Goldman is an Oasis of Success in the Middle of the Foreclosure Desert
Last Thursday, 16th October, Goldman announced that it would pay out $200 million to its charitable unit. The amount calculates to 6% of its profits during the third quarter or equivalent to its earnings for 6 days. Goldman now has the unusual task of explaining to the rest of the country sucked dry by the blowing sands of foreclosures, its success story.
Wall Street is agog with rumours that Goldman might dole out even more dollars to its charitable funds – perhaps nearly $1 billion while trying to appease the critical public. The chairman and chief executive of Goldman, Lloyd Blankfein has gone to the length of urging bankers to keep a low profile and not become conspicuous by ostentatious spending.
Goldman is also mulling over bringing changes to few of its compensation related operations. The executives get a large amount of their compensation in the form of stocks. But similar to the thinking being adopted by other banks it is now weighing the options of increasing the share of all the employees, allowing for deferred payments and including clauses that would allow the bank to snatch back some bonus if business goes awry. Blankfein sketched these plans while delivering a talk in Germany in September. Wall Street sat up to this speech.
The chief financial officer of Goldman, David A. Viniar however was on the defensive against such criticism. He said it was unfair considering that in another period this same country and its media would have hailed the firm with laurels for its outstanding success story. He argued, “We are very focused on what is going on in the world. We are focused on the economic climate. We are focused on what is going on with other people.” He reiterated that the company had fulfilled its duties towards the staff and to retain them the employees have to be kept happy. He felt Goldman was unfairly targeted on the bonus issued. He explained, “Yes, I think that is too big a focus.I would prefer people to be focused on the success of our business, how well we’re doing, and how well our people are performing.”
Doubts are being raised as whether the tarnished image of Goldman will clear up after this incident. Goldman however is toeing the usual Wall Street line of rewarding bankers and traders who have been able to mint money – there is nothing new in what it has done by giving out these huge bonuses.
Professor Michael Useem of University of Pennsylvania said, “They do it because they can. But strategic thinking requires that you think not only about trading but also about reputation and where the bank stands in the court of public opinion.”
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