Is Diversity Good for a Company’s Bottom Line?

That's what Goldman Sachs is trying to show by requiring companies to have women and/or minorities on their boards before they will underwrite their IPOs.

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As of July 1, Goldman Sachs, the biggest underwriter of initial public offerings in the U.S., will no longer take any company public in the United States or Europe without at least one non-white male on its corporate board. The announcement comes after a series of embarrassing missteps by the investment bank and financial services company, including underwriting WeWork’s IPO which had an all male board at the time and was later pulled over governance concerns.  

This isn’t the first time corporations have been nudged toward diversity in recent years. In 2018, the state of California passed a law requiring gender diversity on any California-based public company. But that announcement was followed by a torrent of lawsuits from conservative groups arguing that the law violated the 14th Amendment’s equal protection clause. 

The Goldman announcement, however, has much bigger implications for one glaring reason. While California is in the business of public policy as a means of driving social change, an area where Americans have long been divided on race- and gender-based affirmative action, Goldman Sachs just announced that board diversity isn’t just about altruism or the virtue of diversity. 

Now, according to Goldman Sachs, it’s all about the bottom line.

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  1. Avatar photo
    Kevin Durant?

    “Board diversity can also sometimes serve as an easy public relations win to obscure c-suite homogeneity.“
    ——————————————-
    Don’t forget to mix in a few Bidens, former regulators, and someone related to the Secretary of State 😃😃😜

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    Kevin Johnson

    Sarah, it is very possible, if not likely, that GS has decided that this policy is simply “better” or more profitable because it is virtue signaling and may satisfy identity politicians who will otherwise attack GS. Studying the success of companies with more or fewer female board members won’t tell us much unless we control for other variables. This whole approach is essentially quotas vs the original idea of affirmative actions to expand opportunities. Conservatives, I think, should be wary of continuing to let the identitarian left make unwarranted assumptions mainstream. Using these arguments won’t promote fairness. The underlying assumption in much of this debate is that, absent discrimination, men, women, and all groups would be equally represented in all fields at all levels. I don’t imply that YOU mean that, but that underlies the current debate, and we facilitate such false thinking at our peril.

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    jmacdon

    I think a compelling argument could be made that companies with more women at higher levels might end up doing better simply because they choose the best available person for the job rather than simply choosing the best available man. But it's far from obvious that requiring diversity will result in the same outcome.

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  4. Avatar photo
    A Citizen

    PR. (And Davos PR at that.) If Goldman doesn't want to sully itself by taking companies as they find them and matching them with investors, that's their prerogative. But the notion that somehow a company, any company, is going to be induced into diversifying its board , or Goldman won't help them with their IPO is ludicrous. This isn't the 80's. Lots of companies have raised money without Goldman's help.... all of them could, if they wanted to.

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  5. Sean

    Hi Sarah,

    I've really been enjoying your bright repartee and sense of humor on Advisory Opinions and The Dispatch, making these podcasts staples of my Up Next queue.

    Your article reminded me of Stephen King’s apparent solution to his “diversity in matters of art” debacle by writing that baffling recent article for the Washington Post.

    Maybe I’m guilty of a serious excess of cynicism and an attempt to curry favor is not foremost on Goldman Sachs’s list of motivations. I can only hope that if my inbox were overflowing with outrage, and if I were facing a seriously negative economic event as a result of whatever I had blundered into, that I would have the fortitude to resolve the situation by resorting to a minimum of shameful behavior.

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    1. Avatar photocircle-angle-nib
      Sarah Isgur vertical-nib Author

      As a woman who worked in a male dominated industry, I’m not convinced it’s as simple as some think it is (compare how we talk about gender when it comes to sports vs affirmative action in hiring). I thought many of Kings posts were well taken. The 19th amendment made a difference in any number of respects in American domestic and foreign policy once women’s votes had to be courted. So why would we not think the same with the oscars?

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      1. Sean

        My point about King was that to first make a statement that he would never consider diversity in matters of art, only quality, and to then follow that up by saying that of course his first statement should not be seen as inconsistent with the notion that quality in art can only be determined through a process steeped in considerations of diversity, is comical. Perhaps you interpreted what he said differently.

        In the article he used equivocation to assert simultaneously (a) that the race of an actor should not be considered in evaluating the quality of his art, and (b) that the resulting evaluations were flawed if the winners do not show the correct diversity ratios. He knows that those judging artistic excellence are not blind to questions of race, gender or sexual orientation because if they had been, those characteristics would be found among the winners in proportions different from what we currently find. He wants the process for determining artistic excellence to be changed so that the winners will show the proper diversity ratios, but without choosing people because of their race, gender or sexual orientation. It is apparently axiomatic that artistic excellence will demonstrate diversity on specific characteristics that were discriminated against in the past. Do we also expect artistic excellence to demonstrate diversity on a much wider range of characteristics, such a shortness, physical beauty and Irish ancestry?

        The 19th amendment removed a legal barrier to full participation by women, and in doing so improved society. The solution to problems such as this is to remove the barriers, not for those on high to determine what the correct ratios of certain human characteristics should be in various societal spheres, and then to not only dictate this result but require people to affirm (on pain of severe social media sanction) that the process by which people were chosen was in fact limited to an evaluation of excellence, and was not influenced by diversity requirements.

        In A Personal Odyssey Thomas Sowell described one aspect of this from the point of view of the individual involved: “One of the ironies that I experienced in my own career was that I received more automatic respect when I first began teaching in 1962, as an inexperienced young man with no Ph.D. and few publications, than later on in the 1970s, after accumulating a more substantial record. What happened in between was "affirmative action" hiring of minority faculty. … I happened to come along right after the worst of the old discrimination was no longer there to impede me and just before racial quotas made the achievements of blacks looks suspect. That kind of luck cannot be planned.”

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    2. Sean

      So I guess I can't use HTML here.

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  6. Avatar photo
    Kevin Johnson

    Sarah, I enjoy your podcasting and look forward to reading more from you as well. You note some interesting facts here, but I have a broader question. Have conservatives surrendered to warped, if ever present, cliches about “diversity” as a synonym for fairness? Are university faculties more diverse, in the real sense of the word, when they have different skin tones and genders but little difference in ideology? Do we really want to go along with the many versions of “women bring (insert positive attribute) to boards, etc.” without noting that it is wrong to stereotype people based on gender, race, etc.? We must push for more opportunities for women and others to enter and succeed in any field they want, full stop. But when we hear “women are this, and bring that” as positive stereotyping, we must remember that not all the stereotypes which follow will be positive. And thinking you can judge a person’s abilities for any role based on sex is just wrong. Identity politics do not lead to fairness. A little pushback along these lines, and I’m sure you can be more concise, will help, I think. Thanks, Kevin Johnson, retired diplomat, active remnant.

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    1. Avatar photocircle-angle-nib
      Sarah Isgur vertical-nib Author

      An excellent point. This piece was really meant to highlight the newsworthiness of the announcement and where the data is (or isn’t) at this point. So the interesting thing for me is a for profit business saying they believe this will make them more money vs governments or schools arguing that it is, in and of itself, simply better.

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