Goldman's PR Chief in the Hot Seat

Meet the man with the hardest job on Wall Street: trying to change Goldman Sachs' image as an evil empire—as the firm's $20 billion bonus pool gets distributed.

The person responsible for protecting the image of Goldman Sachs, once the most venerated investment bank on Wall Street but now considered something of an evil empire, is Lucas Van Praag, an Englishman (with a Dutch last name) who runs the firm’s public-relations department. Van Praag has been very powerful inside the Goldman money machine. His quick wit and intelligence since joining the firm in 2000 has earned him the trust of the firm’s top executives, including former CEO Hank Paulson and the current one, Lloyd Blankfein, and a very large paycheck as well. Van Praag is also widely regarded in PR circles as the highest paid flack on Wall Street and one of the top-earning mouthpieces in all of corporate America, with an annual compensation that has (particularly during the good years) well exceeded $1 million. In 2006, he was invited to become a partner in the firm—a rarified status that allows him to partake in a greater share of Goldman’s year-end bonus sweepstakes.

“No one can pay their CEO more than Blankfein, so Goldman will set the industry standard,” one top executive at Morgan Stanley told me.

But that trust maybe wearing thin. Even as Van Praag is mounting a massive effort to rebuff Goldman’s critics with a charm offensive that has Blankfein and his senior staff offering the press unprecedented access to the firm, he is under increasing pressure to stem the tide of bad publicity that just keeps coming, people close to the matter tell me. In addition, a much-needed shift in public-relations strategy is in the works, sources close to the firm say, all of which may diminish Van Praag’s power inside Goldman, or as some rival PR people have predicted over the past week, ultimately force him out of the firm.

At least for the moment, I am told, Van Praag’s job is safe. A senior executive at Goldman told me that there are no plans to oust Van Praag or move him to another slot. “He’s very smart and very respected here,” this executive told me. One reason his job is safe, according to rival PR people, is how it would look, in the middle of Goldman’s image crisis, to simply shoot the messenger. “You can’t get rid of Lucas now; it would make a bad situation even worse.” Van Praag, for his part, declined to comment on the matter, other than to say “More appropriate if you wait ‘til I’m dead…I’ve no desire to engage. Sorry.”

But people inside Goldman also concede that changes are likely to occur in terms of PR strategy, and Van Praag’s role in that strategy remains unclear. For a firm that was once too successful and too arrogant to comment on most matters, there is talk inside Goldman about hiring more people to deal with the media, and not just the traditional print side. Goldman may begin to hire flacks to handle the firm’s image in cyberspace, particularly with bloggers, where many investors get their information. Goldman is also eyeing a broadcast component to its media strategy, and is looking to hire someone to oversee brand management.

Meanwhile, the pressure on Van Praag is only going to get worse as the firm enters what is usually a time of celebration at Goldman Sachs: bonus season. After the losses of last year, Goldman’s traders are once again earning big bucks and the firm now has a bonus pool of an estimated $20 billion. But it comes after last year’s financial meltdown and government bailout, hence the public anger. People inside the firm tell me that this week Goldman will begin to develop its “formula” to figure out how to dole out that bonus money—just one year after the firm accepted $10 billion and agreed to turn itself into a commercial bank for the purpose of being protected by the Federal Reserve in order to survive.

The formula will determine how much stock and cash top earners receive; people close to the firm say given all the controversy, traders and bankers may receive most of the bonus in stock. Then there’s the thorny issue of how to pay the senior-most people, including Blankfein, which will be the mother of all bonus announcements when it is announced. A rival CEO (who has frequent contact with Blankfein) said that based on past precedent, Blankfein would be in line to make as much as he did in 2007, when he earned $68 million.

But this CEO said he believes that given all the attention on Goldman as a government-protected money machine, Blankein won’t receive more than $15 million and will take it all in company stock, setting the tone for the rest of Wall Street.

“No one can pay their CEO more than Blankfein, so Goldman will set the industry standard," one top executive at Morgan Stanley told me. Van Praag’s biggest test, of course, will be spinning a tale around these bonuses that doesn’t further damage Goldman’s image that has clearly seen better days—and as I reported last week, beginning to affect the firm’s bottom line. In addition to its trading brilliance, Goldman was once Wall Street’s premier investment-banking house, leading the closely watched “league tables” in underwriting stocks or advising on mergers and acquisitions.

But the firm’s dominance of those businesses are clearly on the wane, particularly over the past year, as it became a symbol of Wall Street excess, and unfair access to government. Of course it's not Van Praag’s fault that the firm is the target of populist ire because just one year later, Goldman’s trading business is once again thriving (thanks in part to the government subsidy of being able to borrow cheaply as a commercial bank), and its bonus pool is at or near record levels.

But Goldman’s response to this anger might be. Just read the firm’s reaction to justifiable outrage over its bonus levy: Its CEO and CFO oddly continue to deny that the firm needed bailout money during the height of the financial crisis last year when everyone on the Street knows Goldman—along with everyone else—was the target of a massive bank run, with clients pulling billions of dollars from the firm. Recently Blankfein apologized for partaking in the massive risk-taking that led to last year’s crisis, but an off-the-cuff remark made to the Times of London that the firm is doing “God’s work” when it trades or advises on mergers, rendered the apology moot and has now only added to that public anger.

It’s unclear how much guidance the Goldman brass takes from Van Praag. I am told he wanted Blankfein to blunt the negative publicity by doing a television interview to make his case that the firm isn’t the evil menace it has been portrayed and tell his own personal story: Blankfein grew up in a New York City housing project and worked his way through Harvard and up the corporate ladder at Goldman. But that idea has been shelved for the moment. As one of his colleagues put it: “In the end, it's Lloyd’s decision how to proceed, not Lucas’.”

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Charles Gasparino is CNBC's on-air editor and appears as a daily member of CNBC's ensemble. He is a columnist for The Daily Beast and a frequent contributor to the New York Post, Forbes, and other publications. His new book about the financial crisis, The Sellout, was published by HarperBusiness.