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Goldman Sachs urged to separate CEO, chair roles by proxy advisers

Goldman Sachs analyst impact fund competition in New York

By Ross Kerber and Saeed Azhar

(Reuters) -Influential proxy adviser Glass Lewis joined another adviser in urging Goldman Sachs to split the CEO and chairman roles held by David Solomon, and further broke with management by calling on shareholders to reject the bank's executive pay plans.

The recommendations came as Solomon scales down Goldman's consumer operations, which he championed but have lost billions.

Glass Lewis and Institutional Shareholder Services recommended in separate reports this week that investors back a shareholder resolution calling for the job split.

An independent chair "is nearly always preferable to having a single individual lead both the board and the executive team," Glass Lewis wrote on Thursday, reiterating a recommendation from last year.

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After the 2008 financial crisis, investors seeking to improve risk oversight mounted efforts to separate the chair and CEO roles at Goldman and other Wall Street giants like JPMorgan Chase.

Banks often fended these off by making other changes, such as giving new powers to a lead independent director, which Goldman did in 2013.

Investors are again focusing on potential conflicts of interest posed by the two roles, said Tony Carideo, president of The Carideo Group, a corporate elections inspection service.

While he said such joint positions are common at U.S. banks and do not pose a concern, Mark Narron, a senior director at Fitch Ratings, added, "It's probably incrementally positive to separate those roles."

Solomon was named CEO in 2018 and added the title of chairman the next year. ISS cited Solomon's leadership and the bank's strategy in its recommendation to split the CEO and chairman roles.

"Solomon's foray into the consumer realm has been met with missteps and steep losses, " ISS wrote in a report on Wednesday.

In its proxy statement, Goldman Sachs urged investors to vote against the proposal to have different people hold the CEO and chairman roles.

"Our board’s governance committee needs the flexibility to determine the best structure for our firm," a bank spokesperson said on Thursday. "They have made clear that a strong lead independent director, alongside the chairman-CEO role, is the most effective."

The conservative-leaning National Legal and Policy Center filed the resolution to split the roles. A similar measure it filed last year drew 16% support.

Glass Lewis also called for an advisory vote against Goldman's executive pay, saying shareholders "should be wary of the continued disconnect between pay and performance."

The recommendation marked a departure from last year, when Glass Lewis had recommended votes in favor of the plans.

Compensation for Goldman's top three executives jumped by an average of nearly 24% for 2023 even as its profit fell 24%, according to the company. Goldman's top bosses earned above the median for their peers, Glass Lewis said.

An academic study from 2010 found that an ISS recommendation shifted 6% to 10% of shareholder votes. But the proxy adviser's influence has likely fallen since then, author Jill Fisch said in an interview earlier this year.

Goldman's annual meeting is April 24. Like ISS, Glass Lewis recommended votes approving all the bank's director nominees, including Solomon.

The bank appointed David Viniar, who served as its finance chief from 1999 to 2013, as its next independent lead director to succeed Adebayo.

Goldman shares fell almost 2% in afternoon trading on Thursday, compared with the broader KBW Bank Index which slid about 1%.

(Reporting by Ross Kerber, additional reporting by Saeed Azhar; editing by Lananh Nguyen, Megan Davies, Marguerita Choy and Cynthia Osterman)