Multinational investment bank and financial services giant Goldman Sachs has just announced a new diversity rule: the bank will not take companies public anymore unless they have at least one “diverse” board member. In an interview at the World Economic Forum (WEF) in Davos, Switzerland, the bank’s CEO David Solomon explained that the push for diversity will be focused on women, and cited that companies with at least one female director perform better compared to those without. The news comes as companies around the world are paying attention to inclusivity and diversity more than ever before, from banking to fashion and beauty.
Speaking to CNBC at the World Economic Forum in Davos on Thursday, the CEO of Goldman Sachs David Solomon revealed that the bank, one of the largest underwriters of initial public offerings, will no longer be taking companies public unless they have at least one “diverse” board member. Explaining the move, which will officially begin on the 1st July this year in Europe and the United States, Solomon said that “diversity on boards is a very, very important issue,” and the move will have a “focus on women”.
“We realise that this is a small step but a step in the direction of saying: You know what? We think this is right,” said Solomon.
According to an official statement from the bank issued after Solomon revealed the news, the policy will be extended to ensure that companies have at least two diverse board members in 2021. The policy would count a director as “diverse” if he or she is from a conventionally under-represented group, including factors such as gender, race, ethnicity, sexual orientation and gender identity. In the future, the commitment to diversity will additionally extend to companies where the bank’s private equity division has a majority stake as well, not only those companies seeking to go public.
According to Solomon, the initiative is coming about because over the past four years, initial public offerings of companies in the United States with boards that have at least one female director performed “significantly better” than those companies who do not fulfil the criteria.
There are four women in Goldman Sachs’ own board of directors, which comprises 11 total members. While Solomon sits as the chairman, the board’s lead director, Adebayo O. Ogunlesi is black. The Indian-born CEO of ArcelorMittal, Lakshmi Mittal, is also a member of the board.
The latest move to pressure companies to increase the share of women and people of colour in corporate boardrooms comes as global scrutiny of board membership, with a particular focus on diversity, has increased dramatically. Abiding the trend is the world’s largest asset management firm, BlackRock, who recently said that it expects to see at least two female directors on companies in its portfolio. After being criticised for greenwashing, BlackRock also signed up for the Climate Action 100+ campaign recently, which requires the firm to pressure companies to take action on the planet’s most urgent issue.
This doesn’t just apply to investors of banks and other institutional players, but is a trend permeating multiple industries, including fashion and beauty brands who have had to dramatically alter their communication and marketing strategies to cater to consumer demand for inclusivity and authenticity. Most recently, fashion e-commerce giant ASOS debuted a brand new tool to allow shoppers to view dresses on a diverse range of models with different body shapes, sizes and heights.
Despite the drive for diversity, the Goldman Sachs chief failed to show the same commitment to environmental protection. In the midst of the climate crisis, which was the leading topic at the conference as it dominated all 5 risks in the Forum’s annual risks report, Solomon said on Wednesday that the bank will not be drawing a line on fossil fuel companies.
Lead image courtesy of Denis Balibouse / Reuters.