The Goldman Sachs Group, Inc. (GS) Earnings Call Transcript & Summary

Good morning, everybody, and welcome. I'm David Solomon, the Chairman and CEO of Goldman Sachs. Thank you for joining us at our Annual Shareholders Meeting. I will now call the meeting to order. 2021 was an extraordinary year. Despite of all the challenges we faced, our people came together and stayed true to our strategy, and we put our clients first. We still have a lot of work to do, but I'm very proud that we delivered exceptional results for our shareholders. 2022 is already shaping up to be a year of new challenges. There is no question that the first quarter was extremely volatile and much remains uncertain. But whatever the future holds, I believe Goldman Sachs is well positioned. We will continue to make progress on our growth strategy, our commitment to our clients is stronger than ever, and we remain focused, as always, on creating long-term value for our shareholders. On a personal note, let me just say that after having to spend so much time apart, I'm glad we're able to host today's meeting in person. I would like to introduce the members of our Board of Directors, each of whom is here with us in the auditorium today in person and to thank them for their service. Would each of you please rise as I say your name? Bayo Ogunlesi is our Board's Lead Director and Chair of our Corporate Governance and Nominating Committee; Michele Burns, is the Chair of our Compensation Committee; Drew Faust; Mark Flaherty; Kimberly Harris, Ellen Kullman, the Chair of our Public Responsibilities Committee; Lakshmi Mittal; Peter Oppenheimer, the Chair of our Audit Committee; Jan Tighe, Jessica Uhl; David Viniar; Mark Winkelman, the Chair of our Risk Committee; as well as John Rogers, Secretary to our Board. Also with us today are John Waldron, our President and Chief Operating Officer; Denis Coleman, our Chief Financial Officer; and Kathy Ruemmler, our Chief Legal Officer and General Counsel. Kathy is acting as a secretary for this meeting. In addition, from our independent auditors, PricewaterhouseCoopers, we have [ Jeff Galata. ] And from American Election Services, we are joined by Christopher J. Woods, our Inspector of Election. I will now turn to the business of the meeting. We will conduct the meeting in accordance with the meeting agenda and the rules of conduct. I've been advised by our independent tabulator and our inspector of election that holders of at least 85% of our outstanding shares are present in person or by proxy, and accordingly, a quorum is present. I hereby acknowledge that all matters to be voted upon as described in our proxy statement are properly before the meeting. It is Thursday, April 28 at 8:33 a.m. Eastern Time, and I declare the proposal -- the polls on all the proposals open. All voting at this meeting will be conducted by ballot. If you have voted your shares prior to the start of the annual meeting, your vote has already been received and tabulated, and there is no need to vote again unless you wish to revoke or change your vote. The minute a ballot today will revoke any earlier proxies that you may have submitted. Anyone who needs a ballot, please raise your hand, will be collected after the polls are closed. There will be an opportunity for any shareholder wearing a green shareholder badge to ask questions on each of the proposals. After all the proposals have been presented, we'll collect any ballots and we will close the polls. Then we'll have a general question-and-answer session. If you have a general question or comment, please wait until then to raise it. Please use either of the podiums located inside the aisles to present the shareholder proposals and ask any questions. Prior to speaking, please identify yourself as a shareholder, state your name and, if applicable, your organization. We will now turn to the proposals. The first matter to be voted on is the election of directors. The Board has unanimously recommended that shareholders vote for the election of each of the director nominees for the reasons set forth in the proxy statement. Are there any questions related to this matter? The second matter to be voted on is an advisory vote to approve the executive compensation of our named executive officers. The Board has unanimously recommended that shareholders vote for the say on pay vote for the reasons set forth in the proxy statement. Are there any questions related to this matter? The third matter to be voted on is the ratification of the appointment of PricewaterhouseCoopers as our independent auditors for 2022. The Board has unanimously recommended that shareholders vote for the ratification of PwC for the reasons set forth in our proxy statement. Are there any questions related to this matter? Please.

