Goldman Sachs Group (GS): How I Voted – Proxy Score 31



Goldman Sachs Group $GS, is one of the stocks in my portfolio. Their annual meeting is coming up on 5/16/2014. had collected the votes of two funds when I checked and voted on 5/11/2014.  I voted with management 31% of the time.  View Proxy Statement. Read Warnings below.


GS’s Summary Compensation Table shows CEO/Chair Lloyd C. Blankfein was the highest paid named executive officer (NEO) at about $20M in 2013. I’m using Yahoo! Finance to determine market cap ($73B) and Wikipedia’s rule of thumb regarding classification. GS is a large-cap company.  According to Equilar (page 6), the median CEO compensation at large-cap corporations was $9.7 million in 2012, so GS is well over median. Yet, they have underperformed the S&P 500 by substantial margins over the one, two and five year periods. GS pays long-term incentives to executives without requiring our company to perform above the median of its peer group. Executive pay does not rise or fall in line with annual financial performance, reflecting potential misalignment of incentives. 

Therefore, I voted against the pay package and members of the compensation committee who recommended the plan:

  • James A. Johnson, Chair
  • M. Michele Burns
  • Claes Dahlbäck
  • William W. George
  • Lakshmi N. Mittal
  • Adebayo O. Ogunlesi
  • James J. Schiro
  • Debora L. Spar
  • Mark E. Tucker


The GMIAnalyst report I reviewed gave GS an overall grade of ‘F.’ From their report the following were listed as potential areas of concern:  

  • Securities Fraud
  • Executive Misconduct
  • Related Party Transactions
  • Overboarded Directors
  • Severance Vesting
  • Restatements or Special Charges
  • Environmental Impact Events
  • Social Impact Events
  • Investigations

A few highlights from the report stood out:

Governance flaws in key areas, including executive compensation, combined with the financial and reputational risks created by Goldman’s business practices, create substantial ESG risks. Given the challenges facing Goldman, it is of particular concern that CEO Lloyd Blankfein also serves as board chairman. Furthermore, all non-executive directors are also members of the board’s four key standing committees. Such unusual setup can potentially keep directors from acquiring expertise in specific areas (audit, risk, compensation, corporate governance), and it can dilute the sense of ownership directors on those committees feel for the committees’ work…

The board includes at least one executive director in addition to the CEO, characteristic of 32.7% of companies in this market. Multiple inside directors may provide a too-strong management voice within the boardroom…

It does not currently report on its sustainability policies and practices via the Global Reporting Initiative, a commonly used and highly effective standard for such reporting, nor has it become a voluntary signatory of the UN Global Compact, yet another commonly employed global standard for achieving and maintaining more effective sustainability practices.

 Board of Directors

As stated above under Compensation, I voted against all members of the compensation committee because the pay package they recommended is not tied adequately to performance. I would have also voted against Lakshmi N. Mittal anyway, since he serves on four boards. That’s too many to perform adequately as a directors, especially when they are large and complex companies.

Other Proxy Issues

With regard to shareowner proposals, of course I voted in favor of my own proposal to allow limited proxy access to shareowner director nominees.  The time has come for shareowners to be allowed to include their own nominees for corporate boards in the proxy materials their corporations send out every year—so-called “ballot” or “proxy access.” As indicated above, the value of our GS shares have not even been able to keep up with the the S&P 500. The reputation of our company is still tarnished.

The current system—that only allows shareowners to vote for candidates nominated by the current board—is absurd. Please vote in favor of proxy access.

