Tuesday, March 20, 2012

No reputation is too big to fail: Lessons learned from Greg Smith's New York Times op-ed on Goldman Sachs

Posted by Joe Anthony
When your business is built on providing investment services or financial advice, your primary currency is trust. When a competitor questions your ethics or trustworthiness, the strike can sting. When an employee or client calls your ethics into question, the blow can be crippling, if not fatal.

TARNISHED GOLD: Goldman Sachs'
reputation takes a hit 
Word spread quickly last week The New York Times published a scathing op-ed by Greg Smith, a significantly accomplished employee who himself was still on the payroll with Goldman Sachs. Needless to say, the op-ed sent ripples through the investment industry as well as a wide swath of social media channels.

Some viewed the op-ed as "career suicide" for the author. Others saw this as a public rebuke of the inherent conflict of interests that exist whenever a business profits from the control it has over another's money. For investment management firms and wealth management professionals, there are some lessons to be learned -- particularly as it applies to protecting your reputation and controlling your business's image.

1. No firm is immune. In fact, the firms with the greatest satisfaction (read: complacency) with their self-image are most vulnerable.

2. Reputation management starts before the crisis hits. How you treat every client relationship, every employee relationship, and every vendor relationship can and will be held against you in the court of public opinion, if you don't act with integrity.

3. Tell your story before someone else does. Goldman Sachs has espoused an ivory tower approach to media relations. This has left the outside world, media included, to wonder what is happening inside the operation. Is there a real reason to be secretive and limit access to the professionals driving key business lines? Perhaps this lack of recognition by the non-Goldman world drove Greg Smith to tell his story?

4. Be proactive in introducing your client-facing personnel to the outside world via social media, blogs, media interviews, etc. Very few people are authorized to speak on Goldman Sachs' behalf, and rarely were those spokespeople the actual people that worked hand-in-hand with clients. This disconnect between the voice of Goldman Sachs and the customer experience has crippled the company's ability to communicate an effective response to this op-ed, which it posted on its website.

Goldman Sachs' response to Greg Smith's op-ed shows that the firm is protective of its reputation. But rather than being on the defense, the firm could serve itself better by remaining proactive in reminding its customers and the industry why it had been regarded as a standard-bearer firm. Why not let the world see the good that you are doing?

The formal letter of response, articulated by the voices of CEO Lloyd Blankfein and President Gary Cohn, buried the most important point in the last paragraph: "Our response is best demonstrated in how we really work with and help our clients through our commitment to their long-term interests."

Goldman Sachs underestimated the possibility that some employees -- and quite plausibly, some clients -- were dissatisfied and disappointed. Generally, the company has failed to let the stories of its good work be told, and cited an internal employee survey as a means of self-defense in this case.

For investment firms, during this time of consternation about Wall Street's role in the overall financial welfare of America, there is a need to do as Goldman said in its response letter: Demonstrate a commitment to your clients' long-term interests. But, don't forget to tell people about it.
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