January 27, 2020

Blog: Goldman insists on board diversity for IPO candidates

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What’s the news from Davos? Well, the new Goldman Sachs CEO made some news when he told CNBC that, starting July 1, in the U.S. and Europe, Goldman will take companies public only if there is “at least one diverse board candidate, with a focus on women…. And we’re going to move towards 2021 requesting two.” He continued that, recently, there have been about 60 companies in the U.S. and Europe that have gone public with all white, male boards. However, over the last four years, “the performance of public offerings of U.S. companies with at least one female director is ‘significantly better’ than those without.” [Emphasis added.] While he recognized that the decision could cause Goldman to lose some business, “in the long run,” he said, “this I think is the best advice for companies that want to drive premium returns for their shareholders over time.” Will other investment banks follow suit?

One problem he identified is that companies tend to select directors that have prior experience as directors or CEOs or CFOs, which has led to a pool of candidates that excludes many women. However, the CEO volunteered that Goldman, which has four women on its board and a “far-reaching network of corporate executives,” might just be able to help its clients recruit women board candidates. According to CNBC, the CEO characterized Goldman’s new position as “an example of our saying, ‘How can we do something that we think is right and helps moves the market forward?’”

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As discussed in this article in the WSJ, to enhance board gender diversity, companies may need to “revamp the way they recruit female directors.” According to the chair of the NACD, the “‘system produces white male candidates unless board leaders deliberately do something different’ [but] ‘people are beginning to figure out how recruiting more women to boards is done….’” For example, boards can enlarge the pool of candidates by looking outside of the C-suite to candidates from academia, government and non-profits. According to one company commentator, the “common requirement” that board candidates have previously served on a public company board “is one reason that boards have appointed so few female directors.” However, the article observes, “companies don’t always demand the same qualification for male directors. ‘Boards dominated by men have grown used to the male standard of congeniality and so accept a man who’s never been a director before,’ even though they usually reject women without such experience,” according to a governance consultant cited in the article. The article also provides a number of illustrations of successful recruiting of female directors using a version of the “Rooney Rule, which requires that at least one woman or underrepresented minority be interviewed for positions. The National Football League created the rule to ensure that teams interviewed minority candidates for head-coaching and general-manager jobs.” (See this PubCo post.) Now, the NYC Comptroller’s Office, which oversees the NYC pension funds, has announced the Boardroom Accountability Project 3.0, an initiative designed to increase board and CEO diversity. The initiative calls on companies to adopt a version of the “Rooney Rule” by committing to include women and minority candidates in every pool from which nominees for open board seats and CEOs are selected. (See this PubCo post.) And boards should not lose sight of California’s board gender diversity law, which requires that public companies (defined as corporations listed on major U.S. stock exchanges) that have principal executive offices located in California, no matter where they are incorporated, have a minimum of one woman on its board of directors by the close of 2019. That minimum increases to two by December 31, 2021, if the corporation has five directors, and to three women directors if the corporation has six or more directors. (See this PubCo post.)

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