Goldman Sachs (GS)(GOLD), known as “Government Golden”, because of its history of influencing the Federal Government by not only its significant money expended on political contributions and lobbying, but the fact that some of the highest federal government posts have “revolved” from the doors of GOLD to and from government. It appears that it will be no different with the Donald J. Trump Administration.
GOLD, not unlike other financial institutions discussed above, participated in the deconstruction of our economy during the Great Recession; their share in fines, penalties and settlements totaled over $9 billion, mostly under the category of selling toxic securities to clients while the company shorted them, making money for the company while violating their fiduciary duties by exploiting their clients.
Our resolution actually relates very specifically to Goldman Sachs’ obligations to shareholders, by calling on GOLD to file a “Statement of Significant Audiences and Materiality” clarifying to whom and in what time frame its disclosures are made. Does GOLD corporate management intend that its public reporting be usable for diverse investors who have different risk tolerances, time horizons, strategies, and perspectives? For instance, is its reporting intended to include all the needed information for investors like HII that consider corporate social responsibility, sustainability, and longer-term returns?
The proposal implicates a set of broader questions of great interest to HII. For instance, GOLD has an enormous client and investor base, including hedge funds, pension funds, corporations, sovereign wealth funds, government and corporate treasurers, algorithmic traders and speculators, among many whom are considered “universal” investors. Who does GOLD serve when there are conflicting duties, loyalties, and business obligations? When GOLD lobbies and makes a political donation to change a law or regulation, how does the legislative, regulatory, or judicial action or ruling affect each of their clients, investors and civil society, or the commons? Obviously, while their action may benefit one group of clients, directors, customers and investors, who does it harm? Which GOLD client or customer wins and which one or more are harmed?
How does GOLD make these decisions, and what material or documents are utilized in determining the needs and interests of short, medium, and long-term investors and special categories of investors, such as those that focus on Environmental, Social, and Governance (ESG) factors?
No surprisingly, GOLD’s attorneys have challenged our resolution at the SEC, requesting the Commission for the authority to omit the resolution from the proxy material based upon the argument that it can be excluded on the following grounds:
• Because the proposal relates to the company’s ordinary business; and
• Because the proposal is inherently misleading.
The SEC agreed with Goldman Sachs, allowing the corporation to omit our shareholder resolution from the proxy material on grounds of “ordinary business”. The Commission staff gave no explanation for their action.
Shareholder Resolution 2017
“The Statement of Significant Audiences and Materiality”
Our company’s reputation depends in part on the clarity of its communications and disclosures. More clearly stating which investors our company’s disclosures are directed toward could help strengthen its reputation and trust.
For example, many in the financial community now recognize the importance of considerations beyond daily challenges of portfolio management, and seek to evaluate risks and rewards at environmental, societal and financial systems levels. Large institutional investors in particular are recognizing a role as “universal” investors. They are managing impacts on the vitality of the whole economy, recognizing externalities of specific investments affecting other investments in their portfolios, and evaluating impacts of assets on environment and society. They are effectively adding an ownership discipline to buy and sell disciplines.
When it comes to our company, it is often unclear which perspectives are considered material to its disclosures. An SEC news release on July 15, 2010 announced Goldman Sachs would pay $550 million to settle charges it misled investors in a subprime mortgage product just as the U.S. housing market was starting to collapse. The Wall Street Journal noted a pivotal issue in the case was whether it was considered a material omission for the company to fail to tell its clients about the involvement in the deal by hedge-fund Paulson & Co.
The ambiguity of materiality undermines trust and reputation. How do our company’s disclosures meet the informational needs of its diverse investors with different risk tolerances, time horizons, strategies, and perspectives?
A Harvard Business School paper, Materiality in Corporate Governance: The Statement of Significant Audiences and Materiality suggests all security registrants should be required to file a “Statement of Significant Audiences and Materiality,” explaining how materiality determinations are made.
We propose our company exercise leadership and strengthen its reputation by preparing such a statement.
Resolved: To provide more clarity on long term investing, systemic risk and sustainability concerns, we request the board of directors issue an annual, forward‐looking one-page document, the “Statement of Significant Audiences and Materiality” to inform shareholders, management, and all other stakeholders of the audiences and timeframes the board views as relevant to its application of “reasonable investor” and materiality in the company’s SEC filings reports.
The Statement should clarify the timeframes of materiality utilized. For instance, the statement could clarify where the firm’s disclosures are directed toward the needs and interests of audiences of short, medium and long term investors and special categories of investors such as ESG or sustainable investors. The Statement may identify categories, segments or activities of disclosure with specific audiences or timelines. This proposal does not request the Company utilize any particular timeline or audience, but only clarify how materiality determinations are made and where they may differ in disclosure documents.