Goldman, Wall Street and A Culture Crack-up

Andrew Goldberg, EVP and Head of the Change Management Practice at Makovsky + Company is today’s guest blogger.

The recent allegations of a mid-level banker at Goldman Sachs, Greg Smith, that the firm relegates client needs to its search for quick profit is only the latest in a number of events since before the financial meltdown that highlights a culture of greed. For Goldman, what seems to be the expression of heartfelt emotional pain of a long-term employee conflicted over ethics, this places it at a reputational crossroads.

Goldman has weathered and rather successfully survived outside criticism from regulators and the media, even as it fends off legal challenges from the SEC and others. But when your own people, occupying critical positions in your core trading business, begin to lose faith or react in anger against the firm, it is an indication that the internal system is cracking. And when your people lose confidence in your business model, your clients will also. The survival of the firm is then put at risk.

The question for Goldman now is how to contain its reputational damage.

The first step was a letter from CEO Lloyd Blankfein and President Gary Cohn to their employees which was on its face self-contradictory. The letter first makes the critic and his claim seem unimportant—as just one of thousands of employees rather than one who worked his way up over twelve years with long-term client relationships—and his experience unreflective of the larger culture of the bank. But then it goes on to say that the senior Goldman executives would now examine Smith’s claims of callousness toward client interests. This indicates the claims might have some credence. These language contortions raise doubts as to how thoughtfully Goldman is addressing what could be similar concerns on the part of others at the bank. Nor does it seem that Goldman was considering how outsiders, including the media, would interpret the letter.

Such an ambivalent approach cannot work easily, given the pounding Goldman has already taken. A clearer direction is needed:

First—the company should avoid acting in a punitive way toward an employee who on the face of his claims actually has the interest of the firm at heart. Although it is reported that the company has tried to reach Smith, it is not clear how and under what circumstances. Instead, he should be publicly invited in to meet with top management and speak frankly regarding his concerns—along with the knowledge that the company will hold him harmless from legal action arising from his open letter to the Times.

Second—and a much bigger challenge to address, is creating internal structural barriers to the embedded conflicts that face many trading houses. One step would be contracting with a prominent outsider such as a former Justice Department executive, who can dispassionately assess potential conflicts and has the ability to go directly to the Board of Directors with any findings of abuse.

Finally—the Goldman board itself needs to take an activist role in sustaining its reputation. Since the financial meltdown and subsequently the recent boom years of record profits, Goldman’s board has played a quiet role despite continued reputational hits. Taking the lead in a thorough audit and correction of cultural risks and conflicts at Goldman is an essential role for Goldman’s board at this critical time.

What happens now is a test-bed not only for Goldman, but for Wall Street. As the biggest player, how it handles its suggested cultural crack-up will be benchmarked by its peers. It can be hoped that Goldman will act with the health and integrity of its industry in mind.

The Internet as Leader

I’ve been fascinated with the amazing worldwide expansion of the Occupy Wall Street movement, and yet have seen very little coverage of how it happened.

Was there a leader driving this protest into major countries throughout the world? Where has the money come from? Is there a governing body making decisions that enabled the group to grow?

Based on cursory research, I can find no single leader driving this movement. It is a true child of the internet. It seems to have all started with a blog posted by the Canadian-based Adbusters Foundation urging that there be a protest against greed and to encourage greater income equality. The protest suggestion was restated in an email sent by Adbusters to its list and it was “spontaneously taken up by all peoples of the world,” according to Micah White, senior editor of Adbusters Magazine.

It is unique to have a spreading movement managed without an adept leader at the helm. The Occupy group, however, attributes its governance to a General Assembly — it says no one leader runs it; rather, various people speak and lead at different times. Thus, it appears to be the epitome of democracy, unlike most other protest movements.

It is my conclusion, therefore, that the internet, in effect, is the leader. It has led the global expansion. It has influenced the very democratic approach because of its communications range and “all hands” approach. Certainly, without the internet, the participants would not be talking to each other and both encouraging and enabling a global conversation. Occupy’s very effective slogan, “We are the 99%,” is all over the internet, and it is motivational. The internet serves as a fundraiser and has helped collect over $750,000, applied to support the needs of the protesters.

Once again, communications is the power behind the throne.

The “Occupy Wall Street” Communications Gap

One of the principles of good communications is — communicate. Be strategic and be clear. Right now, the Occupy Wall Street (OWS) movement, which is spreading throughout the U.S. and the world, has something to say to business and government, however mushy its goals and confusing its messages. Business and government, however, are not communicating back.

The question is why? Further, if they did respond, what should they say or do?

People only protest when they are frustrated and the normal processes are not working. Perhaps there is no response because the message is not clear. But one point the protesters have made clear is that they are “the other 99%,” separated from the moneyed 1%. Whether you agree with it or not, the message stresses extreme income inequality in a challenging economy with a 9.1 % unemployment rate. Further, those listening should have seen enough surveys of the public that show substantial agreement with what they believe the goals of the OWS movement to be. A survey mentioned in Saturday’s New York Times article, “Occupy-apalooza Strikes a Chord,” revealed that 54% of Americans polled approve protesting against policies that favor the rich, the government’s bank bailout and the influence of money in our political system; 68% felt the rich should pay more in taxes; and 79% felt the gap between the rich and poor in the U.S. is too large. These findings are substantiated by other research.

Perhaps there has been virtually no response because business feels the constituency participating is too small, and therefore not worth paying attention to. Also, many in leadership financial firms have derided the participants as a bunch of hippies, college kids and ragged individuals who have nothing better to do with their time. And they might further diminish the worth of this group because of those joining the protests who are unaware of the economic mission and simply see it as a cool thing to do…a 21st century version of Woodstock at Zuccotti Park.

Regardless of the reasons, business and government are making a mistake not responding, just because of the growing size of the group and the media attention they are getting. In the same way that people were individually affected by the military draft during the Vietnam War protests, today’s taxpayers have been individually affected by the bank bailouts and the mortgage crisis. The Vietnam War protests grew exponentially, bringing significant social changes and, if nothing else, ended the draft and brought down a president. The current protests will pick up speed the longer there is no response.

While a handful of business leaders have come out in support of the OWS group, such as the CEOs of GE, Citibank, PIMCO, Wells Fargo, Starbucks and others, that is less important than their willingness to engage and discuss.

A blog written by E.D. Kain on the Forbes website stresses that “Corporate America has done a lousy job” marketing and explaining “the benefits of a market economy.” Business leaders, in particular, he says, need to engage “honestly…and sincerely,” addressing the protesters’ frustrations on points of genuine concern. That’s half the battle.