KUALA LUMPUR (Oct 23): The following is Goldman Sachs chairman and chief executive officer (CEO) David M Solomon’s memo to global employees, reproduced in full.
As you have all seen, the US Department of Justice, along with regulators in the US, UK, Singapore and Hong Kong, announced settlements with Goldman Sachs that resolve the government and regulatory investigations of the 1MDB matter.
This has been a long process and we are pleased to be putting these matters behind us. But, we are not putting the lessons learned from this experience behind us. I have thought a lot about our role in the 1MDB transactions and have weighed carefully the findings of the investigations. Nearly two years ago, I said to all of you that our obligation is to be self-reflective and self-critical. That is more important than ever today.
While it is abundantly clear that certain former employees broke the law, lied to our colleagues and circumvented firm controls, this fact does not relieve me or anyone else at the firm of our responsibility to recognize two critical realities.
First, as an organization that seeks to live up to a common set of ideals and values, we are responsible for each other’s actions. We all share in the benefits when our colleagues perform well for our clients. The opposite must be true as well. When a colleague knowingly violates a firm policy, or much worse, the law, we – as a firm – have to accept responsibility and recognize the broader failure that individual behavior represents for our firm.
Second, we have to acknowledge where our firm fell short. While many good people worked on these transactions and tried to do the right thing, we recognize that we did not adequately address red flags and scrutinize the representations of certain members of the deal team, most notably Tim Leissner, and the outside parties as effectively as we should have.
There are consequences for not getting it right and this settlement is an important acceptance of this fact. Today, our Board of Directors announced action with respect to past and current senior management compensation, among other areas of focus. This action is entirely appropriate under the circumstances. The Board’s announcement is an important reminder that we are all responsible for each other’s actions, including our collective failures.
Several years ago, we began making significant enhancements to our compliance and internal controls. Several of our regulators have noted these substantial enhancements in their settlement documents. These improvements include re-designing our framework for addressing reputational risk, including the creation of a Firmwide Reputational Risk Committee that is made up of predominantly control-side members who are empowered to stop any transaction. More broadly, since the 1MDB transactions eight years ago, our Global Compliance Division has nearly doubled in size.
More recently, we imposed additional conditions for sovereign-related financings, including requiring certifications from certain government bodies on the use of proceeds within six months of a transaction closing and subjecting these transactions to review by an independent team of bankers. In addition, we have created a Compliance Forensics Program that ensures forensic reviews focusing on people, places, events and processes that could present risk. Related to this effort, we established an Insider Threat Program that leverages enhanced surveillance analytics to prevent and detect potentially harmful action by employees.
Over the past several years, we have materially changed our focus to put reputational risk at the center of our decision-making. We must always remain open to improvement, learn from our mistakes and accept the consequences when we fail.
We must continue to hold ourselves to the highest standards, and each of us has a vital role to play. Our success as a firm can only be ensured through a culture rooted in integrity, shaped by a long-term mindset and guided by a sense of personal accountability and responsibility for our actions.
David M Solomon