The highly public resignation of Goldman Sachs executive Greg Smith provides a teaching moment about the board of directors’ role in company culture. In a letter published in the New York Times, Mr. Smith says the reasons he resigned from his high level position should be a wake-up call to the Goldman Sachs board. Mr. Smith explains that the firm's environment had become as "toxic and destructive" as he had ever seen it:
Goldman Sachs today has become too much about shortcuts and not enough about achievement. It just doesn’t feel right to me anymore … Make the client the focal point of your business again.
Mr. Smith's letter points out two issues that affect many companies. First, the desire to make money for the sake of making money can crowd out a corporate culture that cares about doing business for any other reason. Second, many companies unfortunately have a short-sighted view about how its actions and reputation will affect its long term prospects. Companies that possess these characteristics manifest the "shareholder first" view of the corporation.
Culture is an issue for the board of directors because it presents both a risk and an opportunity. A company culture that is loose on compliance and ethics issues can create legal and reputational risks to the company. A company culture that encourages and rewards responsible corporate behavior can result in a strong, positive reputation that can help attract top talent and investors.
On the one hand, risk oversight is a corporate governance issue for the board. The board must understand the corporate culture and help set the tone at the top. The board can do this through its own actions and its messages to the executives. On the other hand, culture is a part of the firm’s strategy. As such, the board has a role in understanding and reviewing the company culture and how it relates to strategy execution and financial performance.
I was at a meeting of in-house counsel and corporate governance advisors this morning where Mr. Smith's resignation became a topic of discussion. Everyone cringed at the thought of this happening to their firm in a such a swift, public manner.
Goldman Sachs vigorously disagrees with Mr. Smith’s characterization of the firm. CEO Lloyd Blankfein and President Gary Cohen told employees that they were “disappointed to read the assertions made by this individual that do not reflect our values, our culture and how the vast majority of people at Goldman Sachs think about the firm and the work it does on behalf of our clients.”
Whether Mr. Smith’s description is accurate is not the point. The takeaway is that culture is not some amorphous concept. It's about how you do business, how you treat your customers, how you reward your employees. It affects the bottom line. Culture is an issue that your firm’s board of directors must address.
Does your board have enough insight into the company’s culture?
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