Is Goldman Sachs the next Toyota?

The lawsuit filed by the SEC against Goldman is in the same category as Toyota’s unintended acceleration problem. Both are about tainted products and whether the firms dealt honestly with their customers. And it could be just as devastating to Goldman’s business as it was to Toyota’s. At stake is the bank’s most valuable economic asset—its integrity.

Conventionally, we think of integrity as an ‘eat your spinach’ topic: a personal issue, entirely up to individuals. But integrity is widely misunderstood. Integrity isn’t personal, it’s collective. It’s the underpinnings for all our commercial transactions. Integrity is a shared asset that brings financial and economic rewards. To understand why, you need to see integrity as a relationship of trust. To actually practice integrity there has to be someone on the other side of the transaction. On one side of the transaction is the firm operating with integrity (or trustworthiness) on the other side is a customer who buys into that integrity (who trusts). Once you have a relationship of integrity and trust you have an asset that produces economic value. Integrity isn’t something nice to have it’s something a firm has to have in order to sell its product and create wealth.

Goldman has built up enormous integrity over decades. It’s the gold standard for the financial industry. Whether or not the firm broke the law though, the lawsuit raises doubts about whether the bank deals honestly with its clients and whether clients should continue to trust Goldman. It also raises big issues about how it operates with trading and investment banking under one roof. It’s critical how Goldman handles this integrity crisis. First, Goldman has to move quickly to explain the extent of the problem in a convincing way. Second, it has to provide a solution that builds trust with its customers. So far, Goldman has told its customers they should have known better. That is, Goldman has effectively blamed its own customers. If Goldman is as smart as everyone says, they will learn from Toyota’s initial mistakes and turn this lawsuit into an opportunity to build greater integrity that may underpin its prosperity for years to come.