Goldman Sachs issues $500 million and an apology

It's lonely at the top.

That's what Goldman Sachs must be thinking after the visceral public reaction to last week's announcement that it would donate $500 million to small business education, training, and investment programs.

Few companies could incite global hostility by giving away $500 million in a recession, but that's exactly what happened to Goldman. And companies that are serious about reputation management will pay attention.

Here's a sampling of the sentiment that greeted Goldman's announcement last week:

"Goldman and its peers need to practice humility and contrition for an extended period, rather than seeking image-buffing headlines with token gestures," wrote Bloomberg's Mark Gilbert after Goldman's announcement.

The New York Times editorial board dismissed the initiative as "crumbs from [Goldman's] table...motivated by its public relations problems."

In the most vivid description of Goldman to date, Rolling Stone's Matt Taibbi compared the investment firm in July to "a giant vampire squid wrapped around the face of humanity."

How did we get here?

Goldman has endured years of withering criticism that large financial institutions sparked the economic downturn, profited from billions of dollars in taxpayer bailouts, and compounded the struggles of ordinary Americans by restricting small business' access to capital. That Goldman issued $15 billion in employee bonuses this year months after taking $10 billion in public funding hasn't help change that narrative.

Will Goldman ever be perceived as a corporate angel? Not likely. Earning $3.4 billion every three months doesn't get you much sympathy no matter how sincere your philanthropic efforts may be, and last week's announcement appeared to be an acknowledgment that the criticism was taking its toll.

Thus, few companies need a reputation recovery strategy more than Goldman, and there are lessons to be gleaned from the manner in which the announcement was made.

First, the company announced that it would be partnering with Warren Buffett and Columbia Business School Dean R. Glenn Hubbard in the small business initiative. The inclusion of respected economic minds outside Goldman lends independent credibility to a program that critics want to pigeon-hole as a shallow PR stunt manufactured by Goldman.

Second, Goldman CEO Lloyd Blankfein last week did what few leaders do when their company has earned the public's hostility: he apologized. On the day of the announcement, Blankfein told an audience of corporate directors that Goldman, “participated in things that were clearly wrong and have reason to regret. We apologize.”

We blogged a long time ago that telling the truth and getting reputable friends to vouch for you can go a long way in a public relations crisis. Goldman seems to get it.

Third, Goldman is running a reputation marathon, not a sprint. Trying to win the public's affection overnight after the economic trauma of 2008 is unrealistic. The visceral reaction by Goldman's critics last week had little to do with helping small businesses (hardly an objectionable idea) and everything to do with Goldman's past.

Consultant Peter Firestein put it best:

"That Goldman has allowed its reputation to sink so low as to make half a billion seem like a token causes damage far beyond the bank itself. It may undermine public sentiment toward truly needed financial entities for a long time to come."

Goldman's reputation recovery strategy cannot be measured in terms of weeks or months, but rather in years. Nor should it be measured by when (if ever) accolades are thrown in Goldman's direction, but rather by how quickly Goldman's critics fade into the background.

Fourth, the only strategy that would be more harmful to Goldman's reputation would be to do nothing - to assume that the public's short term anger make any mea culpa or long term gesture futile.

Goldman would be wise to look past last week's headlines. The opening salvo of cynicism was inevitable. Now they must focus on the other 25 miles in this marathon. That means demonstrating over a sustained period of time a credible strategy to minimize the negative consequences of its business practices and maximizing the many positive benefits.

The measure of last week's announcement will come into focus in the years ahead as small businesses reap the benefits of targeted financing, better higher education curricula, improved management training, and leadership networking that Goldman has now made possible. As the bottom lines of those small businesses recover, perhaps some of the glow - even a little bit - will rub off on Goldman's reputation as well.