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LETTER TO SHAREHOLDERSFinally, we took important steps throughout 2002 to refocus the entire Goldman Sachs organization on our business principles, which begin and end with an absolute insistence on integrity. In particular, we have a major continuing initiative aimed toward insuring that we exhibit unimpeachable professionalism in everything we do and reinforcing our culture. That culture, with its emphasis on client service, teamwork, strict compliance and excellence, is our greatest strength, but it requires constant reinforcement, particularly in difficult markets and under adverse conditions. Safeguarding our culture will continue to be one of our highest priorities in 2003.
RESTORING INVESTOR CONFIDENCE All this led to a storm of public criticism and calls for new laws and regulations. Notwithstanding some of the rhetoric, much of the criticism has been warranted, as are many of the regulations recently enacted or proposed. And while it is simply wrong to say that investment banks, such as Goldman Sachs, created the market bubble, it is true that, in common with much of the media, academia and the business community, we misjudged it. The more important point, at least for us at Goldman Sachs, is that we understand and accept our responsibilities as one of the gatekeepers of the financial markets. With the benefit of hindsight, it is clear that we all could have done better. We are committed to learning from our mistakes. Against this backdrop, in 2002 there were dramatic changes in the legal and regulatory environment. The New York Stock Exchange proposed new corporate governance listing rules. U.S. regulators mandated CEO and CFO certification of corporate financial statements. Law enforcement agencies began aggressive enforcement actions aimed at misconduct. And the U.S. Congress passed the Sarbanes-Oxley Act in an attempt to strengthen confidence in U.S. corporations, accounting and financial markets. In the financial services industry, public scrutiny focused on the role and quality of investment research. Even before the public controversy of 2002 arose, we had taken a series of decisive steps, commencing in February, to protect further the integrity of our research and to improve its quality. During the months that followed, we worked closely with regulators and other investment banks in crafting the provisional settlement announced on December 20. While many of the new rules were initiated primarily to protect retail investors—not our market segment—we are determined to make them work. In addition, we are supportive of a proposed industry initiative that generally would prohibit allocations of initial public offerings to officers and directors of public companies. The new rules for research and for IPO allocations applicable in the U.S. may well form a template for our industry throughout the world. We have also attempted to play a positive role in the debate on corporate governance, accounting and regulatory reform, and, among other things, participated in the development of the Sarbanes-Oxley Act in the United States. As with the research settlement, there are areas of the Sarbanes-Oxley Act that need to be clarified to prevent unintended consequences to the competitiveness of the U.S. capital markets. At the same time, one of the strengths of the U.S. system has always been its ability to respond to crisis with quick self-correction. Passage of the Sarbanes-Oxley Act was part of that process, and we support it as an important step towards rebuilding investor confidence. We believe that only by putting appropriate corporate governance mechanisms in place, and otherwise aligning the interests of management with shareholders, can there be sufficient focus on shareholder interests. In that connection, we refer you to our statement on "Promoting and Protecting Shareholder Interests" that follows.
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