As it happens, they probably got that bit right. Despite reduced financial performance, bonus levels this year are going to be enough to keep a normal family going for about five years. Indeed, rather than reduce bonuses, the firm just has embarked upon a massive campaign to repair its reputation. Strangely many would assume that this is out of concern for its public image, so that the man and woman on the street loves Goldmans. In the realpolitik of global investment banking, however, what the general public thinks doesn’t significantly matter. Until the financial crisis, these banks were invisible to the public and that’s the way they liked it. As long as their current and potential clients – not the likes of you or I, but major global organisation and governments – were happy, then they didn’t care what the public thought.
Things have changed, but not to the extent that the public are the critical factor, they aren’t, the clients are, but Goldman now recognises that bad publicity and upsetting US and other countries’ regulators could make some clients nervous and more likely to use a less high-profile competitor. Further, the implicit suggestion in various Senate hearings that Goldmans may have put the firm’s interests significantly ahead of its clients’ is something it had to tackle, to reassure those clients.
So what is Goldmans doing ? It launched a major initiative aimed at finding out what clients wanted, compared to what they got. Some of the responses showed that in some areas clients were worried the firm hadn’t remained true to its original principles and seemed to be working for its own, and primarily short-term, interests. The corporate response has been to set up a number of committees across the bank to look at client and business standards. In the words of the Goldman CEO, Lloyd Blankfein, it is about distinguishing between "can we?" and the "should we?". Which, over the past few years, even Goldmans admits it might have got confused now and again, despite the fact that it hasn’t admitted actually doing anything wrong.
It will also be disclosing more of what business activity takes place, even that which it is not legally obliged to disclose. This edging open of Pandora’s box is a move in the right direction, but not the full disclosure that some people wanted. On the issue of bonuses and risk management, there is an undertaking about "increasing emphasis on evaluation criteria relating to reputational risk in the firm’s annual performance review and compensation and other incentive and recognition processes". That aims to achieve a rebalance of the weighting between what you deliver and how you deliver it. High performance with few ethics is now less acceptable than it might have been in the heady days of 2000-2006. Now performance must be ethical to achieve high rewards.
It will be very interesting to see progress. Altering the emphasis in the appraisal to focus on ethical performance is sound in principle yet the appraisal does not stand alone. The completion of that appraisal is determined by the line manager and, from experience, unless the line manager is aligned personally to these new objectives, then the individual’s ratings will be fudged to ensure that financial performance is maintained, even if the ethics are a little questionable. Yet this is the core problem that triggered the whole financial crisis – the selling of mortgages to people who couldn’t afford them by employees of banks and finance houses who were incentivised to sell at all costs by a commission-only structure and with no formal income checks on applicants. A culture of driving short-term financial success, but doomed long-term sustainability.
Goldmans' success in returning to its original principles is essentially a problem in which HR is a critical player. Appraisal changes aren't enough alone and it will be undertaking a very large communication process to try to recover the culture. The problem is that this isn’t a clear break from an old into a completely new culture. Doing that is often simpler, while this is a delicate refinement of the old, keeping the best and removing the embarrassing. That is much more difficult, about shades rather than black and white. Goldmans own success in driving financial success is now to some degree a cultural obstacle to the new requirement of achieving financial and ethical success. But if any organisation has the financial and intellectual resources to achieve this, it is Goldman. However, even for it this will be difficult. Time will tell if one of the strongest corporate cultures in the world can be ‘tweaked’ to meet the needs of a new world.
Chris Roebuck is a regular columnist for HR magazine and is visiting professor of transformational leadership at Cass Business School, London. He has held senior HR roles in a number of international banks and has advised Goldman Sachs in the past. For more articles by Chris on this question, see: www.chrisroebuck.net