Bailout

Revamping Goldman?s board

By Felix Salmon

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.

Full post as published by Macroprudential on February 09, 2010 (boomark / email).