Goldmansachs Power House
Essay Preview: Goldmansachs Power House
Report this essay
Corporate Social Responsibility (CSR) refers to the expectations placed on businesses in regards to social and environmental responsibilities. It also includes reporting protocols and responsible practices that are honest and in the best interest of all stakeholders, including the community. According to Steiner and Steiner (2009), some of the principles of CSR are ethical performances of the managers, adherence to the laws, compliance with social and environmental issues, corrective action taken when society or the environment are affected negatively, and a strong emphasis on meeting the needs of the stakeholders. It may seem pretty simple to identify CSR practices; however, this term has generated disagreements between companies, their stakeholders or members of society. Such is the case with Goldman Sachs, an investment bank.
Goldman Sachs states that it is a company that brings people, capital and ideas together to produce solutions and results for its clients. The firm functions as financial advisor, lender, investor and asset manager. According to the companys website, its success is based on business principles as follows:
Its people, capital, and reputation are their assets.
Providing superior return to their stakeholders is a goal.
Great pride is taken in the professional quality of its work.
Creativity and imagination is stressed in all they do.
Unusual effort is made to identify and recruit the very best person for each job.
Its people are offered opportunities to advance at a faster rate than other companies.
Teamwork is stressed in everything that is done.
Its people are dedicated to the firm.
Effort is placed on preserving its size.
Constant in anticipating changing needs and meeting those needs.
Client confidentiality is highly respected and honored.
Aggressive with expanding client relationships.
The heart of the firm is its integrity and honesty.
Goldman Sachs has had over 130 years of prosperity during good and bad financial times. Gross (2008) referred to Goldman Sachs as the elite among Wall Streets remaining investment banks. The Funding Group (n.d.) however, states that after the terrorist attacks in September 2001, Goldman Sachs, like many businesses, began to experience a downturn in their revenues and earnings due to the weak market conditions. But, was this event the reason for the firms downturn or did the firms lack of CSR impact its bottom line? The answer depends on who responds.
Critics of Goldman Sachs claim that the firms success during the financial crisis came at the expense of its clients and the American economy. They claim that Goldman Sachs was heavily involved with the subprime mortgage scandal that offered ridiculous mortgages to people who were not able to afford the loan conditions. Gordon (2009) referred to Goldman Sachs in a different role, “the big banker that takes away the homes away from folks”. Unable to be identified by borrowers in a timely fashion, homeowners were not able to contact Goldman Sachs banks to work out payment options so that the homeowners could keep their homes. So instead, many homes were foreclosed.
In April 2010, the Securities Exchange Commission (SEC) charged Goldman Sachs “for defrauding investors by misstating and omitting key facts about a financial product tied to subprime mortgages as the U.S. housing market was beginning to falter” (SEC, 2010). SEC accuses Goldman Sachs with intentionally creating and selling a mortgage investment that was intended to fail. Specifically, SEC alleges that Goldman Sachs purposely and wrongfully permitted betting against the mortgage market to influence which mortgage securities to include in an investment portfolio. At the same time, however, Goldman Sachs was telling other investors that the securities were selected by an independent and objective third party.
Goldman Sachs flatly rejects the allegations of SEC. While they dont deny that they set up the deal with Paulson & Co., who bet against the mortgage-backed securities, Goldman Sachs claims that setting up the deal in itself is not a problem. They further argued that Paulson & Co. was not a strong partner in the deal as they were not one of the major purchasers. ACA Capital Management had input into the choice of securities. Goldman Sachs claims that it did not deceive ACA about Paulsons interest in the deal. Furthermore, Goldman Sachs stated that they fully disclosed the mortgage securities involved and that all the investors involved in the deals knew that synthetic collateralized debt obligations (CDOs) had a long and short side. In addition, Goldman Sachs claims to have lost $90M in this deal.
Another critic of Goldman Sachs is in the fact that during the economic crisis, the firm awarded lucrative year-end bonuses and payouts estimated to be around $6.7B to its partners in 2008. The controversy arises because the firm had just received a $10B bailout from the US government–from taxpayer money. So, during the economic crisis when many hard-working Americans were losing their jobs and homes, they were also paying a Christmas bonuses