“Those who fail to learn from the history are condemned to repeat it”. Going by the last week and the events hitherto, Churchill’s quote couldn’t have found a more deserving candidate.
Goldman Sachs- a torch bearer in the investment banking also holds the dubious distinction of often straying from the “ethical”, “legal” and “compliance” ethos of the financial world. These are the very values that espouse faith and confidence in stakeholders and investors as equal. For several years now, Goldman Sachs(hereafter,GS) has been accused of several misdeeds ranging from the role in 2007-08 financial crisis, involvement in European Debt Crisis, lopsided company culture and market manipulation.
On 22nd October, GS admitted to its offence and agreed to pay nearly USD 3 billion in penalty for alleged bribery in 1MDB case. Overall, GS needs to shell out more than USD 5 billion for its sheer non compliance across Asia, Europe and America. If the quantum of penalty isn’t surprising, the manner in which the group operates is most certainly is! Why is it that a company almost always finds itself on the other side of the regulations? What makes the company which boasts of a vast talent of specialists indulge in unscrupulous activities? Whether, it’s the greed, winning-at-all-cost attitude, myopic vision or plain foolishness?
It has been a fairly simple playbook affair for GS. Indulge in “wrongful activities” make “quick profits” and when get caught “pay the fine”. And the cycle repeats! There’s no remorse. The involvement of GS in many of the major financial scandals in last one decade highlights the arrogance with which the firm has operated. The rules, regulations and guidelines at best serve as the mitigant but they are not a good deterrent. This is precisely the reason that just by paying a monetary fine (even the hefty ones) GS non compliance juggernaut rolls on.
It’s high time the regulators and the larger investor community must work in tandem to stem the rot. Shareholder activism must not be relegated to the textbooks and a handful few. With the advancements in technology, the sandbox approach to implement dynamic statutes must be encouraged.
With rising non compliance and legal costs, GS and its stakeholders have enough to ponder. Whether GS learns from the history or turns into one is for it to steer. But the consequences of non compliance can be unforgiving for a systemically important bank especially when an uncertain economic environment is looming large.