Stunning, Even by Goldman’s Liberal Definition of Fiduciary

In the summer of 2010, Clearwire Corp. hired Goldman Sachs to offer its advice on whether the company should sell its wireless division to Sprint.  In February 2011, Goldman let the Clearwire folks know that it was resigning its position of trust with them in order to work for Sprint!  Sprint is, of course, now the majority owner of Clearwire, and Clearwire is considering selling the rest of what it has to Sprint.

The Wall Street Journal commented, in charitable fashion, that investment banking can be a “sharp-elbowed business” and “no-holds-barred world.”[1] Ah, but moving from the seller to the buyer is a new twist.  The term “adviser” means that the advisee has brought the adviser in on sensitive information.  Indeed, it might be safe to say that the adviser knows how the board leans, why it leans that way, and what it would take to get that lean moving in that direction or the opposite way.

Goldman said it had lawyers look at the situation before it switched sides and that its lawyers assured two things:

  1.  That there was no prohibition in the contract on Goldman hopping to the other side; and
  2. That different teams at Goldman worked with Clearwire and Sprint. 

 Ah, the firewall/Chinese wall lives, a tool that has not been effective wherever it has been required, relied upon, or simply alleged. And, besides, it’s legal.

      A conflict is a conflict is a conflict.  Goldman, once again, fancies itself above this notion of fiduciary duty.  During the Congressional hearings on the role of Wall Street in the subprime instrument collapse, members of Congress labored mightily to get Goldman witnesses to say that they had a fiduciary duty to clients.  They never did get that. Senator Susan Collins of Maine posed a question to several Goldman executives during the April 2010 congressional hearings, “I understand that you do not have a legal fiduciary obligation. But did the firm expect you to act in the best interests of your clients as opposed to acting in the best interests of the firm? Could you give me a yes or no to whether or not you considered yourself to have a duty to act in the best interests of your clients?” [2] Fabrice Tourre, the young banker Goldman threw under the bus in terms of its failed CDO funds, responded only with, “I believe we have a duty to serve our clients well.” [3]  Lloyd Blankfein, Goldman’s CEO, responded, “While we strongly disagree with the SEC’s complaint, I also recognize how such a complicated transaction may look to many people. To them, it is confirmation of how out of control they believe Wall Street has become, no matter how sophisticated the parties or what disclosures were made. We have to do a better job of striking the balance between what an informed client believes is important to his or her investing goals and what the public believes is overly complex and risky.”[4] Other Goldman executives provided the following responses to Senator Collins, “It’s our responsibility . . . in helping them transact at levels that are fair market prices and help meet their needs,” and “Conceptually it seems like an interesting idea.”[5]

Ah, an interesting idea, but not a requirement. The Goldman executives then were relying on the law, and the law, simply stated is that investment advisers are not considered fiduciaries.  Without that legally imposed fiduciary duty, the advisers can, legally, engage in transactions that may not be in the best interests of their clients. That is, they are free to sell, sell, sell, products from their firms that make more money for their firms but may not be in the best interests of the client, as was done with the CDOs.   

Goldman has once again turned to the law for its standard of conduct.  This latest seeming betrayal of client trust through a switcheroo in roles illustrates that Goldman does not subscribe to the notion of fiduciary duty when it comes to an investment banker’s role.  One can only hope that the next client realizes that in making a decision to “go with Goldman.”  They should do so with the understanding that Goldman can go with gusto, right to the other side.    


[1] Anupreeta Das amd Gina Chon, “Goldman Switch Irks Clearwire Directors,” Wall Street Journal, March 28, 2011, p. C1.

[2] Wall Street and the Financial Crisis:  The Role of Investment Banks, Hearings of the Permanent Subcommittee on Investigations, April 27, 2010,

[3] Id.

[4] Id.

[5] Id.

About mmjdiary

Professor Marianne Jennings is an emeritus professor of legal and ethical studies from the W.P. Carey School of Business at Arizona State University, retiring in 2011 after 35 years of teaching undergraduate and graduate courses in ethics and the legal environment of business. During her tenure at ASU, she served as director of the Joan and David Lincoln Center for Applied Ethics from 1995-1999. In 2006, she was appointed faculty director for the W.P. Carey Executive MBA Program. She has done consulting work for businesses and professional groups including AICPA, Boeing, Dial Corporation, Edward Jones, Mattel, Motorola, CFA Institute, Southern California Edison, the Institute of Internal Auditors, AIMR, DuPont, AES, Blue Cross Blue Shield, Motorola, Hy-Vee Foods, IBM, Bell Helicopter, Amgen, Raytheon, and VIAD. The sixth edition of her textbook, Case Studies in Business Ethics, was published in February 2011. The ninth edition of her textbook, Business: lts Legal, Ethical and Global Environment was published in January 2011. The 23rd edition of her book, Business Law: Principles and Cases, will be published in January 2013. The tenth edition of her book, Real Estate Law, will also be published in January 2013. Her book, A Business Tale: A Story of Ethics, Choices, Success, and a Very Large Rabbit, a fable about business ethics, was chosen by Library Journal in 2004 as its business book of the year. A Business Tale was also a finalist for two other literary awards for 2004. In 2000 her book on corporate governance was published by the New York Times MBA Pocket Series. Her book on long-term success, Building a Business Through Good Times and Bad: Lessons from Fifteen Companies, Each With a Century of Dividends, was published in October 2002 and has been used by Booz, Allen, Hamilton for its work on business longevity. Her latest book, The Seven Signs of Ethical Collapse was published by St. Martin’s Press in July 2006 and has been a finalist for two book awards. Her weekly columns are syndicated around the country, and her work has appeared in the Wall Street Journal, the Chicago Tribune, the New York Times, Washington Post, and the Reader's Digest. A collection of her essays, Nobody Fixes Real Carrot Sticks Anymore, first published in 1994 is still being published. She has been a commentator on business issues on All Things Considered for National Public Radio. She has served on four boards of directors, including Arizona Public Service (1987-2000), Zealous Capital Corporation, and the Center for Children with Chronic Illness and Disability at the University of Minnesota. She was appointed to the board of advisors for the Institute of Nuclear Power Operators in 2004 and served on the board of trustees for Think Arizona, a public policy think tank. She has appeared on CNBC, CBS This Morning, the Today Show, and CBS Evening News. In 2010 she was named one of the Top 100 Thought Leaders in Business Ethics by Trust Across America. Her books have been translated into four different languages. She received the British Emerald award for authoring one of their top 50 articles in management publications, chosen from over 15,000 articles. Personal: Married since 1976 to Terry H. Jennings, Maricopa County Attorney’s Office Deputy County Attorney; five children: Sarah, Sam, and John, and the late Claire and Hannah Jennings.
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