business news in context, analysis with attitude

by Kevin Coupe

It got a lot of attention last Friday when, at the World Economic Forum in Davos, Switzerland, Goldman Sachs CEO David Solomon said that the company plans to enact a new requirement for companies that it take through an IPO - they will have to have at least one "diverse" board candidate.

"We’re not going to take a company public unless there’s at least one diverse board candidate, with a focus on women,” Solomon told CNBC, saying that the new rule will go into effect on July 1.

It is, however, only a temporary requirement - as of 2021, Goldman Sachs will require two diverse board members.

"We might miss some business, but in the long run, this I think is the best advice for companies that want to drive premium returns for their shareholders over time,” Solomon said.

The New York Times noted that this is becoming a trend, that "money-management firms BlackRock and State Street plan to vote against directors at companies without a female director. And California-based public companies with all-male boards face a $100,000 fine."

Seems to me that this is an important statement, not just because of the specific changes it will require of companies that want to work with Goldman, which last year was the largest underwriter of US IPOs.  

It also send a valuable broader message - that companies with a diversity of views will tend to do better in terms of long-term performance.

There was a story from CNBC late last year that reinforced this message:

"For every female CEO in the U.S. there were 19 male chief executives, while there were 6.5 male CFOs for every woman in the role at the end of 2018, the report said.

"In the two years following a new CEO appointment, the stock price for companies that appointed female chief executives outperformed those that appointed men by an average of 20%, the data showed.

"When women were appointed as chief financial officers (CFOs), companies saw different benefits, the report said … In the 24 months following the appointment of a female CFO, these companies outperformed those with newly-appointed male CFOs by 8% on share price returns, the research said. They also outperformed by 6% on profitability in the same period," because they "drove more value appreciation, better defended profitability moats, and delivered excess risk-adjusted returns for their firms."

The very definition, I think, of an Eye-Opener.