Rebuilding Goldman’s Social License

While millions of Americans remain unemployed, Warren Buffett and Goldman Sachs are doing pretty well.

At the annual shareholder meeting of Berkshire Hathaway, Inc., Warren Buffett was quoted, “We love the investment ($5 billion investment in Goldman Sachs Group Inc).  I do not hold against Goldman the fact at all” that the SEC sued. He said it did not fall “within my category” of where reputational issues would call into question the Berkshire investment (as reported by MSNBC.com, 01May10).

Why didn’t Warren Buffett just say, I don’t care how Goldman makes its money just as long as Goldman keeps making money, whether its legal or not.

The question remains, has Goldman endangered its most valuable intangible asset – it’s social license.  As defined by Daniel Gross (Newsweek, 03 May 2010), “Social license is… something like reputation. Social license describes how a company plays with others and how it responds to problems.”

British Petroleum, “which has followed up a disastrous refinery explosion with a disastrous oil spill in the Gulf of Mexico, is in the process of squandering its social license.”

A list of companies that have squandered their social license include Author Anderson, Enron, and Lehman Brothers, to name a few.

According to Gross, “Goldman makes most of its revenues from trading on its own accounts, but it made its name, and established its brand, in investment banking and asset management, two businesses that depend almost entirely on customers thinking they are getting good advice and treatment.”

So what can Goldman do to regain its social license and avoid the same fate as Author Anderson, Enron, and Lehman Brothers?

A startup offers Goldman a viable and cost effective alternative.  The online information service (http://www.zethics.com) provides U.S. corporations, public and private, the tools to identify, contain and fully disclose risks directly to shareowners and investors – improving the governance, control, and risk management process.

Providing employees a structured process to disclose information about a company’s fundamental strengths and weaknesses is an internal audit best practice.  The online forum allows investors to see across all departments, regions and silos of the enterprise to ensure top management is adequately addressing risk oversight, corporate strategy, transparency, and executive compensation.

The term “black box” is being bandied about by commentators, referring to the utterly mysterious ways that financial institutions like Goldman conduct their businesses — totally opaque to outsiders’ eyes, reveling in their secrecy, and resisting transparency that would allay suspicions of behavior “unfriendly” to markets in general and their trading partners in particular (Jim Kristie, editor and associate publisher of  Directors & Boards).

To quote Leon Mr. Panetta, “Exercising oversight in the sanctity of the boardroom and proving that you have done it are two different things. In order to restore trust, boards have to prove it, (Directors & Boards, 2003).”

zEthics offers top management and the board at Goldman a unique opportunity to restore trust by proving it to shareowners, regulators and the public.

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About zethics
CEO and founder of zEthics, Inc. Thirty years of experience with finance and accounting background in public private sectors.

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