When is a $2 billion loss considered good news?
When it comes to Wall Street icon
. Despite the dramatic loss of revenue, the company remains in business, which is more than can be said for some of its former competitors.
How far we've come in one year. At the end of 2007, Goldman reported revenue of $46 billion for the year, when other big financials such as
were already taking a hit from mortgage-backed securities gone bad. The investment bank's top dogs certainly had reason to celebrate: Their bonus pool was estimated at around $20 billion.
Fast forward to this week, when Goldman announced a quarterly loss of $2 billion, its first since going public in 1999. The stock has gone into freefall, losing more than two-thirds of its value this year.
But Goldman's fourth-quarter numbers weren't as terrible as many analysts had expected. Despite the loss, the company's stock jumped 14% on the day of the announcement.
That confidence bodes well for Goldman's future. Despite the turmoil in the financial markets, Goldman has managed to hang on, even as companies like Bear Stearns and Lehman Brothers have disappeared. What did Goldman do right and how can your company learn from their example?
Value the boring-but-necessary:
At many, if not most, companies, the deal-makers bringing in new business are rewarded and celebrated. Those who slog through contracts or financial statements in the back offices are overlooked and far less well-compensated. But those are the very people who can save a company from disaster.
At a finance conference sponsored by Wharton business school last fall, Goldman Chairman and CEO Lloyd Blankfein said the company's risk committees meet constantly: "It's like painting a bridge. You go from one end of the firm to the other, and when you finish, you go back to the beginning and start over again."
Risk management may not be very glamorous, but if done consistently and diligently, it can make the difference between a company's life and death.
Beware of groupthink:
Once upon a time -- all of two years ago -- mortgage derivatives and credit default swaps were the coolest things going in the investment world. Banks and investment firms all jumped on the bandwagon, even when they didn't really understand the securities they were buying and selling.
Goldman decided to swim against the tide. Its record earnings in 2007 were in large part due to well-timed hedges
subprime mortgages. The credit crisis did catch up with Goldman eventually, but it was far less hobbled by risky investments than its competitors.
Transform when necessary:
Goldman Sachs operated for more than 100 years as an investment bank. But when Wall Street institutions began tumbling this fall, the company acknowledged that desperate times call for desperate measures. In September, Goldman asked the Federal Reserve to change the company's status to that of a bank holding company.
The switch brings tighter regulations, but should also lead to increased customer confidence. It's one thing to stay true to your company's mission and history during good times. But sometimes total transformation is your best, and maybe only, option.
Chase new markets:
While the U.S. economy is shaky, business deals continue to be made in places like Brazil and India, and Goldman wants a piece of them. By pushing aggressively into international markets, the company spreads its risk across the global economy.
Most small businesses can't afford a full overseas rollout, but expanding beyond your traditional base should be seen as an option. It's a necessity.
Slash costs -- starting at the top:
Along with practically every other major American corporation, Goldman laid off employees this year, about 10% of its workforce. But more importantly from a PR perspective was the cost-cutting in the executive suite: Blankfein and other top officials turned down bonuses this year.
Don't feel too sorry for them: They still get their $600,000 base salaries, and Blankfein got a bonus of $68 million last year. But the move showed employees that management was willing to take a hit for poor performance.
By fostering a culture that balances careful risk assessment with a willingness to bet big on international markets, Goldman Sachs has positioned itself better than most of its rivals. Can the same be said for your company?
Elizabeth Blackwell is a freelance writer based in Chicago. She is the author of Frommer's Chicago guidebook, and writes for the Wall Street Journal, Chicago, and other national magazines.