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Thank you. Thank you for your question. We obviously are following those rule proposals very, very closely, and obviously, we'll be prepared to implement any changes to the degree the rule is going to place. I don't know, Peter, if you have any other comments from an audit committee perspective. We're still watching it develop. And obviously, we'll take appropriate action based on where the rules wind up. Absolutely. Thank you. Are there any other questions on this matter? Thank you. The fourth matter to be voted on is a shareholder proposal submitted by the National Center for Public Policy Research regarding shareholder giving reporting. The Board has unanimously recommended that shareholders vote against the shareholder proposal for the reasons set forth in our proxy. I believe that the proposal is being presented by Scott Shepherd. Scott?

[indiscernible] Shareholder proposals [indiscernible] in [indiscernible] statement in on assessments by our shareholders. [indiscernible] the company probably claims that it does not propose any additional restrictions on shareholder [indiscernible]. [indiscernible] principles of [indiscernible] mean anything or nothing if the company [indiscernible] make no preparing efforts to [indiscernible] the shareholder [indiscernible] given the shareholder [indiscernible] for [indiscernible] legal [indiscernible]. This assumes [indiscernible] shareholder money [indiscernible] from a single [indiscernible] share duties [indiscernible] in the organization exactly related to the company's bottom line [indiscernible]... [Audio Gap] And the business roundtable is behind the campaign to pretend the corporations have either the right or the ability to act for all stakeholders instead of for shareholders. That pretense is a [indiscernible] designed to allow billionaire CEOs to run companies by the likes of their own personal policy preferences rather than for shareholder interest. By contributing to it or belonging to it, then Goldman fleece shareholders' pockets in order to port shareholder wishes and undermine shareholder value. That's a fairly impressive self-dealing and bad judgment. In a similar vein, donations to the World Economic Forum are even more corrupt. Our company claims that there's no reason for shareholders to know what the company is doing with their shareholder money. That's absurd. Given what we already know about how Goldman spends our money and given its own admission that it doesn't bother to constrain or monitor the use of that money. It has an absolute obligation to tell us where the money is going, all of it, not just the part that it's not afraid to admit. It owes us this disclosure as a fundamental fiduciary duty. And despite pretenses and its membership in the business roundtable, that fiduciary duty remains firmly in place. You're welcome Mr. Solomon for all those free lunches and the free trips to Davos. I'm afraid my [indiscernible] know about [indiscernible].

Thank you very much. Are there any questions related to this proposal? The fifth matter to be voted on is a shareholder proposal submitted by the National Legal and Policy Center regarding a policy for an independent chair. The Board has unanimously recommended that shareholders vote against the shareholder proposal for the reasons set forth in our proxy. I believe the proposal is being presented by [ Paul Kaminer. ] Paul, please go ahead.

