Who could be chairman of Goldman Sachs?

By Felix Salmon
May 5, 2010
makes sense at Goldman Sachs, which is reportedly considering it, but if it were to happen, the decision would be a fraught one.

" data-share-img="" data-share="twitter,facebook,linkedin,reddit,google" data-share-count="true">

Splitting the roles of chairman and CEO at a public company is nearly always a good idea. It makes sense at Goldman Sachs, which is reportedly considering it, but if it were to happen, the decision would be a fraught one.

For one thing, it would look panicked and defensive, rather than a long-term strategic move. But the main reason not to do this, from Goldman’s view, is simpler: it’s incredibly difficult to find a suitable candidate. Just think of all the qualifications which are needed:

  • The ability to set the strategic direction for what is still the world’s foremost investment bank and broker-dealer. How big should Goldman be? What kind of balance between banking and trading should it have? How much should it pay?
  • The ability to be the risk manager of last resort, keeping an eye on the balance sheet and making sure that nothing is getting out of hand. With David Viniar as CFO, this part of the job is maybe less important right now. But it’s still hugely important.
  • The ability to communicate effectively with shareholders, regulators, and politicians — in a way that Lloyd Blankfein is not so great at.
  • The ability to represent Goldman’s shareholders, who are to a large degree its partners.
  • The ability to restore the credibility of the rest of the board, which has been something of an embarrassment of late.

Is there anybody who can do all this? The WSJ article barely even brings up the names of Hank Paulson and Arthur Levitt before throwing cold water on them. My feeling is that if the job is going to be real, and not a figurehead, it really needs to be a Goldman person of some description doing it: maybe Bob Hormats or Byron Trott? Or bring back Jon Corzine? I wonder whether he’d take the job, since it comes with so much downside and so little obvious upside.

17 comments

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/

For $70 million a year in compensation and the devoted adoration of millions of college and MBA students, I would be willing to bear this heavy burden. Of course, I would still have to remain anonymous: I wouldn’t want the gig to totally ruin my reputation.

Posted by EpicureanDeal | Report as abusive

Bob Hormats is the only credible candidate I suspect. Politically more astute than most.

Posted by polit2k | Report as abusive

Well, I thought God was running it.

Posted by Ghandiolfini | Report as abusive

Isn’t this really a variation on the theme of “too big to fail”? If you can’t think of an actual human who is qualified to manage Goldman Sachs, could it be that there’s an underlying problem here…?

Posted by MattF | Report as abusive

If Goldman has any interest in its own long term viability it would install someone from investment banking or some other client-centric area and push the traders lower down on the totem pole. The trading revenues are larger but the traders now in charge seem only dimly aware of reputational risk.

A chairman should be willing and able to reject profitable but reputationally risky deals and establish compensation systems that ding traders who do things that embarrass the firm.

We learned in April in Vanity Fair that BlackRock’s Larry Fink told Blankfein, ‘“What the f*** were you thinking?,” when he learned that Goldman was trying to buy as much as $1 billion of Fannie Mae tax credits last November in a deal—widely criticized as yet another Goldman money grab—that was eventually nixed by the Treasury’

Even as public scrutiny grew, C.O.O. Gary Cohn himself was in Greece personally pitching ethically questionable currency swaps to hide debt based on ‘historical’ (i.e. fraudulent/false/made-up) exchange rates.

Posted by DanHess | Report as abusive

Fraught? Shouldn’t it be ‘fraught with’ something? Risk, embarrassment, &c.?

Posted by Gotthardbahn | Report as abusive

…and ‘in a wa’, poor layout cut your ‘y’ off, at this rate we will have 900 comments in no time.

Posted by Ghandiolfini | Report as abusive

…so Dan, is that what totem poles are for, I always wondered, now I know, no wonder we are in such a mess, the economic barometer is a piece of dead wood.

Posted by Ghandiolfini | Report as abusive

Corzine was basically fired, right? Why not just bring back John Thain?

