Goldman dodges a shareholder battle that dogs rivals

When Goldman Sachs filed its shareholder proxy earlier this month, it was free of a proposal that has become increasingly popular among corporate governance activists: a demand for more disclosure about lobbying.

Goldman's big Wall Street rivals can't say the same. JPMorgan Chase, Bank of America, Citigroup, and Morgan Stanley all face lobbying-disclosure proposals this year. Some activist shareholders want the banks to be more transparent about their lobbying objectives, disclose more about the trade groups they belong to and say how much money they spend to influence policy.

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Goldman persuaded the Needmor Fund—which had sponsored a lobbying-disclosure proposal on the investment bank's proxy in 2013—not to try again this year. Goldman's lead director, James Schiro, went on a tour to hear the views of groups of shareholders after taking the role last year and sought to work out compromises, people who attended the meetings told Reuters.

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"We don't want to engage after the fact, we want to be able to deal with the issues by listening and engaging ahead of time," said John F.W. Rogers, chief of staff and secretary to Goldman's board of directors. "We believe this approach has been very productive."

A representative for Needmor Fund, whose proposal received the support of just 5.64 percent of Goldman shareholders voting last year, said Goldman is moving in the right direction. For instance, the bank now issues periodic statements about its lobbying activities and political spending, and has an ongoing dialogue with shareholders about the disclosures.

"In light of their strong policy on political spending, as well as their partial disclosure on lobbying, investors decided not to pursue the lobbying resolution for this year," said Timothy Smith of Walden Asset Management, who represented Needmor in discussions with Goldman.

The steps Goldman has taken have gone over well with shareholders, Smith said. This year its proxy has just one shareholder proposal, down from four in 2013.

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Goldman's private discussions with a variety of shareholder groups—whose concerns can range from return-on-equity to climate change—have allowed the bank to escape public-relations headaches and underscore its effort to repair its image. It had often been portrayed in the media and by critics as the poster child for Wall Street greed in the aftermath of the financial crisis.

Listening helps

The other big banks facing lobbying proposals argue in their proxies that they already disclose enough. They also say boards and management teams review lobbying activities and political spending regularly to ensure all of it is in the best interest of shareholders.

Morgan Stanley, for instance, bolstered its disclosures on lobbying in the corporate governance section of its web site and on its proxy after learning this year that it would face a lobbying proposal for the first time, people familiar with the matter said.

Like Goldman, Morgan Stanley said it does not use corporate money for elections and that its political and lobbying activities are subject to oversight by its management and board of directors. But unlike Goldman, the bank did not reach out to its critics—in this case the American Federation of State, County and Municipal Employees (AFSCME), which is pursuing the proposal on Morgan Stanley's proxy this year.

"We would like them to do more," John Keenan, AFSCME corporate governance analyst, said of Morgan Stanley, including disclosing its trade association memberships and what it might pay to those groups.

In its proxy proposal, AFSCME says: "Transparent reporting would reveal whether company assets are being used for objectives contrary to Morgan Stanley's long-term interests."

Goldman's actions show that "listening to shareholders can be beneficial to both shareholders and the companies," said Courteney Keatinge, senior environmental, social and governance analyst at the proxy advisory firm Glass Lewis & Co. Proposals related to lobbying and political spending have been the most popular kind for the past three years, she said.

JPM & WFC: Tale of two banks
JPM & WFC: Tale of two banks

Activists point to other companies where they withdrew proposals recently in exchange for more lobbying disclosure, including at BlackRock and Visa.

"The large banks have minimal disclosure around lobbying and their trade association memberships generally," said Michael Pryce-Jones, a representative of union pension fund adviser CtW Investment Group, which is sponsoring the proposal on Citi's proxy. "That is why they are receiving these proposals."

Citi declined to comment.

Investor sees gaps

In a meeting last fall, Schiro told a group of shareholders motivated by social, political and ethical issues that Goldman has strict policies on political activities, Smith, Rogers and others who attended the meeting said.

For example, while Goldman employees contribute more money to political campaigns than any of its rivals, the bank itself makes no political contributions. Goldman was one of just five out of 195 leading U.S. companies studied to voluntarily take that position last year, according to the Center for Political Accountability. Moreover, Goldman's U.S. employees are required to submit all proposed political contributions for review by the bank.

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Since Schiro's meeting with the investors, Goldman has put out public statements on "policy engagement and political participation." The dialogue between the bank and the shareholder groups remains open, partly through a special team in Goldman's investor relations department.

But Goldman didn't agree to all of Needmor Fund's requests. Like Morgan Stanley, it still declines to list all of the trade groups it belongs to, or disclose "indirect" lobbying spending through those groups.

Smith at Walden Asset Management praised Schiro's willingness to talk but said "there are still huge gaps."

While Goldman Sachs' momentum is in the right direction, Smith said, "Let's not overstate it."

—By Reuters