Fill in the blank…Goldman S_chs

I suspect more than a few of you would consider adding a “u” instead of an “a.”

I’m not interested in debating the ethics of GS potentially awarding its employees in 2009 up to $18B (according to some analysts) in bonuses right on the tail of the firm posting an impressive $2B Q2 profit. (For the record,  I do have serious ethical concerns with it.)

My contention is that the decision to go-ahead will have a large, negative impact on the GS image and could end up being a major strategic misstep.  In the immediate term, awarding such large bonuses so quickly after a massive government bail-out (note:  GS promptly repaid TARP funds) will likely hurt the GS brand, considered by many to be the strongest on Wall Street.  Although legal and probably consistent with employment contracts, paying substantial bonuses will expose the firm to continued accusations of greed, insensitivity and taxpayer exploitation.  Considering his public stance on good governance, I would not be surprised if the white knight investor Warren Buffet would be perturbed at the decision and bad press. It is usually not in management’s best interests to upset a major and very public shareholder.

Longer term, it is difficult not to believe that GS’s appeal as a business partner will not come under greater scrutiny in some circles, including all levels of government. I can just imagine the many politicians who want to re-regulate Wall Street rubbing their hands with glee over another example of corporate greed during a recession. As well, paying out bonuses may add fuel to the concern (correct or not) that the bail-out did nothing to reform the incentives and practices around financial risk taking, which once again may lead the sector towards self-destruction. This perception can not but hurt the standing of GS and the other banks, especially ones struggling to regain their footing.

I don’t know the details of the bonus structure nor the deliberations that will go into the ultimate decision.  What I do know is that something appears pretty rotten in the borough of Manhattan.

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1 comment so far

  1. euandus on

    I argue that reforms are needed because execs have too much power over corp governance. Ironically, the reforms would bring corps closer to the public interest. Anyway, I’ve just posted on it. If you are interested, you might check out the following:

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