Goldman acknowledges impact of bad rep on bottom line

In a surprising - and some say unprecedented - move, Goldman Sachs legally acknowledged that "adverse publicity" is one of the financial risks it faces.

In a surprising - and some say unprecedented - move, Goldman Sachs legally acknowledged that "adverse publicity" is one of the financial risks it faces. The Wall Street Journal has the story:

The unusual disclosure in a 12-page section of "risk factors" ranging from rocky financial markets to natural disasters is the latest sign of Goldman's whipping-boy status among rivals, lawmakers and angry Americans because of the firm's giant profits.

"Goldman has become one giant pinata to whack," said Charles M. Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware, adding that he couldn't recall a previous instance where a company cited bad publicity as a risk to its business. "It's reflective of the rather bizarre political climate in which we operate."

Those working in financial and corporate PR likely see their day's work validated by this admission from the global investment firm that yes, indeed, corporate reputation impacts the bottom line. Thoughts and comments? Reach me here.

The text from Goldman's February 26 10-K filing is after the jump.

We may be adversely affected by increased governmental and regulatory scrutiny or negative publicity.

Governmental scrutiny from regulators, legislative bodies and law enforcement agencies with respect to matters relating to compensation, our business practices, our past actions and other matters has increased dramatically in the past several years. The financial crisis and the current political and public sentiment regarding financial institutions has resulted in a significant amount of adverse press coverage, as well as adverse statements or charges by regulators or elected officials.

Press coverage and other public statements that assert some form of wrongdoing, regardless of the factual basis for the assertions being made, often results in some type of investigation by regulators, 34 legislators and law enforcement officials or in lawsuits. Responding to these investigations and lawsuits, regardless of the ultimate outcome of the proceeding, is time consuming and expensive and can divert the time and effort of our senior management from our business. Penalties and fines sought by regulatory authorities have increased substantially over the last several years, and certain regulators have been more likely in recent years to commence enforcement actions or to advance or support legislation targeted at the financial services industry. Adverse publicity, governmental scrutiny and legal and enforcement proceedings can also have a negative impact on our reputation and on the morale and performance of our employees, which could adversely affect our businesses and results of operations.

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