IN TODAY’S COMPLEX
ENVIRONMENT, CLIENTS ARE
FOCUSED NOT ONLY ON GROWTH,
BUT ALSO ON NAVIGATING A
WORLD OF COMPLICATED AND,
OFTEN, INTERCONNECTED RISKS
From fluctuating currencies to shareholder activists and myriad environmental challenges, assessing and managing risk is increasingly complex — and critical. That’s why, more than ever, both companies and investors view risk as a highly strategic issue — and why we have seen a rapid rise in risk consciousness more broadly. Our clients turn to Goldman Sachs for our deep risk management expertise to help them manage their most important and complex risk exposures.
21 FOR COMPANY LEADERS,
PRESENT NEW CHALLENGES –
According to Gene Sykes, co-head of Global Mergers & Acquisitions at Goldman Sachs, the rise of shareholder activism is one of the most profound recent shifts in corporate governance.
Q: What’s different?
A: Through proxy rules and other changes, large shareholders have gained more power, whether they’re seeking return on capital or trying to influence M&A strategy.
Q: How are companies responding?
A: By understanding that the relationship has fundamentally changed. They can no longer make big decisions without possible pushback — or they may be forced to make big decisions they might not make on their own.
Q: How does it affect Goldman Sachs?
A: It’s an issue we have to help clients manage because it affects all public companies. It’s now at the center of M&A and other aspects of our business.
22 Risk management has become a
C-suite issue, driving company leaders to seek more sophisticated analysis and advice
“ The world is more complex, markets are more volatile, and the economy, with each passing year, is more global in nature,” says Jim Esposito, head of the EMEA Financing Group at Goldman Sachs.
“With global interconnectedness on the rise, company managers now view risk management as a strategic priority, spanning a variety of markets including currencies, commodities, credit and equities.” Esposito adds that “clients seek our advice because risk management is part of our DNA.”
RISE, THE VALUE OF AN
“ We always look comprehensively and consistently across risks, both in the analytics we use and in the way our risk managers work together and are integrated.
Our job is to look around corners and figure out what could happen that we may not yet have anticipated,” says Liz Robinson, Global Treasurer of Goldman Sachs. “Instead of looking separately at market risk versus credit risk versus reputational, liquidity or operational risk, we look across the spectrum of those risks to understand how they interrelate.”
24 A WAVE OF EUROPEAN COMPANIES IS
CUTTING COSTS, AND CREDIT RISKS,
BY TURNING TO CAPITAL MARKETS
In seeking to increase the flexibility of the capital structure at one of its portfolio companies — Spanish bus company Avanza Group — Doughty Hanson, the private equity firm, had two goals in mind. First, like many companies across Europe, it sought to replace a rigid, syndicated loan facility with a new financing structure that would allow greater flexibility and reduce reliance on bank capital. Second, it sought to ensure that any new capital structure would remain in place should the firm decide to monetize its stake in Avanza in the future. With the help of Goldman Sachs, Doughty Hanson overcame both challenges with the issuance of €490 million in high-yield bonds with an innovative feature known as “portability,” which ensured that financing could remain in place when the company was purchased by new owners.
25 As companies consider their risk profile, environmental risk management is increasingly important
From the pressures of rising population and consumption to urbanization and climate change, the need to pursue sustainability and manage environmental risks is a growing imperative both for our clients and for Goldman Sachs. The Environmental Markets Group at Goldman Sachs works closely with deal teams to conduct enhanced due diligence on transactions that involve significant environmental issues and, where appropriate, advise clients on how to mitigate these risks. Whether it is working with an extractive company in strengthening its commitment to sustainable development or engaging with an emerging market power company in facilitating the adoption of industry best practices, through proactive engagement with our clients we are able to differentiate our advice and create a better outcome for the environment, our clients and our own risk management. Given the breadth of the clients we work with, over time, we also play a part in facilitating better environmental practices and policies across industries and geographies, and ensuring a more sustainable outcome.
Our approach to environmental risk management is guided by our Environmental Policy Framework and 14 sector and subsector guidelines.
MANAGING RISKS WITHIN
The strength and integrity of our client franchise is vital to the firm’s continued success. Sustaining the firm’s focus on the interrelationship between client service, business standards and reputational risk is the responsibility of the Client and Business Standards Committee (CBSC).
How does the CBSC operate?
- Convening senior leaders several times a month, the CBSC is able to address pressing issues from multiple perspectives because it includes representatives from all of our client-facing divisions and our major control functions at the firm.
- Allowing time for open discussion at the beginning of every meeting, committee members are free to raise any concerns related to clients, business standards and reputational risk, whether specific to Goldman Sachs or the broader financial services industry.
- Receiving regular reports from both client-facing and control divisions, the CBSC monitors the current state of our client franchise, challenges facing our clients and the financial performance of our businesses.
- Focusing on key risks — every report to the CBSC from our business units and control functions must provide an assessment of ongoing and emerging risks. By requiring business units to engage in the discipline of preparing key risk assessments, the committee ensures that reputational risk remains at the forefront of business leaders’ thinking.
- Working with a network of divisional and regional CBSCs — subcommittees ensure that distant risk issues rise to the top, and that every level of the firm remains focused on the importance of the client franchise and managing reputational risk.
Go to: goldmansachs.com/business-standards