Goldman Caves to the Boos
The spotlight lingered on the work culture at Goldman Sachs (NYSE:GS) after a report that recent judicial criticism was forcing the firm to enhance internal disclosure rules for its investment bankers.
On February 29, a Delaware judge ruled that advice from Goldman Sachs that was resulting in a $21.1 billion sale of El Paso Corp (NYSE:EP) to natural-gas pipeline operator Kinder Morgan (NYSE:KMI) had multiple potential conflicts of interest.
Not only does Goldman have a multibillion-dollar stake in Kinder Morgan, but its top energy banker and one of the main advisors to El Paso, Stephen Daniel, holds a $340,000 personal stake in the acquiring company.
Judge Leo Strine said he would “reluctantly” allow the deal to move forward. “At this stage, I cannot readily accept the notion that Goldman would not seek to maximize the value of its multibillion-dollar investment in Kinder Morgan at the expense of El Paso, but, at the same time, be so keen on obtaining an investment banking fee in the tens of millions,” Strine added.
After the Wall Street Journal first reported on the story, Goldman said in a statement on Friday that it was reviewing internal policies. “We regret the El Paso Board wasn’t aware of the investment and are reviewing our policies and procedures related to bankers’ investments and how they are disclosed with the goal of strengthening them,” the statement read.
According to WSJ, Goldman could potentially ask its investment bankers to disclose all of their stockholdings before they start advising on a deal. Competitors Barclays, Bank of America (NYSE:BAC), Merrill Lynch and Citigroup (NYSE:C) were exploring possibilities of doing the same.
Personal stockholding disclosures were considered a “common-sense” measure, one banker was quoted by the Journal as saying.
Morgan Stanley chief executive James Gorman said on Friday that conflicts were inevitable, but companies should be transparent with clients. “The more obvious the conflict, the higher the standard of care,” Gorman was quoted by Reuters as saying at a New York event. “There is inherent conflict—I can’t just say you can’t do it.”
Earlier measures by banks to have employees disclose holdings on the basis of a threshold amount of stock could change to enforce disclosures for all amounts and for bankers at all levels.
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