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March 07, 2008

Why Educating 10,000 Women Is Good for Goldman Sachs

Geoff Heal
Paul Garrett Professor of Public Policy and Business Responsibility and Bernstein Faculty Leader
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On Wednesday morning in Low Library, Goldman Sachs CEO Lloyd Blankfein announced their new 10,000 Women program. Goldman, in partnership with CBS and some of our competitors/peers, is supporting business education for women in developing countries. The firm is putting $100 million into this, and the aim is to provide business training for ten thousand underserved women over the next five years.

Blankfein insisted that this is not pure philanthropy, but that it is in Goldman’s business interest. Shareholders should like it.

Here’s his argument: Educating women — especially in business — promotes growth. If developing economies grow faster, that’s good for Goldman’s business. The firm manages IPOs from the newly formed companies, gets to finance them, merge them, invest in them through private equity deals, etc. So promoting global growth is good for Goldman, and promoting women’s education is a cost-effective way of promoting global economic growth.

Mark Tercek, a senior executive at Goldman, spoke to my class last week about Goldman’s environmental policies, which are equally spectacular. The firm gave away a huge parcel of land in Patagonia to the Wildlife Conservation Society; built some of the greenest buildings in the United States; acquired a fleet of hybrid limos; forced TXU to drop plans for eight new coal-fired power station in the recent buyout of TXU by Goldman, KKR and TPG; invested heavily and early in renewable power; and has persistently and forcefully promoted green behavior by its clients. Tercek gave similar arguments for why they do this: it’s good for Goldman. Why?

We need a healthy environment to survive and prosper, and only if we survive and prosper will Goldman do likewise. There were some other arguments too, in both cases, the most interesting being about motivating the firm’s employees and making them proud to work for Goldman.

Bottom line? What’s good for the world is good for Goldman. Remember the old saying — attributed to “Engine Charlie” Wilson, the then CEO of GM — “What“s good for General Motors is good for America”? There’s been an interesting order reversal here. And we’ve gone global too.

It’s a striking claim: by giving money away, we make ourselves better off — not just psychologically or ethically, but financially too. For every $1 we give away, more than $1 comes back.

Can this be true, or is someone deluding him- or herself here?

I have to plead the economist’s occupational disease — skepticism. But there is a possibility of validity.

Analytically, the issue is whether someone gains from providing a public good at his or her own expense. Global growth is a public good, as is a better environment. Generally the answer is no, it doesn’t pay any individual to provide a public good. But if the provider is also a major consumer of the public good, it could be the case.

So the issue is whether Goldman is dominant enough in its field to be sure that the lion’s share of the new banking business generated by growth anywhere in the world comes to it. Maybe that’s the case; certainly that’s what they are banking on.

Comments

by Geoff Heal | March 07, 2008 at 12:20 PM

Here's another argument of the same type, from John Wilson, a CBS alum, SRI manager and activist in the Interfaith Center on Corporate Responsibility. As a really large investor, we cannot buy and sell often. We more or less have to hold the economy, or a big part of it. So what is good for us is not what is good for an individual firm but what is good for the economy as a whole. This is why we pressure companies to adopt policies that are good for the economy as a whole - transparent governance, environmental sensitivity etc. Bertrand Collomb, ex CEO of Lafarge, said yesterday in a talk to SIPA students, "Business cannot succeed in a world that fails." (It's the motto of the World Business Council on Sustainable Development).

by Eddie Mandhry | March 09, 2008 at 11:25 AM

"Business cannot succeed in a world that fails." I like that it makes good business sense. Hopefully Goldman's move will spur other firms to do the same. It should be intersting to see how the recipients of such support, Camfed in this case, are required to manage and administer the funds to meet the projected goals. One would assume, given the amount pledged, the expectations and scrutiny would relatively higher.

by Arjun Swarup | March 09, 2008 at 7:21 PM

Prof Heal Its an interesting venture launched by Goldman, and as you correctly point out, it is based on the premise that what is good for global growth is good for you. It can also be considered as 'influencing the influencers', since this pool of people would be in positions to benefit Goldman, in future. There is another aspect to education of female business leaders that is interesting. The employment and entrepreneurial choices made by women could span a larger and more diverse spectrum, as opposed to other focus groups (this could certainly change with time and other macro economic trends). Yet, if true, this would present Goldman with an opportunity to broaden its base network, and perhaps have a strong positive impact on the 'patterns' of consumption and growth in the various markets it is present in. This, in itself, could create further growth opportunities.

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