion program to talk about character and leadership; of which he is an acknowledged expert. Dennis asked him, “There are people watching this program who will ask, how is it that you can be so focused on character and values and yet be on the board of Goldman Sachs?”
Bill George answered, “Here’s a firm that for 140 years focused on their clients. They paid their people well. They paid for performance… not stars. They were the first execs on Wall Street that didn’t take bonuses. And when they saw the problem with sub prime mortgages, they got out 18 months ahead of everyone else.”
Yet with all that said, Goldman Sachs history is problematic.
March 12, Greg Smith, a Goldman Sachs director in London resigned, and in doing so published this letter, (NY Times) detailing his grievances, including the charge the firm is ‘morally bankrupt.’
“Today is my last day at Goldman Sachs. After almost 12 years at the firm – first as a summer intern while at Stanford, then in New York for 10 years, and now in London – I believe I have worked here long enough to understand the trajectory of its culture, its people and its identity. And I can honestly say that the environment now is as toxic and destructive as I have ever seen it.
To put the problem in the simplest terms, the interests of the client continue to be sidelined in the way the firm operates and thinks about making money. Goldman Sachs is one of the world’s largest and most important investment banks and it is too integral to global finance to continue to act this way. The firm has veered so far from the place I joined right out of college that I can no longer in good conscience say that I identify with what it stands for.
It might sound surprising to a skeptical public, but culture was always a vital part of Goldman Sachs’s success. It revolved around teamwork, integrity, a spirit of humility, and always doing right by our clients. The culture was the secret sauce that made this place great and allowed us to earn our clients’ trust for 143 years. It wasn’t just about making money; this alone will not sustain a firm for so long. It had something to do with pride and belief in the organization. I am sad to say that I look around today and see virtually no trace of the culture that made me love working for this firm for many years. I no longer have the pride, or the belief.”
2011 and 2012 show numerous challenges with Goldman Sachs. In fact we wrote about these in an earlier story.
The Securities and Exchange Commission has announced that Goldman Sachs will pay $550 million to settle the SEC’s charges against the firm. According to Robert Khuzami, Director of the SEC’s Division of Enforcement, “Half a billion dollars is the largest penalty ever assessed against a financial services firm in the history of the SEC. This settlement is a stark lesson to Wall Street firms that no product is too complex, and no investor too sophisticated, to avoid a heavy price if a firm violates the fundamental principles of honest treatment and fair dealing.”
In April last year, the SEC sued Goldman Sachs and one of its employees for civil fraud, alleging they defrauded investors in 2007, in selling a financial product tied to sub prime mortgages. While Goldman acknowledged that its marketing materials for the sub prime product contained incomplete information, Goldman agreed to settle the SEC’s charges without admitting or denying the allegations by consenting to the entry of a final judgment that enjoins them from violating the anti fraud provisions of the Securities Act of 1933.
In its complaint, the SEC alleged that Goldman misstated and omitted key facts regarding a synthetic collateralized debt obligation it marketed. In particular, the SEC alleged that Goldman failed to disclose the role that hedge fund Paulson & Co. Inc. played in interests were adverse to CDO investors. Of the $550 million to be paid by Goldman in the settlement, $250 million would be returned to harmed investors through a Fair Fund distribution and $300 million would be paid to the U.S. Treasury.
In spite of Sarbanes Oxley abuses keep piling up with more than a few business icons. This last month we aired the story of Richard Bowen– who blew the whistle on Citi.
Yet the values of true leadership Bill George shared are sound and indicative of how a company ‘should” operate on every level- with their internal customer, the employee, and certainly their external customer. Building loyalty and good business practice is more than just an aggressive return on investment to the shareholder, regardless of how some disparage their commitment to the public, their stakeholders and employees. George’s input on integrity and what true leadership means gives us a true north perspective.
In fact Bill George was on a committee that closely examined sound business practice and how Goldman should conduct its affairs. More can be read at this link: http://www.goldmansachs.com/who-we-are/business-standards/committee-report/business-standards-committee-report-pdf.pdf
Still history is showing Goldman still has far to go.
As always, thanks for watching as we talk about things that matter with people who care.
Niki Nicastro McCuistion
Executive Producer/ producer
Business performance consultant/ coach