MercoPress. South Atlantic News Agency

U.S. shareholders criticize Goldman Sachs for Park deal in Chile

Goldman Sachs CEO Henry Paulson has come under fire from irate shareholders who say he is using company assets to further his own personal environmental goals in Chile.

In 2004, under Paulson's leadership, Goldman Sachs donated a 2,750 square kilometer tract of land in southern Chile to the Wildlife Conservation Society (WCS), creating the Karukinka wildlife reserve.

As part of the arrangement, Goldman also put up US$6.6 million of its own money to fund the Chile environment project. The Goldman Sachs website describes the land deal as a first-of-its-kind private/public alliance.

According to Steven E. Sanderson, President and CEO of the Wildlife Conservation Society, "this could be one of the great conservation gifts of our lifetime. (The park) will be a tremendous legacy for the people of our generation to offer to the next." The deal has been lauded by environmental groups as an example of corporate America taking responsibility for the earth.

But some Goldman Sachs shareholders disagree. A group of shareholders has charged that Paulson had no right to use company assets in what they described a personal project, and suggest that his commitment to environmental conservation constitutes a conflict of interest. On April 6, a group called the Action Fund Management LLC (AFM) requested that Paulson reimburse the company for "any shareholder assets spent to advance his personal interests."

Why is Paulson being so roundly criticized for what seems to be such a progressive approach to corporate responsibility? One reason may be his personal and family links to environmental groups.

In addition to his duties to the company and its shareholders, he is chairman of the board of The Nature Conservancy, the world's wealthiest environmental group, with assets of US$4 billion. His wife is a former TNC board member, and his daughter is on the board of the Wildlife Conservation Society, the organization that was chosen to oversee the Karukinka reserve project.

At a March 31 shareholder's meeting, Mr. Paulson assured shareholders that the Nature Conservancy was deliberately not involved in the Chilean land deal. Yet, according to Steve Milloy of AFM, "The Nature Conservancy's tax return for 2004 states that Goldman Sachs paid the environmental group $144,895 between August 2003 and June 2004 for consulting services related to the Chilean land deal."

"As shareholders, we have a lot of questions," said AFM's Tom Borelli. "We still want to know what happened on the Chilean land deal. But Goldman has not provided substantive responses, either to our letters or at the shareholder meeting."

In a letter sent to shareholders, the AFM group called for a detailed probing of the Chilean land deal, explaining that Goldman's company policies prohibit personal interests from improperly conflicting with firm business interests. Instead, they said, Goldman's company actions should instead rely exclusively on sound business, economic and scientific analyses, and not the personal social and political interests of executives.

John Carlisle, policy director at the National Legal and Policy Center, and a critic of Paulson, said, "as head of the Nature Conservancy, Paulson often made decisions that benefited the Conservancy at the expense of Goldman and its shareholders."

In 2005, Goldman Sachs became one of the few Wall Street firms with a detailed environmental policy. This policy, among other things, asserts that man-made emissions of greenhouse gases adversely impact the global climate; provides that indigenous peoples approve local development plans; and argues that logging be limited by criteria supported by environmental groups.

The AFM criticized these measures, saying "Goldman has not justified its Environmental Policy as either promoting shareholder value or, at least, not harming shareholder value."

According to the Goldman Sachs environmental policy, "Goldman Sachs recognizes that diverse, healthy natural resources ? are a critical component of social and sustainable economic development." The policy also stresses that despite these environmental objectives, Goldman Sachs "will not stray from our central business objective of creating long-term value for our shareholders and serving the long-term interests of our clients."

Is Henry Paulson a radical environmentalist bent on frittering away company money? Not according to the majority of Goldman Sachs, who voted against the AFM's resolution that accused Paulson of putting his own personal environmental passions ahead of shareholder interests.

Has this newfound focus on environmental issues greatly damaged Goldman Sach's profitability? According to the company's 2004 annual report, 2004 was the strongest performance in the firm's history. Net revenues increased 28 percent, and net earnings rose 52 percent. And the shareholders? Their average return on equity was 25 percent.

What cannot be denied is Paulson's personal commitment to environmental conservation. This conviction is evidenced by the US$100 million donation to a family ecological charity he announced on April 3.

The real question is, can business interests coexist with environmental interests, or is the short-term dollar the bottom line? More than an academic or financial question, it is a question that could very well determine the future of civilization as we know it in the developed, Western world.

As explained by U.S. academic Jared Diamond in his book Collapse, How Societies Chose to Fail or Succeed, civilization today, as no other time in our history, has the blessing of both hindsight (how past civilization both failed and succeeded) and connectivity (an awareness that we are all piloting the same, very finite planet). The lonely turf staked out by Goldman Sachs under Paulson's leadership could well prove prophetic.

Geoff Burt - The Santiago Times - News about Chile