Goldman Sachs Works Towards Inclusion

Diversity will become an increasingly valuable asset for boardrooms.

The era of the all-white straight male board is coming to an end. The first major rumble of a seismic change in corporate governance came from the World Economic Forum in Davos, where Goldman Sachs CEO David Solomon announced that the company will not manage the IPOs of any American or European firm unless there is at least one non-white or non-straight male director. In 2021, he then added, he will move toward requesting two.

While Solomon called it “a small step,” such a move from Wall Street’s biggest underwriter of IPOs carries a lot of weight, with critics quick to point out that now the pressure is on rivals such as Morgan Stanley and JPMorgan Chase & Co. to follow suit. “It is a bold statement that puts action behind the value for diversity,” says professor of management at Villanova University, Quinetta Roberson Connally. However, she adds, data suggests that Goldman could have lost up to $101 million in underwriting fees—nearly one-third of the business—had these guidelines been in effect in 2019.

Still, she argues, this data does not adequately reflect the net value of such a policy, “Solomon noted that recent IPOs have performed significantly better when there has been a woman on the board.” Such performance trends are consistent with what is known about corporate governance: “Diversity brings better problem-solving and innovation, which translate into better market returns and valuations.”

Goldman Sachs has company. BlackRock Inc. stated publicly that it will not invest in companies without at least two female directors, and State Street Global Advisors will vote against the chair of the nominating committee of any firm in its portfolio if the board is all-male. Regardless, Roberson Connally argues, there needs to be more of a concerted effort: “Companies need to take a hard look at why they do not have more, if any, diverse board members.” Low board turnover could be an issue, “However, there are other systemic factors (such as no term limits, board experience requirements, the absence of yearly reviews, etc.) that can be at play.” Boards, she adds, need to be more reflective of their stakeholders and society overall.