Thank you. Good morning, everyone. My name is [ Paul Kaminer ] counsel to the National Legal and Policy Center based in Washington, D.C., where ethics Watchdog Group. And we also have a corporate integrity project. Goldman Sachs has been a public company since 1999, but it still seems to be run like a private firm, separating the roles of the Chairman and the CEO as we propose would promote accountability to shareholders and help create clearer lines of responsibility between the corporate and personal interest of executives at the World Economic Forum in Davos last year. Mr. Chairman, you declare that Goldman would refuse to take companies public, unless they had at least 1 diverse member on their board. We oppose a similar proposal by the SEC and the NASDAQ Diversity Board rule on the ground that it's unconstitutional and illegal and smacks of tokenism in that case is to be fraud the Fifth Circuit Court of Appeals. When it comes to public policy issues, I can't think of a company that is less diverse. Goldman Jack -- Coleman seems to jump on every [indiscernible] that is advanced by the world activist. There's a reason for this, when you have so much money, big business is going to come in to close scrutiny. The best way to insight yourself and keep that business activist off your back is to embrace their causes [indiscernible]. Even if in the process, you were undermining the very system that produces your wealth. Goldman Claims that President Biden's so-called build-back better, [indiscernible] will help economic growth on the theory that any spending is good spending. Well, maybe it's good for Goldman in the short run, but this kind of a irresponsible debt grid spending by politicians and not to mention the unprecedented printing of money by the Federal Reserve, have artificially inflated prices. So there's already the benefit that goes to those who already have these assets, but the rich get richer and wage earners get ruinous inflation. And now ordinary people face sky high gas prices. Well, why is this? Because Goldman Sachs and all other financial institutions were stampeded into the war against fossil fuels. So now to [indiscernible] oil and gas producers have much needed capital doesn't look so good. And even before Russia invaded Ukraine, the world was on the verge of an energy crisis brought by First World activist. The result will be food shortages and social unrest in poor countries. Now the folly of the West dependence on Russia for energy is obvious. Will you, Mr. Chairman, while you talk about the sustainability and the ESG where you allow the free market to operate and help our country to reclaim its energy independence and security. Very least, we think you should stop taking personal trips on private jets provided by Goldman shareholders. Come to think of it, you should probably stop private travel altogether, if you surely believe that it's in the interest of a climate change and reduces CO2 emissions. Last year, Goldman signed on to an advertisement, criticizing "discriminatory legislation" that suggested Republican efforts in Georgia and elsewhere to ensure voting integrity, we're really aimed instead at obstructing ballot access based on race that Goldman has big plans to expand its business in China, which has never had free elections and which pursues genocidal policies against the Wigger minority. So Goldman is hard on Georgia, but soft in China. Goldman is very proud of its new partnership and a wealth management venture with the Industrial and Commercial Bank of China. This bank is a state-owned enterprise with capital provided by the Ministry of Finance in China. So Goldman doesn't do business in China. It partners with the communist China governance following in the footsteps of its former Co-President, John Thornton. Let's hope that China's pledge of "limitless friendship" with Russia is not fulfilled, and that does not invade Taiwan. Maybe if there were diverse viewpoints on the -- with the Goldman Executive suite, someone would question whether the partnership with China and mass [indiscernible] is a good idea. Activism by evoke, CEOs may be reaching its limits as we see with the Disney's CEO that claim that gender is a form of oppression that even kindergartners must be proceed to confront it against their parent wishes. In conclusion, public opinion poll showed dissatisfaction with big corporations at an all-time high. Goldman may consider itself too big and powerful to be affected by public graph. But let me warn you that something is brewing out there. Corporate Americas placed itself at odds with the economic and cultural entrance of the American public. Maybe it's time for some diversity of thought at Goldman Sachs. Thank you.

Thank you. Are there any questions related to this proposal? The sixth matter to be voted on is a shareholder proposal submitted by the Sierra Club Foundation regarding a policy to ensure that the firm's lending and underwriting do not contribute to new fossil fuel development. The Board has unanimously recommended that shareholders vote against this shareholder proposal for the reasons set forth in our proxy statement. I believe the proposal is being presented by Loren Blackford. Loren, please go ahead.

