The headline in The Wall Street Journal said it all: “Facebook Flip Riles Goldman Clients” A more apt headline, though, would have been: “Facebook Flop Exposes Goldman Disclosure Issues.”
Harsh? A bit, perhaps. But in reality, it’s likely closer to truth than fiction. For if anything over the past two weeks has shown us, let alone the past two years, it is that some large corporations continue to struggle with the modern standards of corporate disclosure and transparency, even with their own clients.
To be fair, Goldman has made a number of well-publicized attempts in recent months to thoroughly review its client services and its level of transparency with the public and government regulators. Just last week, the company unveiled a 63-page report that examined its business practices. Included in this report was a 39-point plan of action for ensuring ethical standards and best practices are utilized throughout its business.
But have you seen the other bit of news in recent days? The part about Goldman turning its back on its American clients that it heavily pushed into its mega investment into Facebook, valuing the not-yet-decade-old company at more than $50 billion (that’s twice the valuation of Yahoo!).
In a classic case of putting the profits cart before the regulatory horse, Goldman quickly realized that a) the massive amount of publicity it was gaining meant it could easily oversubscribe the investment with rich foreign investors (and thus, not have to worry about regulatory-minded and nervous American investors); and b) that oops!, placing several dozen exclusive American investors into what it thought could be a one-person investment might not work out after all.
Thus, what was already a shoddily-explained deal, lacking anything in the way of modern norms for disclosure and transparency, became even more engrossed in a web of questionable practices.
Early warning signs were everywhere: A statement from a Goldman spokesman to The Wall Street Journal claimed, in part, “our view was that it would not have been prudent for Facebook or for investors to have proceeded with the offer in the U.S.”
The Journal also noted that while Goldman took proactive steps to inform American clients that they would have to vacate their investments in Facebook, it conveniently glossed over one key detail: that Goldman had decided to block all U.S.-based clients.
Which begs the question: Why did Goldman put its clients — and the firm’s already shaky reputation — on the line when it was apparently clear very early on that this deal was hastily arranged? And why weren’t American clients given the full magnitude of the decision?
Where was the disclosure and transparency?
Not surprisingly, some U.S.-based Goldman clients are quite upset over having the rug — what would have likely been a very profitable rug — pulled out from under them. One wealthy Goldman client, who was planning to invest $2 million in Facebook, told WSJ, “”The whole thing has left a bad taste in my mouth.”
What was once hailed as one of the technology industry’s greatest investment triumphs, perfectly timed by a company that could use a dose of good publicity, appears to be another example of a corporation trampling on the vaunted level of respect Americans have for the value of corporate transparency and disclosure.
And until that respect is returned, businesses that make an earnest effort to properly inform the public and respect its trust will continue facing questions over their commitment to disclosure when others don’t return the favor.
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