Posts Tagged ‘Goldman Sachs’

We’re Goldman Sachs. Trust us.

April 19, 2010

The Securities and Exchange Commission lawsuit against Goldman Sachs strikes deeply at the issue of trust in the capital markets. Both the firm and the markets as a whole suffered yet another blow in the SEC suit. And it will not be the last.

My Monday-morning question on this latest Wall Street scandal: If you managed billions of dollars for a big pension fund or cash-rich Asian or Middle Eastern government, what’s your reaction the next time a Goldman Sachs institutional rep comes in with a deal that can’t miss? Attractive yield, triple-A rating, assets assembled by the smartest guys on Wall Street, selected just for you?

Well, you will think twice. You’ll remember caveat emptor. You will wonder what toxic dregs the packagers of this deal have chosen to sell to you – and whether they’ve already lined up short sellers to bet against you. Maybe the shorts actually designed the deal. You will think about i-bankers’ commissions and bonuses.

You will not trust.

This is the upshot of the financial crisis, particularly the episodes when someone has failed to disclose what later proved important – when transparency has been lacking and people we assumed were trustworthy proved not to be.

The “Heard on the Street” column in today’s Wall Street Journal makes this point about trust waning in the marketplace. It goes on to note that, beyond the details of the 2007 CDO sale, Goldman Sachs did not disclose the SEC subpoenas in August 2008 or the July 2009 Wells notice of a potential SEC enforcement action. Were these items not material, not worthy of disclosing to Goldman Sachs shareholders? When the suit became public Friday, shareholders lost $12 billion.

I won’t try to dissect the controversy over who knew what about the original CDO. Goldman says it did nothing wrong, the investors were sophisticated and should have known another client was betting on the failure of those securities. Maybe caveat emptor is always the rule. Maybe Goldman is just like everyone else, hustling to make a buck (or a billion).

What I will say is that the financial crisis – and the ongoing collapse of trust in capital markets – should drive every company to rethink what it values.

In investor relations, we understand how valuable it is for a company to have earned the confidence of the capital markets. Trust is a long time coming – built by doing what you say, being open, disclosing problems, addressing issues head-on, underpromising and overdelivering, and doing it over and over – for years.

Trust is lost in a moment.

To be clear, the SEC isn’t the one that destroyed trust in this case. Goldman Sachs, if in fact it assembled the junk of the market for hedge funds that were betting against that junk – and then peddled those deals as jewels – destroyed trust.

The pundits think the SEC’s slap at Goldman Sachs will add momentum to the push in Congress for tougher regulation of Wall Street. No doubt. Ever since the market’s collapse in 2008, “transparency” has become the popular buzzword.

In my experience, trust isn’t legislated. Transparency doesn’t come about because lawyers cite chapter and verse of some law, and companies say well, OK. The laws cited in the SEC complaint against Goldman have been on the books all along.

Rather, trust grows out of an impulse for honesty among people making decisions. In investor communication, trust is built upon CEOs, CFOs and IROs asking what information matters, what do investors want to know? What do we know that the investors need to know in order to make informed decisions? And acting upon it.

Every company going into the capital markets now lives with the loss of trust created by failures of transparency over the years. We must rebuild, step by step.

The job of IR is, above all, to provide the transparency that leads to that trust.

What’s your take on Goldman Sachs, transparency – or regulatory reform?

© 2010 Johnson Strategic Communications Inc.

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Getting real on compensation

November 20, 2009

If you work with the proxy statement or other communications on executive pay, you should read the Nov. 9 speech by Shelley Parratt, deputy director of the SEC Division of Corporation Finance, to the 4th Annual Proxy Disclosure Conference.

Parratt calls on companies to improve the quality of their Compensation Disclosure & Analysis sections – giving clearer, more specific analysis and better explanation of performance targets. She suggests starting over with a blank page, if necessary.

Mostly, Parratt’s comments offer a philosophy for disclosure on compensation. She notes that companies tend to respond with good disclosure once the SEC reviews their proxies – but don’t pay much attention if the SEC doesn’t come calling. Going forward, tangling with the SEC on the CD&A could hurt corporate reputations:

Any company that waits until it receives staff comments to comply with the disclosure requirements should be prepared to amend its filings if we raise material comments. Now is the time to engage in a rigorous analysis to develop meaningful, coherent and comprehensive executive compensation disclosure.

While the SEC staff may appear to serve as your editor from time to time, the CD&A is your story to tell, not ours. Read our guidance. Read the publicly-available comment letters. Take a fresh look at the disclosure requirements. Pay attention to what the market is looking for. Your disclosure will be better if you do.

Concern about pay levels isn’t limited to SEC officials and politicians with a polulist bent. Even the biggest investors can get upset about compensation – as in today’s Wall Street Journal story on mutual funds that are big holders of Goldman Sachs:

Some of the largest shareholders in Goldman Sachs Group Inc. have urged the Wall Street firm to reduce the size of its bonus pool, arguing that it should pass along more of its blockbuster earnings to investors…

For a lively take on the potential for more asset managers turning activist on pay, watch the Yahoo! “Tech Ticker” commentary by Aaron Task and Henry Blodget.