Good morning, members of the Goldman Sachs Board management and fellow shareholders. My name is Loren Blackford, Chair of the Investment Committee of the Sierra Club Foundation. I'm also a private wealth client with Goldman Sachs. My husband, [ Michael Bevna ] is a former Goldman partner and was instrumental in creating your risk management system. I'm here presenting shareholder proposal #6, which requests that the Goldman Sachs Board of Directors adopt a policy by the end of 2022, committing to proactive measures to ensure that the company's lending and underwriting do not contribute to new fossil fuel development. I'd like to be clear what this proposal is and is not about. It is not about divestment from fossil fuels as your proxy response suggests. It does not undermine Goldman's role in the low-carbon transition or prevent you from engaging in transactions similar to ones you have executed over the past several years to drive legacy energy companies towards decarbonization and renewable energy focus. It does not tell you how to do your business. On the contrary, this proposal focuses exclusively on new fossil fuel exploration and expansion. It calls on you to determine the proactive measures that will enable Goldman to align your lending and underwriting with your net-zero commitments and the accepted science on climate change. It is consistent with guidelines and recommendations from the net-zero Banking Alliance, United Nations Environment Program financing initiative and the International Energy Agency, which clearly indicate that there is no room for new fossil fuel expansion if we are to stay within a 1.5 degree Celsius scenario. We are confident that Goldman can develop financing mechanisms that will accelerate the clean energy transition and avoid financing new fossil fuel infrastructure. This is what you do well. This proposed policy would help by sending a clear signal to your clients, your shareholders and your staff that Goldman is serious about meeting its commitments and making this transition. We are deeply concerned for those who have -- having their gas cut off by Russia as well as people around the world struggling due to gas price hikes. This proposed policy would not add to their suffering. New fossil fuel infrastructure takes years to come online, and would be far too late to address current energy shortfalls. An unambiguous signal that your financing will go to accelerating the energy transition will do much more to address energy and security, market turmoil and geopolitical risks. So what is this proposal about? It is fundamentally about preserving a planet that is livable for our children and everybody and everything else that lives on earth. It is also about material risks that shareholders should be very concerned about, specifically risk of credit losses as new fossil fuel development will be subject to a high degree of stranding in a 1.5 degree Celsius align future where demand for fossil fuels can be met with existing oil and gas fields. Litigation risk from selling client securities that the company knows or should know are at a high risk of failure. Risk of higher capital requirements from regulatory responses to climate change. Reputational risk from greenwashing is the company's continued financing of new fossil fuel development is in direct contradiction to its net-zero commitment. As UN Secretary General, António Guterres has recently noted, investing in new fossil fuels infrastructure is moral and economic madness. After the 2007 and 2009 recession, my husband was recruited to come out of retirement to help others build risk management systems because yours was seen as the only very effective one during that crisis. Climate change presents much greater levels of risk. In this circumstance, my husband observes, Goldman has been extraordinary in at least 2 ways: One, how you manage your risk; two, having a moral and ethical backbone. This is a clear situation he notes where you must apply those standards. Goldman Sachs is doing so much from your extensive clean energy investing to your commitments to not finance new coal projects or arctic drilling to your net-zero by 2050 pledge. However, you need policies to back that pledge up, starting with a commitment to not finance new fossil fuel expansion. This step is critical to align with climate science, effectively manage your risk and protect shareholders' long-term interest. Thank you.

Thank you. Are there any questions related to this proposal? The seventh matter to be voted on is a shareholder proposal submitted by John Chevedden regarding special shareholder meeting thresholds. The Board has unanimously recommended that shareholders vote against the shareholder proposal for the reasons set forth in our proxy statement. I believe the proposal is being presented by [ Courtney Wix. Courtney, ] please go ahead.

Good morning. My name is [ Courtney Wix, ] and I'm the Executive Director for Investor Advocates for social justice. We represent faith-based -- institutional faith-based investors and socially responsible investors to advance human rights, climate and dignity, racial justice, peace and militarization and indigenous rights. I'm here to move proposal 7 on behalf of John Chevedden. Shareholders ask our Board to take the steps necessary to amend the governing documents to give the owners of a combined 10% of our outstanding common stock, the power to call a special shareholder meeting, although it now takes a theoretical 25% of all shares to call for a special shareholder meeting. This translates into 33% of the Goldman Sachs shares that typically vote at the annual meeting, it would be hopeless to think that the shares that do not have time to vote at the annual meeting, would have the time to take the special procedural steps to call for a special shareholder meeting, plus the 33% of the shares that vote at the annual meeting could translate into upwards of 40% support from the shares that vote when the shares are included that are in support of calling an annual meeting, but made a paperwork error, which is easy to do. The likelihood of the need to obtain upwards of 40% shareholder support, just to call a special meeting is nothing for management to brag about, especially when Goldman Sachs shareholders have absolutely no right to act by written consent. Additionally, Goldman Sachs shareholders have 42% support to the 2021 shareholder proposal calling for a shareholder right to act by written consent. This 42% may have represented over 51% support from the shares that have access to independent proxy voting advice, and are not forced to rely too much on the biased management voting recommendations. Many companies provide for both a shareholder right to call a special shareholder meeting and a shareholder right to act by written consent. Southwest Airlines and Target are companies that do not provide for shareholder written consent and yet provide for 10% of shares to call for a special shareholder meeting. Shareholders also need to -- I'm sorry, shareholders also need a more reasonable stock ownership, to call a special shareholder meeting, to help make up for the use of online shareholder meetings that give management more control. At an online meeting, management can dictate that only 1 shareholder can speak and the vast majority of 2021 online shareholder meetings dictated that absolutely no shareholders could speak, a reasonable shareholder right to call for a special shareholder meeting and our bylaws will help ensure that management engages with shareholders in good faith because shareholders will have a viable plan B by calling for a special shareholder meeting. Our bylaws give no assurance that shareholder engagement will continue. A special shareholder meeting can be called to elect a new director, a reasonable right for shareholders to call for a special meeting could inspire better performance by existing directors. Please vote yes, special shareholder meeting improvement, proposal 7. Thank you.

