By Eleanor Bloxham, CEO of The Value Alliance and Corporate Governance Alliance
FORTUNE -- Deal making runs deep in the veins of Goldman Sachs -- and they are good at it. But one recent transaction which will be in play as the board meets in India today isn't a good deal for everyone: governance at Goldman just got worse.
For its part, the bank seems to be pleased with its side of the bargain with the American Federation of State, County and Municipal Employees pension fund. The agreement eliminates an AFSCME proposal, which would have given shareholders a vote on whether Goldman's CEO and chair roles should be split. Both the bank's 2011 and 2012 corporate governance guidelines say the board will "review its leadership structure at least annually" and the board will consider "the views of the Company's shareholders" in making that decision. But spokesperson David Wells suggests the bank is happy to have dodged a shareholder vote on this topic this year: "We appreciated the constructive talks with AFSCME," he says.
In exchange for the withdrawal of the proposal, Goldman (GS) agreed to change the title of its chair of the corporate governance and nominating committee from "presiding director" to "lead director" and add a few additional responsibilities to the role.
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Lisa Lindsley, director of capital markets strategies at AFSCME's pension plan says she was "happy with [the compromise] as an interim step but not as an ultimate board structure." "We want to see an independent chair," she told me. "This board has some serious governance issues. A board member [allegedly] doing insider trading during a board meeting? And he was an independent director."
Lindsley says the pension fund had decided to reach the agreement with Goldman because they wanted to "be reasonable, reframe their relationship and be more constructive." She says the bank had agreed to be more open to conversation but no schedule has been set for what she hopes will be ongoing dialogue on governance issues with the firm.
Unfortunately, the fine print of the current agreement is much worse than a disappointing interim step. It places weak independent board members even more under the thumb of CEO Lloyd Blankfein.
Sarbanes-Oxley mandated that public companies hold executive sessions in which a company's independent directors meet with no member of management present, which independent directors universally applaud. Independent directors should control those sessions, the content, and the timing. JP Morgan (JPM), in its guidelines, rightly describes how executive sessions should operate. "The independent directors will generally meet in executive session as part of each regularly scheduled board meeting... These sessions will provide the opportunity for discussion of such other topics as the independent directors may find appropriate." In this case, I would approve Goldman's copying off JPMorgan's paper.
But under the new plan -- not in place until this month -- Blankfein will get to shape the agenda for those sessions. Through the new lead director, the CEO will be asked "to identify matters for discussion at executive sessions of the independent directors," the new guidelines state. More
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