Hire Wire Apr 05 2012

Goldman Lead Director Brings New Style

By liz rappaport

"Hi, YouTube," said James J. Schiro, then chief executive of Zurich Financial Services Group AG, in a video shot in Davos, Switzerland, as the financial crisis raged in January 2009.

"There's a lot of dialogue going around regarding…the responsibility that people must take for that crisis," he said. "And I guess I think as part of the financial-services community, we have to say we didn't deliver on our promises."

Blunt talk and public introspection were common for the 66-year-old Schiro while turning around the Swiss insurer from its near-collapse in 2002. Some people who know Schiro predict he may advocate for a change in tone by Goldman Sachs Group Inc. about the securities firm's own troubles after he takes over as lead director of its board in May.

"He is a very strategic thinker and someone who sees the bigger picture and understands that substance must also be tempered by practical political realities," says Kenneth R. Feinberg, who ran the U.S. government's victim-compensation fund after the 2001 terrorist attacks.

After New Orleans was devastated by Hurricane Katrina in 2005, Schiro asked Feinberg to start an insurance-claims mediation program. It quickly settled many of the claims against Zurich, which insured the battered Louisiana Superdome, even though the company might have successfully defeated some policyholders in court.

Schiro declined to comment for this article through a Goldman spokesman.

"The decision to elect Schiro was made by our independent directors in an executive session with no management present," the spokesman said. "We are confident that he will serve all of our shareholders well."

Monday's announcement of the move to elevate Schiro, a Goldman director since 2009 and chairman of the board's audit committee since September 2010, came less than a week after The Wall Street Journal reported the New York company's compromise with a union pension fund that wanted Goldman to split the roles of chairman and chief executive at Goldman, held by Lloyd Blankfein.

Before the pension fund's proposal was withdrawn, Goldman executives and directors discussed the possibility of promoting Gary D. Cohn, now the No. 2 executive at the securities firm, to CEO if Goldman lost a shareholder vote on the matter, according to people familiar with the situation. In that scenario, Blankfein would have remained chairman.

As part of the compromise with the fund, Goldman agreed to appoint a "lead" director, and the fund agreed to drop its shareholder proposal to replace Blankfein with an independent chairman. Schiro will be in charge of the 10-member board's governance committee, making him responsible for evaluating the performance of Blankfein as chief executive. Schiro also will lead meetings of the board's 10 independent directors. Goldman currently has two vacancies on its board.

Some people who know Schiro say his kinder, gentler, YouTube-friendly demeanor could make a big difference as Goldman struggles to repair its reputation and escape controversy that has dogged the firm since the financial crisis.

But, some outsiders are skeptical that Schiro will change much at Goldman. It varies from company to company whether lead directors assert much power over meetings and board agendas.

The American Federation of State, County and Municipal Employees, which reached the deal with the company on creation of a lead director, objected to Goldman's choice of Schiro because he also is lead director at PepsiCo Inc. The union pension fund, which isn't a PepsiCo shareholder, has been critical of the beverage and snack-food company's corporate governance.

A PepsiCo spokesman said its board "is committed to the highest standards of corporate governance, and PepsiCo has been recognized as a leader in this regard."

Afscme has said it would watch Goldman closely and consider shareholder proposals for next year.

Some observers raised questions because Schiro is the former chief executive at PricewaterhouseCoopers LLP, which is and has been Goldman's auditor for several years.

Goldman's lead director appointment is "a positive step, but given that these questions are being raised, it might have been a better move to have made the split between chairman and CEO and resolve all doubts," said Charles Elson, head of the Weinberg Center for Corporate Governance at the University of Delaware's business school.

During the crisis, Schiro made several videos aimed at boosting morale among Zurich employees. "Special times require special needs in getting our message out," Schiro said in a two-minute video in 2009. His approach contrasted with that of Blankfein, who was criticized later that year for quipping that the securities firm does "God's work."

At Goldman, Schiro took an active role in the company's business-standards committee, according to a person familiar with the matter.

In response to outside criticism about Goldman's role in the financial crisis, the committee scrutinized business practices and ethics for eight months, publishing a report last year that led to more-detailed quarterly financial disclosures and new processes for preventing conflicts of interest.

"Jim brings a real-world sensibility to how his decisions will play out publicly, and right now the financial industry is going through a time where that kind of approach is really important," says Eric R. Dinallo, a partner at law firm Debevoise & Plimpton LLP and former New York insurance superintendent.

Dinallo cited Schiro's willingness to move first at Zurich when negotiations with government officials bogged down over claims tied to destruction of the World Trade Center. Once the claims were resolved in a $2 billion settlement in 2007, New York City was able to sell bonds for new construction at the site.

Michael Cherkasky asked Schiro to deliver a pep talk to about 200 top executives of Marsh & McLennan Cos. when the insurance brokerage was trying to recover from a 2004 scandal over bid-rigging allegations. The message was, "Go back to your core values," says Cherkasky, Marsh & McLennan's chief executive at the time.

"He's a holy, happy man," says Jane Silva, principal of St. Michael Special School in New Orleans. Since Katrina, Schiro has donated thousands of dollars to the 190-student school and visits every year to sing with mentally handicapped children there and designed the school's vegetable garden with his wife.

This story first appeared on WSJ.com.

Liam Pleven
contributed to this article.

Write to Liz Rappaport at liz.rappaport@wsj.com

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