Thank you. Are there any questions related to this proposal? At this time, I'd please ask that you raise your hand if you have a ballot to be collected. It is 8:57 a.m. and I declare the polls closed on all proposals. We will provide you with the preliminary voting results on each of the proposals as soon as they are tabulated. At this time, we invite any shareholder who has questions related to Goldman Sachs to approach one of the podiums and ask their question. To assure that every shareholder has an opportunity to participate, I will ask that each speaker limit their questions to 3 minutes. When asking your question, please identify yourself as a shareholder state your name and, if applicable, your organization. Good morning.

David. [ Mindy Wasserman, ] shareholder. Can you please comment on the impact on the bank, the market and the economy of 1 or more 50 basis point increases in the Fed funds rate plus the shrinking of the Federal Reserve balance sheet or quantitative tightening? Discuss the spirit and the magnitude of normalizing the Fed fund rates and CET?

Thank you very much. That's obviously something that we're spending an enormous amount of time focused on. And the trajectory of the tightening of money is still a little bit unsure. I think it's becoming clear, and the Fed has been relatively transparent that, that pace is going to be quicker now through the course of 2022 than people would have expected a few months ago. And you can see that that's having an impact on equity market prices and asset prices broadly. Generally, the Fed is going to try to slow down the economy and try to take some of the bite out of inflation that exists. But the trajectory of that, and how the underlying activity affects all that is still relatively uncertain. So I would say this is a period of uncertainty. We haven't gone through a tightening cycle like this in quite some time. It will have an impact on asset prices. And the big question, the big unknown that obviously, as we think about risk management in our organization, we spend a lot of time thinking about is whether or not we can go through that cycle and have a relatively soft landing or whether or not it leads to a recession. Our economists -- I think the chance of a recession here in the U.S. over the next few years is about 30%. But again, that's a big unknown, and there's a wide disparity of outcomes, so we're all going to watch that very closely. Someone else like to ask a question. I know Mindy has some others. So would you like to ask another?

Sure. As you have just stated, we're entering a new stage of the economy, a lot of tightening and interest rate increases. What are the major financial and general business problems or constraints that your clients are facing? And what have you even learned from the 10,000 small businesses or individuals versus your typical large institutional clients?

Sure. I appreciate that. And the broad leadership of the firm has been out speaking to clients constantly through the pandemic, and also certainly, as the world has opened up much more regularly over the course of the last few months. I think all clients that run big businesses are dealing with the fact that we're entering a period of greater volatility and also a change in the base economic environment. While here in the United States, the underlying economy is still strong at the moment. There have obviously been significant supply chain disruptions. And most companies are dealing with inflation for the first time in a very long time, and having to think about the impact of inflation, both on their inputs and the outputs of the products they make is a bigger challenge. Whenever you have uncertainty, I think it makes people more cautious. And there's a correlation between activity and less uncertainty. And obviously, that tips the other way. So I would say I find our corporate clients at the moment a little bit more cautious, a little bit more concerned about the next 12 to 24 months and what the path of both the supply chain disruptions and the general inflation that's embedded in the economy is going to be, and they're watching that very, very closely. The second part of your question, Mindy, I forgot. I apologize.

The impact on small business?

On small businesses, yes. So we obviously -- we spent a lot of time focused on small businesses through our 10,000 small business platform, as you highlight. And one of the things we created over the course of the last couple of years was 10,000 small businesses voices where we went out to our broad cadre of small businesses, and we surveyed them and pulled them around the economic experience that they were having. And small businesses are so important to the vitality of our economy. And there's no question that they're doing better now that the economy is starting to reopen and accelerate, a lot of service businesses in that small business community that require people to show up physically, and those businesses certainly had enormous headwinds through the pandemic. But most of the businesses have benefited from some of the support and fiscal stimulus that was given out, and they're now in recovery mode. I'd also say that one of the things that was really fascinating, but also inspiring to watch is how so many of these small businesses pivoted during the pandemic and found other ways to use their platforms and the resources to make other products that provide different services or to change the way they provided their products and services. And so I think you saw the nimbleness, the entrepreneurial spirit, the creativity really get amplified, but it's very important that we find ways to continue to support small businesses, super important for the economic vitality of our society and super important, also, for urban centers. Go ahead.

