Race to the Top

As highlighted in an ERM Current™ blog entry last week, Goldman Sachs' CEO Lloyd Blankfein delivered a speech to the Council of Institutional Investors regarding his views on what contributed to the current financial crisis.  He offered a challenge to other financial institutions in his closing remarks below.

Though honest disagreements will occur, the best companies don't shy away or selfishly frustrate efforts to compel better industry practices. These companies recognize that they are the first to benefit from better standards, especially if their business requires extensive dealings with partners or counterparties. But, we have to recognize a higher responsibility: to speak up, to draw attention to potentially destabilizing trends and to act like an owner responsible for the integrity of the system.

During the past several years, we have witnessed a "race to the bottom" in terms of poor decision making, lax risk controls and weak regulation.  Let's hope Mr. Blankfein's viewpoint signals the beginning of a new "race to the top".

Tough Talk on Pay and Risk

Today, the Wall Street Journal reported that Goldman Sachs' CEO Lloyd Blankfein called on financial institutions and regulators to take a tougher approach to link compensation and risk taking.  Here's what he had to say in a speech yesterday to the Council of Institutional Investors.

When deciding on pay for traders, bankers and other employees, Wall Street firms should take into account not only the contribution the employee made to profit or loss, but also the risks taken and the overall contribution to the better functioning of markets. The evaluation "must be made on a multiyear basis to get a fuller picture of the effects of an individual's decision," Mr. Blankfein added. Regulations should get tougher in bull markets, he added, much like the Federal Reserve tries to keep the economy from overheating, he said.

This is a refreshing point of view from one of the top CEOs.  It remains to be seen if other top executives will view the situtation in a similar light.