Goldman Sachs fund managers did not hesitate when a brokerage firm offered to sell them Venezuelan bonds for pennies on the dollar. Why not hop in and help fund a government that has left its people without food, toilet paper, and life’s basics? It never occurred to them that a decision to buy $2.8 Venezuelan bonds might result in some blowback and should have probably gone through the firm’s standards committee. That committee was created post-2008 so that senior management could take a look at investments that were shaky financially or socially. Goldman CEO, Lloyd Blankfein, trains employees on the importance of Goldman’s public perception, “Everyone has to have big eyes, big ears, know what’s going on around them, and be policeman for the organization.. At the end of the day, we only have one reputation.”
All good platitudes, especially the addition of the worn phrase, “at the end of the day.” Repeat them all you can and all you want, but the phrases cannot compete with what you reward and pay structure. A money manager cannot be swayed by such when he is offered bonds for pennies on the dollar. It’s what money managers do under current incentive and performance standards. Employees sit through the Blankfein lectures on reputation being the end-all and the cynical money managers do what they do best — buy low, cash in high. The training only makes them more cynical, which is why it did not dawn on them to seek approval. They buy cheap; it’s what they do. Goldman has a long way to go before its culture gives money managers the freedom to question reputational soundness of a bond investment in some bad actors. Set up standards committees, let your CEO do the training. ‘Tis all for naught if the culture is driven by results.
