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PROMOTING AND PROTECTING SHAREHOLDER INTERESTS

The partners of Goldman Sachs, prior to the IPO, delegated oversight and firmwide decision making to a Management Committee, comprised of the Senior Partner and a group of senior business leaders who brought their individual skills, technical knowledge and experience to bear collectively on the major issues facing Goldman Sachs. As a public company, management is vested in the CEO and other senior business leaders, with a firm-wide Management Committee continuing to assist in the overall leadership and direction of the firm.

We believe that in view of the complex nature of our business, the shareholders of Goldman Sachs benefit by having a number of Management directors—who literally know the firm from inside out—engaged together with the outside directors in the Board of Directors' oversight role. We also recognize that from a governance perspective, it is important that there be a substantial majority of outside directors on our Board.

At the time of the IPO, Goldman Sachs' Board of Directors was comprised of seven members, five of whom were inside directors and two of whom were outside directors. A commitment was made to achieve a majority of outside directors within three to five years, which commitment was satisfied in October 2001. We currently have five independent outside directors and four members of Management on our Board. We will continue to add outstanding non-Management directors selectively and over time.

Our outside directors are first-rate, proven leaders in their fields who have the character, confidence and expertise to be tough-minded and independent. They are all experienced directors of public companies and successful leaders of complex organizations whose complementary backgrounds, experiences and skills make the Board, as a whole, highly effective. The interplay of the directors' diverse perspectives has been invaluable to our successful evolution as a public company and will be vital to our continued success. To align their interests more fully with shareholders, the compensation of our outside directors has been paid predominantly in equity of Goldman Sachs, and they receive no fees from the firm except those paid for their Board service.

THE FRAMEWORK OF GOVERNANCE: ROLES AND RESPONSIBILITIES
The Board of Directors oversees the development of our strategy and performance of our businesses and Management. Management is responsible for presenting strategic plans to the Board for review and approval and for implementing the firm's strategy. Among the Board's most important functions are the selection of its Chairman and the firm's Chief Executive Officer. The Board does not have a policy on whether the role of the Chairman and CEO should be separate or combined but believes that the current combined arrangement serves Goldman Sachs well at this time. Other significant Board functions, certain of which are conducted with the assistance of one of its three committees described below, include oversight of the integrity of our financial statements, compliance with laws and regulations and risk management, evaluation of the CEO, review of management succession, director compensation, and the review and approval of significant transactions.

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