Can Giving to Charity be a Negative? Goldman Sachs 2009 Bonus Problem

Americans are not happy the financial company Goldman Sachs is going to pay billions in bonuses to employees for 2009 after receiving government bailouts and having contributed to financial market meltdown.  More than unhappy, people are angry.  So Goldman Sachs is looking for ways to reduce that anger yet still pay the bonus money.  One tactic has been to reduce the bonuses but we still talking billions of dollars.  Most people do not see a real different between say 20 billion and 16 billion dollars.  Another option on the table is requiring its top employees to donate X amount of the bonus to charity.  Former rival Bear Sterns required 4% donation from top employees http://economictimes.indiatimes.com/news/international-business/Goldman-hopes-more-charity-will-quell-bonus-furore/articleshow/5434955.cms

Some view the charity donation as “public relations” designed to make the bonuses more palatable to stakeholders.  Here is a common interpretation, “the firm’s executives have been looking at expanding their current charitable requirements for months and trying to understand whether such gestures would damp public anger over pay, according to a person familiar with the matter who did not want to be identified because of the delicacy of the pay issue.” http://www.nytimes.com/2010/01/11/business/economy/11goldman.html?partner=rss&emc=rss

Here is another description, “We spoke with a former senior Goldman executive and a current partner managing director who have been urging the plan and helping development. The plan is part publicity stunt, of course. Goldman fears a public and political backlash when it awards what may be record bonuses this year. It is searching for ways to mute the outcry from those who believe it is inappropriate for a firm that received billions in taxpayer support to pay its employees tens of billions in bonuses.” http://www.businessinsider.com/john-carney-is-goldman-about-to-become-one-of-the-worlds-biggest-charitable-donors-is-goldman-about-to-become-one-of-the-worlds-biggest-charitable-donors-2009-10

So philanthropy and CSR are being used to offset what most stakeholders, even government officials consider to be ill-advised to offensive bonuses?  Of course employees to do favor the bonuses and recruiters argue that failure to provide bonuses could result in top people leaving Goldman Sachs for competitors that do pay such bonuses.  Investors in Goldman Sachs think more of the profits should go to them in the form of dividends so even core stakeholders are split on the action.  An announcement about the bonuses was delayed in early January of 2010 as management tries to sort through the options

If we look just at the numbers, charities would receive a little over 500 million dollars based on bonuses of about 16 billion and 4% required for charity.  That money could do a lot of good in society.  Pragmatically, the end result of the payments would be to help society.  If employees are going to get bonuses, why shouldn’t charities benefit in some way?  Will the donation blunt anger?  Probably not.  Will the money help those in need?  The answer is yes.  Regardless of the motivation, the money will help people in some way.  Management often faces decisions about CSR and what it will return to the organization.  Such decisions must be balanced against what will be returned to or lost by society if an action is not taken.  Goldman Sachs may have started down a road that has few beneficial routes to itself.

Questions to Consider

  1.  How would not using the charity option make the situation (e.g., reputational damage) worse for Goldman Sachs?
  2. Is it fair to say all philanthropy and CSR efforts by organizations have a strong self-interest component to them?  Why or why not?
  3. Why are so many stakeholders upset by the larger bonuses at Goldman Sachs?
  4. At this point, can anything positive come out of using the charity giving option at Goldman Sachs?
  5. Can you justify the argument that any contribution to charity is ultimately a good thing?
  6. What advice would you give Goldman Sachs about the bonuses and why would that advice be useful?
  7. What are the ethical implications for this case?
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