Crisis Musings

November 22, 2009

Lloyd Blankfein, Goldman Sachs’ chairman and CEO, may wish he never retrieved today’s New York Times from his driveway this morning.

On the heels of Blankfein’s apology last week for “things that were clearly wrong,” and pledge of $500 million to assist small businesses, the Times had not one, not two, but three pieces that dissected the banks actions in a not-so-favorable light.

·         “Taking Spin out for a Spin” – an analysis of the bank’s apology;

·         “Goldman’s Non-Apology” – an editorial; and

·         “Revisiting a Fed Waltz With A.I.G.” by Gretchen Morgenson in the Sunday Business section, which challenges Goldman’s assertions about the A.I.G. bailout and the federal funds it received as a counterparty through A.I.G.

Indeed, the media and bloggers are chattering away this week about Goldman’s apology, whether it was sincere, whether it worked and what Goldman’s true intentions are.

The central question the media seem to be asking is, “Will it work?”

Of, as I put it, does it pass the ‘So what?’ test?

But to get to the answer to that question, one has to pose another question:  “Who is Goldman trying to impress?”

Lawmakers?  The media?  The public?  Investors?  Employees?  Competitors?  Who???

I think one has to look at this from two perspectives. 

As a competitive move, it certainly puts the other banks in a tough spot, because it creates separation from the rest of the pack.  Being first is a coup.  From a competitive standpoint, this may be smart.  Everything done by others afterward will look like catch-up, unless it is larger by magnitudes, or more innovative. 

To be sure, the other banks are probably cursing Goldman for raising the bar, and legislators will likely be looking to the others and asking, “Well, where is your $500M mea culpa?”

But on the  broad question of whether this helps Goldman’s reputation with many of the stakeholders listed above, and whether this does anything to improve the lot of the sector, I’m not so sure.  This is nice, and it is productive, but juxtaposed against record Wall Street earnings, hideously outsized bonuses and the overhang of Madoff, Galleon, Dreier, etc, it won’t get them out of the doghouse.  Moreover, I don’t think anyone is convinced that the final shoe has dropped vis a vis Wall Street fraud, malfeasance, unethical behavior. 

In short, I don’t think people are yet convinced that there is any behavioral change that has accompanied the apology.  After all, people have been upset with the behavior of Wall Street (defined broadly to include investment banks, brokerages, mortgage lenders, etc.) and its share of responsibility for the current global recession.

Last year at this time I wrote on this blog in the topic of apologies:

Companies successfully work their way out of a problem because they address the problem, and not just the perception of the problem.  In other words, a business problem requires a business fix.  A letter of apology or regret published in a newspaper solves nothing.  And the fact that such a tactic is now seen as “required” in the PR tool kit diminishes its value even more, precisely because it is seen as required and thus not genuine.

In the context of the Goldman Sachs apology, I think these words still ring, and may explain the skepticism that it has received.

Goldman and its peers will be judged over time for their behavior far more than for their words or gifts.

When I first learned of the Blankfein apology and $500 million pledge (or, as the Times called it, “crumbs from its table”), the image I had in my mind was of the person who was just caught cheating, and who tries to make up for it with an apology, a vague admission of guilt, and an effort to buy-back the love of his spouse.  How much is enough?  Roses?  Dinner out?  Diamonds?

In Goldman’s case, there is no shortage of critics passing judgment on “how much is enough?”.  And from the looks of the initial reviews, that $500 million hasn’t bought Goldman even a week’s worth of goodwill.

If history is any indication of the future, it will require a sustained commitment, a reshaped culture and some fundamental change to get this monkey off their backs. 

So we give it time.  Maybe we should wait a year before answering the question, “Will it work?”

 

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