Investment banking, securities and investment management firm Goldman Sachs Group Inc. is capitalizing on its credit crunch resilience. While rival banks face the prospect of having to overhaul their shamed boards, Goldman has afforded itself the luxury of broadening the knowledge base of its own. It added billionaire steel magnate Lakshmi Mittal over the weekend, its first new director since Lord Browne, the former BP boss, departed amid a personal scandal in May 2007.
Mittal, the richest Asian in the world, brings a wealth of experience in the one region that is still booming for investment banks. As an arch consolidator, his advice also could be valuable if the financial sector undergoes another round of mergers, as expected. That said, putting a deal-prone industrialist on the board leaves Goldman yet another potential conflict. The latest story in the Financial Times says Mittal could buy a stake in Rio Tinto. Goldman, Mittal’s regular adviser, is helping BHP Billiton in its $160 billion (almost Rs7 trillion) hostile bid for Rio, so they could conceivably be on opposite sides.
Mittal isn’t just joining the Goldman board. He’s sitting on three key committees: audit, compensation, and corporate governance and nominating. That gives him an entrée to push for more changes to the board. For starters, the addition of Mittal makes a baker’s dozen. The Wall Street firm would do well to shed a few of its 10 non-executive members. Big boards diffuse accountability too thinly. Also, all of Goldman’s non-execs—but for one exception—sit on all three of the main committees. That seems excessive and ripe for a review. Finally, though Goldman might believe directors were sufficiently educated about balance sheet hazards during this painful round for the industry, it wouldn’t hurt to prepare even more for the next one.
Half the non-execs come from non-financial businesses. The other half is a mixed bag of economic, insurance and investment professionals. Widening the pool of recruits to more financial experts—who can delve into Goldman’s black box, understand how it really makes money and what risks it is running—would be worthwhile. Mittal, the director with the biggest fortune and the biggest reputation to lose, has the incentive to push for this.