There is no surprise that Goldman settled with the SEC yesterday. The firm would have been foolish not to, and the sooner the better. Two surprises did come out of the settlement, one minor and one major:
• The minor surprise was the settlement amount of $550 million. I thought the SEC would peg the fee to get out of the penalty box at $1 billion, a number that would memorialize for the ages the whole reason it brought its case against Goldman. In my opinion, at its core this case was never really about Abacus. It was a statement by the SEC that the ethos of Wall Street, from the head firm (Goldman Sachs) down through the tentacles of every trading outfit, was poisoning the capital markets and jeopardizing the soundness of the economic system. The lower number dialed down that statement, but the SEC accomplished its intended and appropriate "come to Jesus" moment.
• The major surprise was that Lloyd Blankfein kept his hold on the firm. "Some had speculated the legal dustup would at least cost him his chairmanship," noted New York Times reporter Graham Bowley in his account of the leadership implications of the SEC deal for Goldman.
I never expected that the SEC would force Blankfein out. I did anticipate that, in allowing him to stay on as CEO, the agency would insist on the firm having an independent nonexecutive chair. This would not have to be a permanent split, but long enough — perhaps two years — for the firm to rebuild its battered reputation.
This is the action that would have made a substantial statement to a nation still suffering from the ill effects of a Wall Street gone amuck that the leading firm in finance is indeed serious and committed about finding its "true north" again.
I use that phrase deliberately, because here is the thing — Goldman Sachs has sitting on its board the one person who could step into the nonexecutive chair role and get the firm perceived as being regrounded in a sense of ethical leadership. That person is Bill George (pictured). Mr. "True North" himself.
A passing glance at Bill's career — his business accomplishments and contributions to the thought leadership of "doing the right thing" — would persuade that Goldman had taken a decisive step in addressing its defaced image. That should have been a desired outcome of the settlement, one that the firm fully embraced — meaning that Goldman might have proactively taken this action, with or without SEC prompting. It certainly could live with shared leadership, as there is a legacy of shared leadership (albeit insiders) of the firm, as witness the eras when John Whitehead and John Weinberg shared the reins, and then when Robert Rubin and Stephen Friedman were co-leaders.
So, a major surprise in the Goldman SEC settlement, and a major missed opportunity for the firm to restore a sacred reputation for trustworthy and far-sighted leadership.