Goldman Sachs Unveils Plan to Increase Disclosure
by Michael Connor
Investment banking giant Goldman Sachs Group Inc., seeking to repair damage to its reputation suffered in the aftermath of the global financial crisis, said its management and board had adopted and begun implementing 39 new policies and practices that represent a “fundamental re-commitment” by the firm to “reputational excellence” and increased transparency and disclosure.
“In particular,” the firm said, “our approach must be: not just ‘can we’ undertake a given business activity, but ‘should we.’”
The new policies and practices are described in a 63-page report prepared by a Business Standards Committee set up by the firm last year. Goldman said the committee “operated with oversight by the Board of Directors, which established a four member Board Committee to provide additional focus and guidance. “ In addition, the firm said it engaged two consulting firms to provide independent advice to the committee.
In July 2010, Goldman agreed to pay a record $550 million penalty and reform a number of its internal business practices to settle Securities and Exchange Commission charges that the firm misled investors in a subprime mortgage product just as the U.S. housing market was starting to collapse.
The SEC had alleged that Goldman misstated and omitted key facts regarding a synthetic collateralized debt obligation (CDO) it marketed that hinged on the performance of subprime residential mortgage-backed securities.
Among other changes to its business practices, Goldman said it would change its financial reporting methods to provide greater insight into the percentage of the firm’s business derived from proprietary trading.
“Our clients must be at the heart of the firm’s decision-making, thinking and committee governance, both formally and informally,” the firm said. “Above all, we must be clear to ourselves and to our clients about the capacity in which we are acting and the responsibilities we have assumed.”
Goldman said it was establishing a new Client and Business Standards Committee “to place our client franchise at the center of our decision-making processes and to reflect the important interrelationships between clients, business practices and reputational risk management.”
It has also established a New Activity Committee “to consolidate and strengthen existing processes for approving new products and activities and to assess the important question of not just ‘can we’ undertake a given business opportunity, but ‘should we.’”
Goldman said an internal global program to explain and implement the new policies and practices “will represent a large investment of time of our senior management team over the course of 2011.” The firm said its annual employee performance review and compensation processes would include increased emphasis on “reputational risk management” as well as a focus on “leadership, culture and values.”