Goldman v World 1- Who Wins and Why?

The last Goldman post to appear in this space included a conflicts disclosure that turned into a mini-therapy session.  This time, you can forget the mini.

If you filter out the generalized anti-Wall Street, anti-elite, anti-semitic hatred there seems to be four major strains to the popular criticism of Goldman:  1) it bet against its own clients; 2) it's promoting crazy casino-like transactions that don't provide any benefit to the real economy; 3) its errors were a major contributor to the market crash and recession, but it was bailed out (via AIG) and suffered no consequences – this one includes the subhead that Goldman makes too much money – we've all seen the stat, average Goldman managing director earns median US wage in less than 2.73 milliseconds – and keeps on making it even asthe unemployed and Main Street struggle; 4) it's not so secretly running the world, with alumni in high office at all times, no matter what party is in power.

Some of Goldman's initial reactions to the financial crisis – remember “doing God's work”, or the claim that Goldman would have survived with no bailout – were ill advised and now everyone seems to be after Goldman's scalp, the SEC, Congress, the media, mortgage security derivatives investors, Andrew Cuomo, even its own shareholders. Does Goldman care?  Yes, at least on a PR level, Goldman is worried about some of these criticisms, especially when financial regulatory reform is on the front burner and the derivatives business may be on the line.   What can Goldman do?

Let's start with Goldman management versus its own shareholders at the annual meeting held on May 7.  A variety of shareholder proposals garnered some support at the meeting: 19% in favor of CEO not serving as Chairman; 33% for expanded disclosure on collateral in derivatives transactions; 31% for semi-annual reports on political contributions and expenditures; 5.5% for a resolution addressing pay disparity and withdrawal of a resolution seeking a compensation panel after management agreed to an annual Say on Pay vote.  The NY Times hailed this as a management victory.  Kudos to Robert Kropp at Social Investment News for pointing out how wrong  the Times got it.  These numbers reflect an unusual level of shareholder dissatisfaction, especially at a highly profitable company.  As Mr. Kropp notes, a resolution can stay on the ballot forever as long as it can pull a 10% vote each year, but not many shareholder resolutions do.  Of course, management's recommendation did prevail on these votes, but the Times is truly correct in only one sense.  Given that much of the world had turned into an angry, torch waving anti-Goldman mob at the time of the meeting, the results could have been even worse for management.

Now for the therapy, er conflicts disclosure.  First,  the resolution urging separation of the Chairman and CEO jobs came from the Christian Brothers Investment Service – no problem here with the whole brandy  and St. Bernard thing, but my outlook is shaped (some might say scarred) by four years at a Christian Brothers high school.  Second,  Lloyd Blankfein impressed the heck out of me.  As a witness in hostile Senate hearings he had a major advantage – he actually understood what he was talking about and the Senator's asking questions did not.  He also seemed a lot more genuine and likable than the Senators, like some of my MIT friends from NYC's outer boroughs and public schools like Brooklyn Tech and Stuyvesant – a lot smarter than me, but they didn't have to prove it with every sentence.

This post ends with part 2.

Photo Credit: Mike Licht, NotionsCapital.com