How can succession planning help save Goldman?

(Fortune) -- The Goldman Sachs hearings on Capitol Hill were painful to watch for many reasons. Lloyd Blankfein, Goldman's CEO, was questioned closely by Senator Carl Levin concerning Goldman's duties to clients. Senator Levin's frustration grew as Mr. Blankfein concentrated his answers on the firm's responsibilities related to trading and market-making, rather than exhibiting a firm grasp on the distinctions in roles the firm plays with its clients in other areas, such as underwriting and asset management.

A particularly telling moment came when Senator Levin questioned a deposition statement Mr. Blankfein had made in earlier testimony. In that statement, Mr. Blankfein had said he did not realize how important a AAA rating is. Senator Levin found that admission unbelievable. Most anyone selling financial products would recognize the importance of the AAA rating to specific kinds of clients.

Mr. Blankfein's statement is believable, however, when you recognize the fact that his career was straight-lined through the investment bank's trading arm, according to Goldman's own proxy. He had no rotation to other areas and no real exposure in the trenches to the different aspects of the bank's business.

CFO David Viniar and other Goldman executives exhibited similar lacks of broad-based experience during their testimonies, which begs the question: Can a company operate properly with people at the top who have had narrow career experiences?

The troubles Goldman (GS, Fortune 500) is now experiencing relate very much to this tragic set of circumstances.

Up until now, the company's board of directors hasn't seemed to play a very big role in succession planning, which includes assessing the developmental needs of its CEO and senior executives. According to Goldman's own shareholder proxy this year, the nominating and governance committee of the board "review and concur in the succession plans for our CEO and other members of senior management." This indicates a very passive role -- and one that has clearly not served Goldman well.

Whether seeking to make a change at the top -- or not -- at this critical juncture, the Goldman board needs to step up its involvement and eschew this level of passivity. The board needs to be seriously reviewing its role in succession planning and getting its hands dirty in the details. With continued hits to its reputation, the board must do all it can to ensure that Goldman has and will have the right people in place to move the company forward. This means education and exposure to all aspects of the business.

Goldman's board needs to get to work immediately to assess its own and senior executives' training and development needs with respect to the various lines of business and the ethics and compliance associated with each. Once they all have a better understanding, it's time to explore rotational moves and an organizational restructure so it is easier for staff to sort out ethical dilemmas and for managers to manage them.

--Eleanor Bloxham is CEO of The Value Alliance and Corporate Governance Alliance, a board advisory firm.