Nonetheless, Blankfein and Goldman are still targets of public outrage as they head for a bonus season that could break all records. The CEO has been on a public relations campaign, trying to explain the link of pay to performance at Goldman and promoting industry-wide compensation standards that wouuld penalize bankers for excess risk-taking and allow for clawbacks, among other things. “He is ably defending Goldman against hoards of enraged citizens and politicians who believe that Goldman has gotten all the benefits of taxpayer-fueled bailouts without incurring any of the expected costs—such as tighter regulation,” says Peter Cohan, a management consultant and author of the forthcoming book Capital Rising.
Blankfein’s recent dust-up with a U.K. journalist over short-handed banter that turned into front-page news (“Bankers Do God’s Work”) is an example of some of the daily challenges he faces and why, going forward, his listening skills will continue to be paramount. Goldman is simply too large and too consistently successful to avoid poster-child status, whether the focus is on its reputation for compensation, ruthlessness, or client loyalty. Goldman’s success has earned it a place as the preferred subject for media and political scrutiny, if not a target.
Some may choose to take the other side of the bet, recognizing that eventually, of course, competitors will return, perhaps more globally this time with a less cyclical view of the risk equation. They may offer better bond prices and take some of Goldman’s market share; they’ll also hasten to mimic Goldman’s aggressive trading style, cutting into the firm’s profits. Even if that doesn’t happen right away, there’s the potential that Goldman’s traders will become so overconfident that they’ll blow the opportunity all by themselves. It has happened before.
In 1998, Goldman was beaming over past success and preparing to go public when it suddenly suffered big trading losses and postponed the IPO. But this is a firm that tends not to repeat mistakes. Goldman managing director Lucas van Praag says overconfidence isn’t a problem. “We don’t take anything for granted,” he says. “This organization is populated by individuals who are obsessed about not screwing up.”
A Phone, a Fax and a Small Office
When Lloyd Blankfein and other U.S. banking chiefs were called to meet with Treasury Secretary Hank Paulson and Fed Chairman Ben Bernanke, they could not have known what was in store for them, but they must have assumed it was not going to be a social occasion. And although the winds were blowing cold, there wasn’t a hint of the meeting’s actual objective.
Upon arrival, it became clear that the Treasury and Fed had fashioned a rescue package that required all of the summoned bankers to sign the term sheet that obligated their firms to cooperate with the government rescue package, and sign on for as much $25 billion per firm. Blankfein understood there was no leaving without agreement, but stood his ground over one technicality: he needed his board’s approval. The Goldman Sachs chief asked if he could have a place he could call a board meeting. He was ushered into a small office where he spent the next three hours with a phone and fax, using them alternatively to fax the term sheet and hold the board call. Blankfein was among the last to leave the Treasury building, and his board was the first to authorize the TARP agreement.
Contributor Anna Snyder contributed to this article.