One more question. And this is changing over to the international arena. You're very involved in China, as was mentioned earlier. Can you please comment on the 2022 Chinese presidential election, and whether Xi Jinping will be elected to a third term or even further? Will the country continue with 1 country, 2 systems outlook? And what is the outlook China in 2025? What is left of this 5-year plan for them to accomplish and start over on the next one. And then just 2 quick additions if you want to address, and that is the -- again, it has been falling to new low levels vis-a-vis the dollar or is that implication for Japan? And is there a resolution to Ukraine and Russia?

So there's a lot there. And given that we have only a few minutes, I'll try that hit it at -- hit a high level.

[indiscernible] international regulations [indiscernible]?

I don't have prognostications on the political process in China, but certainly President Xi seems to be firmly in control with the path of China. I think the interesting thing that we're all going to wrestle with is the bilateral relationship between the U.S. and China has gotten far more difficult, far more challenged over the course of the last couple of years. And China and the U.S. are extraordinarily economically intertwined. And there's no question that while there is pressure to decouple, there's pressure to rethink the way that economic relationship exists. It's unclear what that path will be, and how that path will take over the course of the next 3 to 5 years. I would say that, that tension is a headwind to global growth for sure, both here in the United States and in China. But there's great uncertainty as to the path that this will take. And it's something, obviously, that is a big macro risk, and something that we think about and we watch very, very closely, and we'll continue to watch. With respect to the change in the relationship between the yen and the dollar, it's been significant. I happened to be on a call last night with the CEO of a major Japanese financial institution. And that's something that they're concerned about. China has had very, very easy monetary policy for a very, very long period of time. They've had very, very slow and sluggish economic growth and -- Japan rather, has a very, very slow economic growth for a long period of time. And I think the chance of Japan responding in a way that strengthens the yen in the short term is unlikely. But it's certainly a challenge for them. And if you're talking to people on the ground in Japan, you're talking to big corporate leaders or financial institutions in Japan, it's something that they're enormously focused on. And I don't have -- obviously, the situation in Ukraine is horrific, and we're watching it very, very closely, but I don't have a good speculation as to exactly how the situation unwinds. But I hope there's a way to unwind it, preserve life and get to a better place very, very quickly, but it's obviously a very, very difficult situation.

Thank you very much.

Absolutely. Thank you. Are there any other questions? We have been informed by the inspector of election that we have available preliminary voting results. Kathy, could you please announce them?

Okay. These results are preliminary estimates. Final voting results will be provided in Form 8-K that we will file within 4 business days. First, I'm pleased to announce that each of the 13 director nominees received the support of a majority of our shareholders and consequently, each has been elected. Second, the advisory vote to approve the executive compensation of our named executive officers received the support of votes representing approximately 82% of the shares present in person or represented by proxy and consequently, is approved. Third, the proposed ratification of the appointment of PricewaterhouseCoopers as our independent auditors received the support of votes representing approximately 95% of the shares present in person or represented by proxy, and consequently is approved. Fourth, the proposal regarding charitable giving reporting received the support of approximately 3% of the shares present in person or represented by proxy, and consequently is not approved. Fifth, the proposal regarding a policy for an independent chair received the support of approximately 16% of the shares present in person or represented by proxy, and consequently is not approved. Sixth, the proposal regarding a policy to ensure that the firm's lending and underwriting do not contribute to new fossil fuel development received the support of approximately 11% of the shares present in person or represented by proxy, and consequently is not approved. And lastly, the proposal regarding special shareholder meeting thresholds received the support of approximately 39% of the shares present in person or represented by proxy, and consequently is not approved.

Thank you, Kathy. On behalf of the Board of Directors and the management team, I'd like to thank you all for coming or listening in. We strongly value our engagement with our shareholders and other stakeholders. This concludes our meeting. I hereby declare this meeting adjourned. Thank you all very much.