Goldman Chief Is Too Green for Treasury
Rumors are swirling that Treasury Secretary John Snow is on his way out and one of the names mentioned as a replacement is Henry Paulson, chairman and CEO of the Goldman Sachs Group.
However as Goldman’s head, Paulson has demonstrated a disturbing pattern of sacrificing the best interests of the company for the sake of his personal commitment to environmental activism, prompting the question of whose interests he would represent as Treasury Secretary.
In November 2005, Goldman adopted an "Environmental Policy" that neatly reflected the controversial agenda of the Nature Conservancy, the nation’s wealthiest environmental organization with $4 billion in total assets.
The Goldman/Nature Conservancy agenda includes reducing manmade greenhouse gas emissions to stop the scientifically debatable manmade global warming threat and giving indigenous peoples the right to approve local development projects.
Goldman does not bother to explain how this "Environmental Policy" advances the interests of shareholders. And that’s because it simply doesn’t.
The Nature Conservancy endorses the Kyoto Protocol, the treaty negotiated by the Clinton administration that would require the U.S. to make economically-drastic cuts in carbon dioxide emissions. According to the U.S. Energy Information Agency, Kyoto would cost the U.S. economy $400 billion per year and raise electric utility bills by 80 percent — a major reason that President Bush opposes the treaty.
As for the "indigenous peoples" policy, that is a tactic employed by environmentalists to generate local opposition to overseas development projects such as electrical generating plants. This does nothing to increase shareholder value, but it does perpetuate poverty in the developing world.
Clearly, Goldman’s "Environmental Policy" does not make any business sense. A Goldman executive even acknowledged to the New York Times last year, "Clients don’t come to us because we have an environmental policy."
So why is the corporate leadership committed to it? The reason is that Paulson has an apparent conflict-of-interest involving Goldman Sachs and his relationship with the Nature Conservancy.
Paulson serves as the Chairman of the Nature Conservancy. Furthermore, his wife is a former board member of the organization.
In the U.S., the Nature Conservancy uses land acquisition to advance its agenda while overseas it works with groups such as the Wildlife Conservation Society (WCS) to acquire land.
In September 2004, Goldman donated 680,000 acres in Chile to the WCS. The company originally acquired the land through a loan default, that is with corporate assets. Again, there is a family connection. Paulson’s son, Merritt, is a WCS Trustee. Goldman admits the donation was not business-related or intended to boost shareholder value.
The donation especially made no sense to Chile. A huge tract of land with untold natural resources was put off limits to development by the people of Chile, most of whom are poor, by affluent, environmental activists.
But Paulson seems to relish this economically questionable behavior. He told Fortune magazine in 2003 that "his commitment to the environment is largely self-interest: ‘It isn’t like I’m trying to do good. This is really fun for me.’"
Paulson may be having fun but it is coming at the expense of company interests.
This commingling of executives’ personal interests with those of the company may violate Goldman’s Code of Business Conduct and Ethics. Steve Milloy is with Action Fund Management, an investment advisor to the Free Enterprise Action Fund, which is a Goldman institutional shareowner. In a January 2006 letter to Goldman management, Milloy wrote that the company’s code of conduct "generally prohibits personal interests, including those involving family members, from interfering with firm interests…Such conflicts of interest may reduce shareholder value."
The National Legal and Policy Center, an ethics watchdog group, filed a shareholder proposal that was considered at the Goldman annual meeting on March 31. NLPC wanted Paulson to explain Goldman’s unusually tangled relationship with the Nature Conservancy. This is especially important because the Nature Conservancy has already been implicated in a number of high profile scandals involving corporate officials also serving as Nature Conservancy directors. In one of these scandals, the Nature Conservancy sold ecologically sensitive land at a discount to its own directors on which they built multi-million dollar homes.
NLPC president Peter Flaherty told the shareholders that Goldman should explain why the company "has inserted itself so aggressively into issues of public policy, issues which are more properly, and fairly, decided by our elected officials through the democratic process." Apparently though, because of Paulson’s personal commitment to environmental causes, Goldman has, in effect, committed to "lobbying against its own interests."
Paulson’s apparent conflict-of-interest raises serious questions about his managerial judgment and personal ethics. It certainly raises red flags about his qualifications to serve as Treasury Secretary. In this post-Enron era when corporate governance is of utmost importance, Paulson is not the right choice to serve as the nation’s chief financial officer.