Revamping Goldman’s board

By Felix Salmon
February 10, 2010
this interview with one Goldman board member, Ruth Simmons, hardly instills in me the confidence that she can or will understand what Goldman is doing, stop them from acting in a reckless manner, or keep a close eye on compensation as she wears her hat as a member of the compensation committee:

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In all the bellyaching about the governance of the biggest banks, and the fact that their boards were spectacularly unqualified to provide any kind of oversight of what they were doing, Goldman Sachs has gone largely unmentioned. But what’s true of Merrill Lynch and Bank of America is true of Goldman too: its executives need some kind of adult supervision, seeing as how they work for their shareholders, rather than just for themselves.

Yet this interview with one Goldman board member, Ruth Simmons, hardly instills in me the confidence that she can or will understand what Goldman is doing, stop them from acting in a reckless manner, or keep a close eye on compensation as she wears her hat as a member of the compensation committee:

Simmons said she originally joined Goldman’s board at the recommendation of Smith’s Board of Trustees around the time that she started a center for financial literacy on campus.

“We had a big push to think about how we could improve the knowledge and ability of women to manage their financial affairs,” she said. “At the same time, there was a good deal of interest in the fact that women have not done so well in the financial sector and on Wall Street.”

Simmons has moved on from Smith, and is now the president of Brown University. But of all the reasons to join the Goldman Sachs board of directors, improving the ability of women to manage their financial affairs has got to be one of the worst: that’s simply not something that Goldman board members do. Instead, they’re meant to represent Goldman’s shareholders and oversee Goldman’s management.

But rather than bring any kind of financial or economic expertise to bear on her job, it seems that Simmons was happy to simply sit back and receive the gift of wisdom in such matters from the Squid:

Simmons said her service on Goldman’s board gave her the economic savvy to take certain risks that she might not have taken otherwise, such as the introduction of need-blind admissions.

This seems to me to be both an admission that she was lacking in economic savvy when she joined the board, and an admission that being on the Goldman board made her more prone to taking financial and economic risks than she was before. Is this really the kind of person that Goldman’s shareholders want representing their interests as an overseer of management?

There’s no indication in the interview that Simmons takes her fiduciary responsibilities to Goldman’s shareholders particularly seriously; instead, there’s a great deal of talk about the effect of the directorship on her and on Brown, not to mention a fair amount of standard-issue ass-covering:

“There are lots of things in a complex institution that go on,” she said. “You’re not in charge of everything that your friends do and every policy that organizations that you’re affiliated with issue.”

It seems to me that the days when Goldman Sachs could fill its board with these standard corporate board types — the college president, the management consultant, the business-school professor, even the long-time chairman and CEO of Fannie Mae — have surely come to an end. It’s made a stab at beginning to reform its compensation practices, and I’m quite sure that’s entirely a decision of management rather than of the compensation committee. Next up, it should get to work on the board, appointing people who will look hard at managerial business decisions, and won’t allow themselves to be snowed by Lloyd. Indeed, he should welcome the extra set of eyes and a few tough questions: it’s good, in his position, to be forced to know what you’re doing and be on your toes.

9 comments

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The Simmons interview is egregious, certainly. But your shots at the management consultant and business school professor are less accurate. Rajat Gupta ran McKinsey for years and Bill George turned Medtronic into a world-leading company. Neither may be financial titans, but I’d be confident saying neither would be snowed by Blankfein or anyone else. They’re not mere adornments on the board. I suspect they will be as tough as anyone else they could fine (which, in the atmosphere of public company boards, generally doesn’t mean tough enough — agreed).

So after the defense, the barb. Follow George on Twitter, http://twitter.com/Bill_George, and it’s easy to wonder if he ever met a CEO he didn’t admire. The other day he lauded the choice of John Thain for CIT.

Posted by lknobel | Report as abusive

Sure, it’s easy to lampoon Simmons as a hood-ornament Board member, but different Board members bring different kinds of expertise. That’s as true for a Church Board as it is for Goldman’s. Perhaps Ms. Simmons brings expertise in higher education finance. With experience at Brown, Smith, Princeton, Spelman, Radcliff, GWU, and USC she certainly has seen the inside of an administration building.

Such experience might not be relevant to structuring CDS IFSA contracts, but it might be relevant to HR, client finances, public finance, and the rock-star culture that attended investors like David Swensen at Yale.

Posted by Publius | Report as abusive

Give public companies back to the shareholders.
At a minimum we need to ban bondholders from holding positions on the board of directors on companies in which they hold bonds.
Shareholders are the best people to look out for their interests in the companies they are supposed to be the owners of.

Posted by IdiotSavant | Report as abusive

It seems to me that management did a remarkable job and deserve the bonus that they recieved. They did not lose anything when the crash came as they had the fore sight to insure their bad risks with AIG, who took the lose. Goldman recieved 100% coverage on the sub-prime instruments and got billions of low cost money from the government to use in further investments and have already repaid that money. A remarkable feat to say the least in this economy.

Posted by nimrod666 | Report as abusive

To the prior commentator – I’m not sure that emerging from the crash with it’s assets intact qualifies as good financial management. Saying, “My business model allows us to generate substantial profits, so long as the government steps in to take up the duties of our counterparties and then exits their positions at a substantial taxpayer loss,” may work, but it’s not the thing which management genius is built upon.

I’ve never bought the Goldman line that they had adequately insured themselves against the crash without government involvement. A world in which the government didn’t stabilize financial institutions is not a world where AIG pays out. Goldman’s unwillingness to admit at much is naked contempt bordering on idiocy.

Posted by strawman | Report as abusive

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