Goldman Sachs has the reputation of being a breed apart on Wall Street. Its employees are smarter, hungrier and quicker to the draw than those at rival firms. Thanks to these differences, Goldman sits at the apex of the nation?s investment banking hierarchy.
Whether or not you buy into that narrative, there is one way in which Goldman clearly does set itself apart from its competitors: It has more leeway to pick and choose which executives? legal bills it will pay if they become entangled in an investigation or legal proceeding. While the corporate bylaws of other banks definitively state which employees will have legal fees covered in the course of their duties, Goldman?s bylaws are ambiguous on the matter of one group of people ? its so-called officers ? whose legal bills it is supposed to cover. This has the effect of letting the firm decide whose bills among this group it will pay and whose it won?t.
The vagueness in Goldman?s bylaws surfaced last week in a dissenting opinion written by Judge Julio M Fuentes of the United States Court of Appeals for the Third Circuit in Philadelphia. A member of a three-person panel hearing a case involving Goldman?s refusal to pay a former vice president?s fees, Judge Fuentes contended that the effect of the firm?s policy was inconsistent with the law in Delaware, the state in which Goldman is incorporated.
Judge Fuentes also noted that the ambiguity in Goldman?s bylaws would lead many of its employees to believe they were entitled to advancement of legal fees even though the firm was ?reserving the right to make unpredictable post hoc determinations about which former employees should be advanced attorney?s fees and which shouldn?t.? Goldman declined to comment on Judge Fuentes?s opinion.
These ambiguous bylaws set up an intriguing dynamic among Goldman employees. Put simply, being able to choose which of its officers will receive advance payments for legal bills gives the firm significant leverage over those who become ensnared in an investigation or lawsuit. Indeed, the flexible nature of Goldman?s policy could easily discourage those involved in such proceedings from implicating superiors who may have been involved in wrongdoing. Who would take such a chance, knowing that Goldman could cut off the legal fee spigot at any time?
The bylaws of JPMorgan Chase, Bank of America and Morgan Stanley, by contrast, are unambiguous on whose legal fees will be covered. (Usually, but not always, employees found liable for wrongdoing have to repay the legal advances they received.)