Goldman’s curious partnership …

January 18, 2011

There’s long been an air of mystery surrounding the top echelon at Goldman Sachs (GS) — its so-called “partners,” a hold-over from the days before the company was publicly traded — including just who is a member at any given time. Now, thanks to a joint footnoted/New York Times analysis, we know just how male, American and rich the Goldman partners really are.

Now, for example, we know there have been just shy of 860 people in the club, and they’ve sold more than $20 billion in Goldman shares over the dozen years since the bank’s IPO. The 475 or so current partners — overwhelmingly male even after all these years — still hold another $10 billion, or 11.2% of the company. The partners’ stake is likely to rise as they take ownership of gobs of options they received in late 2008 — back when the rest of us were worried the financial system might collapse under its own weight. More detail over at the Times’ DealBook.

At the heart of Goldman’s curious hybrid between partnership and publicly traded company, of course, is the partnership agreement itself, first filed with the company’s IPO documents in 1999 (here’s a version from April 1999 — search for Exhibit 10.26) and most recently updated with Goldman’s 10-K last spring in the wake of Berkshire Hathaway’s (BRK.A) $5 billion in Goldman preferred shares (preventing Goldman bigwigs from selling their stakes until Warren Buffett cashed in his own).

It’s a document that offers a lot to chew on for anyone interested in corporate governance, shareholder-manager dynamics and the agency problems that arise when owners’ and managers’ interests collide. For example, partners promise not to sell too many of their shares — keeping at least 25% for ordinary partners, and 75% for select senior officers, presumably including the likes of Chairman and CEO Lloyd Blankfein, President and COO Gary Cohn and CFO David Viniar, who head the committee implementing the shareholders’ agreement. But the transfer restrictions are curious in that they only apply to shares acquired after becoming partner, which may dilute their effectiveness.

Perhaps the most interesting feature of the agreement, from the start, is the commitment to vote in lockstep with one another. Ahead of any proxy vote, Goldman’s partners hold a sort of straw poll among themselves — and then vote all their shares with the majority. Even holding just 11.2% of the company’s shares — down from 48.3% at the IPO but up from 8.2% in 2009 — it makes them a powerful force.

Another interesting tidbit from our analysis: Despite diversifying its business over the years, 61% of the company’s partners are American citizens (and that’s not even counting the handful with dual US citizenship). It’s a more worldly bunch than the 82% shortly after the company’s IPO (and even the 69% in 2005), but it’s still pretty provincial for a company that gets just 54% of its pre-tax earnings from North America (essentially, the U.S.).

Image source: Goldman Sachs 2009 annual report (PDF)

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