Explanation of Provisions
  • Direct access to the company proxy has long been considered the most direct and cost effective method of allowing shareowners a meaningful role in the nomination and election process. As Les Greenberg and I argued in our petition to the SEC for proxy access more than a dozen years ago, “entrenched managers and directors will only improve corporate governance when they can be held accountable, e.g., voted out of office and replaced with directors chosen by shareholders.”
  • SEC Rule 14a-4(d)(4) prohibits a nominee from being listed unless they have consented to being named in the proxy statement and to serve if elected. I set the bar for nominating directors at the same level as for submitting proposals under SEC Rule 14a-8, since this time-honored standard is surrounded by court decisions, SEC guidance, and no-action letters. However, nominees are limited to groups of 25 or more who have held a total of 1% of GS ($743 million) for at least two years. Other parties, most likely institutional investors, that have held 1% of GS ($743 million) for at least three years can also nominate up to three directors. However, no parties can nominate more than one and they can’t coordinate their campaigns.
  • The language allows a substantial change in board composition without triggering a change-in-control. It also gives the current Board flexibility in arriving at a fair and objective standard as to which nominees get on the proxy when more are nominated than the 24% standard.
  • Since the company would be listing shareowner nominees in their proxy, they will need to ensure they meet all legal requirements. Otherwise they may face liabilities and shareowners would be voting for ineligible candidates. Legal standards are generally minimal, like not having declared personal bankruptcy or not having been found legally insane, so the cost of such an exercise should be minimal. The company will need to disclose these provisions to shareowners.
  • Limiting shareowners to one nominee per group will better ensure an influx of new ideas and perspectives, as well as greater independence. Boards will more likely be presented with not only a plan B, but also a plan C and plan D. It also addresses concerns that “special interests” will take over boards under proxy access. These concerns have been overblown, since directors have a fiduciary duty to the company and must win by a majority of all shares voted. However, it is a way of reassuring groups like the US Chamber of Commerce and Business Roundtable that no shareowner gains what these special interest groups would consider “undue” influence through the proxy access process.
  • Each shareowner nominated candidate will have 500 words to explain their qualifications and positions. Board nominees have no such word limitation. That wouldn’t change under this proposal.
  • The language is designed to ensure the company does not apply more stringent standards for shareowner nominees or short-circuit the access process through side agreements with nominees or nominators.
  • Putting all nominees in alphabetical order on the proxy helps ensure a level playing field with regard to disclosures in the proxy and and their accessibility by shareowners.

CorpGov Recommendations Below – Vote Against Board Position in Bold

1aElect Director Lloyd C. BlankfeinForForAgainst
1bElect Director M. Michele BurnsAgainstForFor
1cElect Director Gary D. CohnForForAgainst
1dElect Director Claes DahlbackAgainstForFor
1eElect Director William W. GeorgeAgainstForAgainst
1fElect Director James A. JohnsonAgainstForAgainst
1gElect Director Lakshmi N. MittalAgainstForFor
1hElect Director Adebayo O. OgunlesiAgainstForFor
1iElect Director Peter OppenheimerForForFor
1jElect Director James J. SchiroAgainstForFor
1kElect Director Debora L. SparAgainstForFor
1lElect Director Mark E. TuckerAgainstForFor
1mElect Director David A. ViniarForForAgainst
2Ratify NEO CompensationAgainstAgainstFor
3Ratify AuditorsForForAgainst
4Adopt Proxy Access RightForAgainstAgainst

Mark your Calendar

Shareholders who, in accordance with the SEC’s Rule 14a-8, wish to present proposals for inclusion in the proxy materials to be distributed by us in connection with our 2015 Annual Meeting of Shareholders must submit their proposals to John F.W. Rogers, Secretary to the Board of Directors, at The Goldman Sachs Group, Inc., 200 West Street, New York, New York 10282. Proposals must be received on or before Friday, December 5, 2014. As the rules of the SEC make clear, however, simply submitting a proposal does not guarantee its inclusion. 

Issues for Future Proposals

 Looking at 
  • No action can be taken without a meeting by written consent.
  • Special meetings can only be called by shareholders holding not less than 25% of the voting power.
From Yahoo! Finance: The Goldman Sachs Group, Inc.’s ISS Governance QuickScore as of May 1, 2014 is 8. The pillar scores are Audit: 10; Board: 5; Shareholder Rights: 4; Compensation: 10. Brought to you by Institutional Shareholder Services (ISS). Scores range from “1” (low governance risk) to “10” (higher governance risk). Each of the pillar scores for Audit, Board, Shareholder Rights and Compensation, are based on specific company disclosures.


Be sure to vote each item on the proxy. Any items left blank are voted in favor of management’s recommendations. (See Broken Windows & Proxy Vote Rigging – Both Invite More Serious Crime).I generally vote against pay packages where NEOs were paid above median in the previous year but make exceptions if warranted. According to Bebchuk, Lucian A. and Grinstein, Yaniv (The Growth of Executive Pay), aggregate compensation by public companies to NEOs increased from 5 percent of earnings in 1993-1995 to about 10 percent in 2001-2003.

Few firms admit to having average executives. They generally set compensation at above average for their “peer group,” which is often chosen aspirationally. While the “Lake Woebegone effect” may be nice in fictional towns, “where all the children are above average,” it doesn’t work well for society to have all CEOs considered above average, with their collective pay spiraling out of control. We need to slow the pace of money going to the 1% if our economy is not to become third world. The rationale for peer group benchmarking is a mythological market for CEOs.

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