Posted by right | Report as abusive

Don’t worry Felix, Government Sachs will roll out someone to smooth all of this over, and then they can get back to the business at hand – Making Money…. And a year form now, when the mid-term elections are completed, no one will care, or even remember that any of this happened…

Posted by edgyinchina | Report as abusive

Edit: And Felix, how can you say this:
(The job) “comes with so much downside and so little obvious upside”.. This person will not be paid a handsome wage???? How can there be so little obvious upside????

Posted by edgyinchina | Report as abusive

DanHess, I know facts don’t matter to you but the size of the currency swaps was insignificant compared to the overall debt Greece had – it “hid” about 1billion USD – it was widely reported at the time – hardly “hiding” – and it was in 2002, not exactly “as public scrutiny grew” but don’t let this stop your “outrage”. I mean never did in the past right?

Posted by Danny_Black | Report as abusive

DannyB –

You must not read much. Gary Cohn and his team went to Greece as recently as November 2009 to try to pitch the scam one last time. This time Greece proved to have a modicum of integrity and passed.

http://www.nytimes.com/2010/02/14/busine ss/global/14debt.html

I’ll help you out, in case reading is not your forte. Start at the fourth paragraph.

Posted by DanHess | Report as abusive

“The bankers, led by Goldman’s president, Gary D. Cohn, held out a financing instrument that would have pushed debt from Greece’s health care system far into the future”

Sorry Dan, but do you have any specifics on how exactly the debt would have been pushed into the future? Wouldn’t this be true of any refinancing? The article isn’t sourced, so we have no idea how scammy the deal in question may have been.

Posted by AEinCH | Report as abusive

You called it refinancing and you are right. It was a plain old loan. There is nothing wrong with loans.

The deception was to structure it in a way as to make it look like a currency swap, hiding the loan. This is a trick against Greece’s bondholders since it makes Greece’s debt situation look better than it actually is. Making Goldman look even worse is the fact that they also bought credit default swaps against Greece knowing that the Greek debt situation was worse than publicly appreciated, having played a role in hiding that debt. The following link is thanks to Felix back in February.

http://www.risk.net/risk-magazine/featur e/1498135/revealed-goldman-sachs-mega-de al-greece
“the cross-currency swaps transacted by Goldman for Greece’s public debt division were ‘off-market’ – the spot exchange rate was not used for re-denominating the notional of the foreign currency debt. Instead, a weaker level of euro versus dollar or yen was used in the contracts, resulting in a mismatch between the domestic and foreign currency swap notionals. The effect of this was to create an upfront payment by Goldman to Greece at inception, and an increased stream of interest payments to Greece during the lifetime of the swap. Goldman would recoup these non-standard cashflows at maturity, receiving a large ‘balloon’ cash payment from Greece.”

Now Goldman is shocked, shocked by the present charges. Well, this is against a backdrop of other less-than-honorable things. Perhaps they are safe in the Greek debt case because several sovereign nations were involved and nobody raised a ruckus for several years. Still it says something about their gumption that they tried to go back to that particular well even after receiving a Wells notice. Perhaps that was on the mind of the SEC.

Posted by DanHess | Report as abusive

Thanks Dan, I read about those currency swaps years ago. As Danny mentioned it was widely covered in the financial press and published in the Greek national budget. But what makes you think the deal pitched in Nov. 2009 bore any resemblance to this transaction?

Posted by AEinCH | Report as abusive

The NYTimes article suggests that they were of the same type. But its true, we don’t know the details.

One thing is certain is that Goldman is getting a disproportionate share of the beatings of late. J.P. Morgan and other banks did many of the same things…

I think it is because they are the leader. Because they are tops, they need to be much cleaner than second tier, fly-by-night firms. It is not enough to have average standards. You may give up a lot of sketchy business but you will get better business.

Posted by DanHess | Report as abusive