Take-home message for the 2010 proxy season: Write the CD&A as if you’re sitting across the table explaining your pay policies to one of those concerned investors.

(Thanks to the panelists at the Kansas City NIRI meeting Nov. 17 for calling this SEC staffer’s speech to our attention.)

Psychoanalyzing Goldman Sachs

November 10, 2009

If Goldman Sachs is a star in your investment universe, or even a remote planet you aspire to add to your universe, you ought to read the fascinating company profile (“I’m doing ‘God’s work’. Meet Goldman Sachs”) in The Sunday Times of Nov. 8.

The newspaper’s piece is heavy on pop psychology and a bit overawed by Goldman (in the mode of “Gee, these guys really have a lot of money and aren’t they smart!”). It delves into the bailout controversy and those evil bonuses. But it’s also full of anecdotes and insights into how Goldman works – and gets ahead. A few tidbits:

There’s no name plate on the building, no sign on the front desk and the armed policeman stationed outside isn’t saying who works there. There’s a good reason for the secrecy. Number 85 Broad Street, New York, NY 10004, is where the money is. All of it.

… “I know I could slit my wrists and people would cheer,” [Chairman and CEO Lloyd Blankfein] says. But then, he slowly begins to argue the case for modern banking. “We’re very important,” he says, abandoning self-flagellation. “We help companies to grow by helping them to raise capital. Companies that grow create wealth. This, in turn, allows people to have jobs that create more growth and more wealth. It’s a virtuous cycle.” To drive home his point, he makes a remarkably bold claim. “We have a social purpose.”

… the bosses work hard to foster a “we’re in this together”, family-style approach. Others say it feels more like a cult, but they mean it as a compliment.

… Goldman staffers are also trained to “brain pick” contacts and clients harder than the other guy. “You ask what’s their best trade. How do they see the market,” says one. “You offer something in return, but you always come back with something. Then you feed it to colleagues …”

… with Lehman Brothers and Bear Stearns off the street, Merrill Lynch a crippled shadow of its former self, and neither Citigroup nor UBS the forces of old, Goldman has a bigger slice of a growing pie. “We didn’t f*** up like the other guys. We’ve still got a balance sheet. So, now we’ve got a bigger and richer pot to piss in,” is how one Goldman banker puts it. Small wonder the bank is on course to set aside over $20 billion for salaries and bonuses.

Even the firm’s IRO comes into the story, commenting on the sublimation of individual egos to the corporate ethos:

Dane Holmes, 39, Goldman’s head of investor relations, is a 6ft 8in tall, 260lb former college basketball player. He looks like he could run straight through opponents — hell, through brick walls! — if he wanted to. But, he says: “That’s not the way Goldman works. You can have a great career in banking as an individual, but it won’t be here. The system weeds out those who can’t play nicely with others.”

What’s up with live blogging?

March 20, 2009

One of the strange inventions of our new media era is live blogging of conference calls by financial media. What’s up with that? 

Today, for example, The Wall Street Journal is live blogging the Goldman Sachs conference call on its AIG risk. The odd thing is, of course, it’s a conference call – an investor could be listening live to get the news personally in real time.

Live blogging is minute-by-minute, as fast as a reporter can type a summary of what he’s hearing. You read things like this from the WSJ:

10:56: The hold music is Mozart. One of the better symphonies.

11:04: The conference call starts.

… 

11:12: If AIG failed, GS would have been able to collect on its hedges. That is why the company said it had no material exposure to AIG.

11:12: Viniar on AIG collateral: “We also have taxpayer money at GS and it’s our responsibility not to lose it.”

11:13: If GS was fine if AIG failed, how was it fully hedged? Viniar defends not returning some of AIG’s collateral or taking the discount. “We had about $7.5 billion of collateral, and if we had to take a discount on it, then GS would not be fully covered.” …

All well and good, but live blogging reminds me of play-by-play commentary on a basketball game – it lacks something if you don’t watch or hear the game itself. Live blogging is in print, with no video or audio. It’s a step removed – almost live, but not quite.

My thought: An investor who wants to be in the know would listen to the Goldman Sachs call. An investor could follow the live blog at the same time, but there isn’t much value without hearing or seeing the actual event. 

In fact, it’s spring break so I am watching – right now on TV – the University of Kansas play its first-round game in the NCAA men’s basketball tournament. The game is live, and I’m seeing it first-hand.

Wouldn’t it be silly, it occurs to me, to follow the game through a live blog? But wait. Going back to the WSJ.com home page, I see there is a live blog on the KU game … Lagging a few minutes behind what I see on TV, there’s the play-by-play. But I’ve already seen each play before it’s reported. I could multitask and read this almost-live blog for additional commentary – or I could just watch, get all the information I need and enjoy the game. Then, I might read a news story or column in the morning paper to find well-thought-out commentary on what happened (in sports or finance).

News media are in a period of experimentation, and live blogging is part of that. For my money, live blogging of a conference call does not provide a good substitute for listening live. Even then, the value depends on the blogger’s ability to add insightful explanation in real time.