Goldman’s Board Changes: Good Governance or Good PR?

Goldman Sachs’ decision to appoint a lead director brought guarded praise from activist investors and mixed reviews from governance experts.

John Bryan
John Bryan

“Wall Street greed and conflicts of interest drove our economy into a ditch,” said AFSCME’s President Gerald W. McEntee. “Today’s move is a step in the right direction to make sure Wall Street CEOs are held accountable to their shareholders and that taxpayers are not on the hook for their risky bets.”

The decision by the embattled investment bank to elevate John Bryan to the role of lead director from presiding director came after talks with AFSCME back in February. The public service workers union holds Goldman stock in its pension fund, and planned on submitting a proposal to split the roles of Chairman and CEO at the bank’s annual meeting. AFSCME withdrew the proposal after Goldman agreed to name Bryan as lead director.

In his new role, the former CEO of Sara Lee and 13 year veteran of Goldman’s board will be responsible for the annual evaluation of Goldman’s CEO and Chairman Lloyd Blankfein. Bryan will also call and organize the executive sessions of Goldman’s independent directors and serve as their envoy to Blankfein.

Whether or not this will prompt what some critics say are needed changes at the investment bank remains to be seen. In the governance world, splitting the CEO and Chairman roles is seen as best practice because an independent chairman can serve as a counterbalance to what could be a too-powerful CEO. Not everyone is convinced this structure is necessary though, for a board to operate well.

“I think the board has made a step for better governance,” Barbara Franklin, President and CEO of Barbara Franklin Enterprises said referring to Goldman’s directors. A veteran of 14 boards of large companies, Franklin said a lead director is not quite the same as an independent chairman but on boards she consulted and served on in the past, having a lead independent director works “very well.”

“My point is each board should decide what is the best way to do this,” she said, adding there is not a cookie cutter way to set up boards.

Governance expert Eleanor Bloxham of The Value Alliance disagrees. She said these changes are not “substantial” and the union and Goldman missed the opportunity to make a significant change by agreeing to split the CEO and Chairman’s roles.

“I think it was a coup for them (Goldman),” she said. “This compromise was an incredible feat of negotiations.”

Russ Hansen, an attorney with Burns & Levinson who advised clients on governance issues, has a different take. He said just the fact that AFSCME got in there and held talks with Goldman shows some openness by the firm to listen to shareholder’s concerns. As to the impact Bryan’s new role might make on Goldman, Hansen said that depends on a couple of factors.

“Mostly it depends on personality,” Hansen said, referring to Bryan’s personality and those of the rest of the directors. If the board is passive and does not challenge current leadership, little will change even if the lead director’s responsibilities are more defined than they those of a presiding director.

Professor Charles Elson, Director of the University of Delaware’s John L. Weinberg Center for Corporate Governance is more blunt.

“It will have no impact whatsoever,” he said, calling the move symbolic. “Until Mr. Blankfein relinquishes the title of chairman, its semantics."

Elson called the roles of a presiding and lead director one and the same, with a lead director having no added clout or influence over a firm's actions.

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