Goldman Sachs (NYSE:GS) is proving that it listens to the critics after all. More than two years ago, amid a firestorm of ill will from the public, a new Goldman committee came up with a 39-point system to change business standards as well as how the firm distributed bonuses, in hopes of avoiding risky deals and improving its reputation. In a report released by Goldman, all 39 initiatives will be adopted.
According to a Wall Street Journal report, Goldman made the announcement it was on board for all 39 changes to business standards at its annual shareholders meeting in Salt Lake City. Chairman and CEO Lloyd Blankfein made a point of saying he wanted “to make sure this was done right,” referencing the changes presented by the oversight committee he established in 2010. Goldman now has several checks in place that ensure the largest deals the firm makes come off without major risks.
“The experience of initiating, approving, and executing a transaction for a client at Goldman Sachs is now fundamentally different,” said the company statement. For Goldman employees dealing with outside clients, the transactions will be monitored especially closely, as the firm intends to protect its reputation through the way it distributes compensation. Bonuses and promotions will be meted out according to how positively employees affected the company’s standing.
The Abacus transaction, which sparked a lawsuit from the SEC in 2010, embarrassed Goldman and prompted Lloyd Blankfein to form the committee charged with improving overall standards of operation. Blankfein focused on accountability in 23 sessions with partners and directors that took place over a two-year period ending last year. The Goldman team decided that linking compensation to contribution to company standing was the best system.
Some observers are skeptical the new system would have helped Goldman avoid the deal that brought on the SEC lawsuit. The problem was that not all disclosures were included when the deal was made. Would the 39 initiatives ensure the Abacus deal didn’t go through?
According to J. Michael Evans, a partner who fronted the business-standards committee, Goldman would have been far more careful. “If an Abacus transaction came today, it would encounter a completely different framework of processes, practices, procedures, transaction approval and review…” Though that still wouldn’t guarantee avoiding another Abacus, Goldman is saying it will do its best.
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