Goldman Sachs (NYSE: GS) should "be the leader in things like ethics, in putting clients first," said CEO Lloyd Blankfein last month.

But he'd also like to leave open the option of bamboozling when appropriate.

Goldman, you see, publishes a four-page manifesto on its website called "Code of Business Conduct and Ethics." It's a list of buzzwords and guidelines such as:

  • "It is the firm's policy to comply with all applicable laws."
  • "We have a history of succeeding through honest business competition."
  • "Each employee and director should endeavor to deal fairly with the firm's clients."

But then the last page drops this nugget on you:

From time to time, the firm may waive certain provisions of this Code.

Seriously? You could drive a tank through that loophole.

Confronted about this waiver, a Goldman spokesman responded to blogger ZeroHedge by saying: "The ethics code, including waiver provision, was required under [Sarbanes-Oxley]. No waivers have been requested."

But Sarbanes-Oxley doesn't require either an ethics code or waivers to the code. It requires companies to disclose such guidelines if they have them, and explain why if they don't. That's a big difference. Ethics codes with waivers are a perfect way for managmenent to tell shareholders, "We plan on behaving, but …"

Ethics optional
Now, to be fair, many companies have ethics codes with waivers. I'm just picking on Goldman because it's a moral sewer.

ExxonMobil (NYSE: XOM), for example, says of its ethics code: "The Board does not envision that any waivers of the Code will be granted, but should a waiver occur for an executive officer or director, it will be promptly disclosed on this site." Altria Group (NYSE: MO) discloses that "Any waiver of any provision of this Code for any director may only be granted by the Board of Directors and will be promptly disclosed to the Company's shareholders." Citigroup (NYSE: C) warns that "waivers may be granted only by the General Counsel or the Chief Compliance Officer."

Thanks for the heads-up. But can I ask the critical question: Why? What good are ethics codes that a company's top brass can subjectively ignore? As a 2003 lawyerly report on Sarbanes-Oxley put it, "Because a code of ethics expresses the company's fundamental values, few waivers of its provisions are likely to be justified." Exactly. So why even allow them? It's like adding a 28th amendment to the Constitution that says "The previous 27 amendments may be ignored from time to time." Such language pretty well discredits everything else said before it.

Call me cynical, but a rule hollows out when a potential criminal can say: "Ooh, you know what? I think I'd like to be exempt from this one. But thanks for the concern!"

'Fess up, guys
Since ethics codes are voluntary as long as the reasons for abandoning them are disclosed, and waiver clauses make most codes irrelevant anyway, I'd like to make a modest proposal. We'll call it the code of honesty. When a company can't put together a code of ethics without a mile-wide waiver clause, management should be required to issue a code of honesty that goes something like this:

On occasion, our chief concerns are our jobs, our bonuses, and most especially our egos. We try our hardest. But please realize that we're fallible human beings who make more money than [the deity of your choice]. As such, we're prone to doing things that benefit us and only us. We're sorry. You'd understand if you were in our shoes. We love our shareholders and our clients. But as Chris Rock says, a man is only as faithful as his options. And when it comes to screwing people over, we're chest-deep in options.

I'd say that sums up Goldman's corporate culture. Goldman's management isn't filled with morally bankrupt scoundrels. It's filled with people whose top incentives are to look after their own interests. I just wish they'd admit it.

Check back every Tuesday and Friday for Morgan Housel's columns on finance and economics.