Friday, 16 March 2012

Maybe customers don't care about ethics at Goldman Sachs

I wonder whether my strictures against Goldman Sachs ethical standards are mere self-righteousness on my part. The thought arises from the evidence: a tidal wave of criticism and bad publicity after Greg Smith resigned from the bank and published a valedictory letter in the New York Times shifted the share price not one jot. See here.

It has long been an article of faith with me that dedication to the well being of your customers is what leads to success. Of course you worry about your own profitability but you put your faith into building a loyal customer base that does business with you because they trust you and because you deliver what they want at a good price. But why do they not desert Goldman? They probably believe the tenor of the letter, that they are described disparagingly as 'muppets' and that Goldman Sachs focuses exclusively on what can be earned from them. After all there has been plenty of previous publicity given to Goldman Sachs selling securities that the bank analysts thought were a very bad deal. Maybe customers believe it is only other customers who are patsies. Maybe they believe all Wall Street firms are the same. Frank Partnoy writes in the FT that clients you deal with through the markets are a very different thing from those you advise and to whom you have a fiduciary duty.

But, despite the evidence, I am unreformed and unrepentent. Even without evidence to support me I believe that unethical attitudes to outsiders (customers, suppliers, competitors and regulators) lead to unethical attitudes to insiders (colleagues, shareholders and the organisation). I believe that governance and performance are damaged in the long-term.

Robert Peston, for the BBC, points out that Goldman Sachs reputation for being a bit too sharp for its own interests has been around for a long time. But he too ends his article by expressing the view that they must mend their ways if they are to survive and prosper. Perhaps, like me, he clings to his moral certainties over the evidence of his eyes.

We will have to wait and see...I'll check that share price daily

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