Sunday, October 11, 2009

Lloyd Blankfein and Goldman Sachs

Finally I read a 'fair' article on Goldman Sachs! After the absolutely ridiculous piece in Rolling Stone a few weeks back, and the surprisingly harsh words by Paul Krugman, Holman Jenkins in this weekends WSJ writes of his interview with the firms CEO Lloyd Blankfein. As a reminder I am a former partner of GS, having left in 2002, and worked directly for the man you see to the left.

There are many good things about Goldman and there are some things that could be a lot whole lot better, which is true for any firm. Bottom line is that Lloyd was very right in saying that GS has superior risk management and human capital that when added together is the best of any firm anywhere. Because of those things and more they weathered the financial meltdown better then all other large players. The key question asked to Lloyd was "would they have gone under if the gov't did not intervene?" The answer of course is YES because under that scenerio EVERY financial institution would have melted and the world as we know it would be gone. Goldman was not in a liquidity crisis per se but in a world where all faith in financial institutions was evaporating, GS was not immune. Some would say ' YIPPEE' to the idea that GS should cease to exist but I would suggest they have not thought it through. We need healthy, risk taking financial institutions, but the question remains, should they be accountable for the greater good? I say yes and this is where I am disappointed in Goldman. I expect them to be better then all the rest not only in their risk management, but in holding themselves to a higher standard to be leaders in the industry. Why? Because they can.

We need to change, dare I say transform, our financial institutions and I look to Goldman to lead the way. Why? For exactly the same reasons as why they survived and thrived, because they have superior risk management and human capital that when added together is the best of any firm anywhere. They should also come to realize it is good for their business long term. It is also good for their business for the general public to actually think they add a lot of value and not a stable of greedy little piggies.

Should Goldman in an ideal world have done a lot more to prevent the crisis? Yes. Should they now put it upon themselves to do more to make the system a whole lot stronger? Yes. This is fair criticism but again it should be directed to all the large financial firms. Now that it seems we are out of danger with respect to a financial meltdown, I would encourage GS and other CEOS to come clean, and move forward in a positive direction. This direction should not only be about making money, which seems a lot easier now that a few of the largest firms are gone, but rather to balance making money with a greater good.

I wish Lloyd would have said in this interview "Holman, there were a lot of things I wished I would have done differently before and during this crisis, but especially before. I wish that we had used the insight that we had regarding the problems in sub-prime mortgages and other credit products to not only make money for GS and our shareholders, but to warn Washington of the problems we saw on the horizon. I wish we were not only less of a player in creating toxic waste product, but not a player at all because we forsaw the problems, including huge potential losses for our clients. I wish we set the bar for our behavior a lot higher and encouraged others to follow us. I wish we would have emerged from this crisis having been seen as doing the right thing not only for our employees and our shareholders, but for the public as a whole, at least as much as could have been reasonably expected from a publicly traded company. I have learned many lessons from almost failing as an institution, and I will put them to practise as we move our firm, our country, and our world forward in to a more sustainable economic and financial future."

I know dream on, but honestly, I believe this. I believe that there is not a cement wall between what is done in the best interest of a public company, and what is the best interest of the general population. I believe that firms like Goldman and leaders like Mr. Blankfein should be held accountable for a greater good and should WANT to be. Afterall, is that not why, in part, he should be paid $56 million. ( ok forget that, no one should be paid $56 mm for being a CEO) I believe that is true especially in the financial services business and especially for firms that are deemed too big to fail. I believe that what this world needs is more responsbile and accountable leadership from ALL for all.

I am worried about our collective future. I truly am. At the World Business Conference this past week I heard the likes of Bill Clinton and Jeff Sachs talk about how we are on a collision course for disaster in terms of how we are using resources and more. I also feel very strongly that we are on a long road to economic recovery in this country. So what , WHAT, will be the 'thing' that helps us get on a more positive track? In part I think it will be this. That we will have a revolution. "A revolution is a fundamental change in power or organizational structures that takes place in a relatively short period of time." What will drive this revolution is that we decide that what we need to do is unleash positive human potential. That we to unleash people's passion to be part of the solution and not part of the problem. How will this get started? When leaders from all sorts of places, including Goldman Sachs, step up, big time. When they begin to acknowledge that they themselves can do better, and help to create a culture where people are encouraged and supported for being problem solvers, creative thinkers, and challenge the status quo. We all need to be inspired right now. Not only by words, but more importantly by actions. We need actions by visable and powerful people that balance the self interest with the interest in the common good.

Hey Goldman. Perhaps think about taking a few hundred million that you are going to pay your people and ask them for ideas on how that money can be used to help our country and our world? Perhaps ask your employees if they would be willing to take a pro-rate share of their compensation and use it for real solutions to real problems identified by them. Solicit ideas, then fund them. By the way this does not necessarily have to be charitiable giving, but investing in businesses that will create jobs. How about using those dollars that would have gone to comp and give everyone a pro-rate share in the GS Humanity Fund? Pay yourselves less over the short term to invest in our collective future. I have lots of ideas and I hope you all do to. If you want to talk about them, call me.

It is time to get creative and unleash human potential. It is time to think less of self-interest and more of the greater good. It is time for leaders to step up and for the every day Joe and Jane to demand that they do or boot them out of there. If it is not now then when?

Have a great Sunday................


Anonymous said...

Hey Jacki, could you please elaborate on the World Business Conference, what speaker had the most impact on the audience? If you have any videos from the event (your own speech maybe) can you share with us? Cheers, Oxana

Sean said...

Great take on GS and (true) leadership (or lack thereof) in general at the top of the financial services industry. There is so much opportunity for positive change in the midst of all this turmoil and it is frustrating that it seems as though the people and institutions with the most power to support this are at best indifferent to it and in some cases even hostile.

alexis said...

GS makes money from information advantage that comes from 'better risk management and human capital' and from other sources. Sharing information with the public therefore reduces that advantage, which means GS makes less money. Why would they want to do that? The alternative that you propose, ie. that they keep on making money but spend some of their profits to the public betterment, is all very nice but would not have prevented the recent market failure. Preventative action must be ex ante. Incentivise GS to do that, and you have a plan.