Case 2Back to the Future on Goldman Sachs Reputational Risk

“Hello, Doug — it’s been a long time since we have had the chance to visit … I was very pleased you reached out to us on this most recent matter … I know you were aware of Goldman’s investment in Kinder Morgan and want to emphasize that we are very sensitive to the appearance of conflict.”‘1

LLOYD BLANKFEIN, CEO OF GOLDMAN SACHS, stared at the talking points prepared for him by his staff. It is early September, 2011. The “Doug” in question is Douglas L. Foshee, chief executive officer of El Paso, the nation’s largest natural gas pipeline company. El Paso has just received an unsolicited buyout offer for its whole company from Kinder Morgan (KMI). Goldman has been advising El Paso on a proposed spinoff of its Oil & Gas Exploration & Production (E&P) business. The question now is whether Goldman can advise El Paso on this new KMI offer.

Unfortunately for Goldman, it faces a substantial conflict of interest. Goldman is a major investor in KMI, owning 19% of the company. Blankfein’s plan is to call Foshee, determine whether he would support Goldman advising El Paso on the KMI merger, and if Foshee is receptive, discuss the specifics of how Goldman would manage its conflicting interests. Blankfein’s interests here go well beyond the advisory fees it might generate or the capital gains reaped on its KMI holdings. The Goldman CEO has serious reputational risk concerns.

Reputational risk became a major issue for Goldman in ...

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