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Goldman Sachs enters the struggle for inclusivity

UNITED STATES (OBSERVATORY NEWS) — Goldman Sachs, the largest US investment bank, will refuse to provide initial public offering (IPO) assistance to companies whose management is not diverse.

Diversity refers to the presence on the board of directors of someone other than heterosexual white men. Goldman is not the first representative of big business to raise the fight for inclusiveness on the shield: many companies are trying to outdo each other in demonstrating loyalty to diversity values, and some US and European states are beginning to force such steps.

However, the economic feasibility of this kind of diversity still seems unobvious, since numerous empirical studies differ in assessments of their effectiveness, and, in fact, there is no theoretical basis. Details are in the material of Izvestia.

Toward the close of the Davos International Economic Forum, Goldman Sachs CEO David Solomon surprised the public a lot, saying that starting July 1, the bank would not be an underwriter for IPO companies unless there were women or ethnic minorities on their board of directors. So far, only one “diversified” director will be enough for the investment bank to participate, but from next year the threshold will be raised to two, and sexual orientation and gender identity will be added to the diversity criteria.

The bank decided to pursue a new policy after they learned that in the past two years, about 60 companies in the US and Europe have become public, without women or representatives of non-white ethnic minorities on the board of directors. It is worth noting that among the IPO-clients of Goldman Sachs itself, the number of such companies was less than 10%, so the bank does not lose so much, even if it will fulfill its obligations meticulously.

The decision of the bank applies only to companies from Europe and North America. Neither Asia, nor Africa, nor the Middle East change policy Goldman Sachs does not apply. Meanwhile, it is in Asia with a variety of problems: as Bloomberg agency notes, in Japan 33% of companies do not have women on the board of directors, and in China and Hong Kong – 32% each. In general, in East Asia, women make up about 13% of board members, while in Europe this figure is 23%, and in the US – 22%.

Given that the largest economies in East Asia are predominantly mono-ethnic, counting on the wide presence of non-Asians in their councils would be even more naive. Obviously, Goldman Sachs is afraid of losing its clientele in this rich and rapidly developing region, where cultural norms prevailing on the US coasts and in Western European megacities are not getting on well.

The desire of Goldman Sachs to demonstrate its commitment to a progressive agenda may be due to the negative PR that the leading investment bank has consistently received in the 21st century. It is enough to recall the behavior of the industry leader during the 2008 crisis, when he paid income tax in the United States at a rate of only 1%, using loopholes in the law.

This did not prevent the bank from participating in the financial sector rescue program, which was conducted by the US government and the Fed. For members of the Occupy Wall Street movement, Goldman Sachs was an archetype of “bankers” who profit from the difficulties of ordinary people and who have no responsibility to society.

In the very recent past, there were also enough scandals surrounding the investment bank. Goldman Sachs will have to pay at least a billion dollars to cover the scam, during which a significant part of the proceeds from the placement of bonds, totaling $ 6.5 billion, was stolen from the Malaysian investment fund 1MDB.

Another major failure of the bank was a purely secondary role at the largest IPO in history – the placement of shares of Saudi Aramco last December. In these circumstances, the motivation for Goldman Sachs may be the desire to “keep pace with the times” and thereby gain popularity among young people and representatives of the corporate world with left-wing views.

Goldman Sachs is far from the first corporation expressing the desire to follow the principles of “social justice”, although it is undoubtedly one of the largest in the banking sector. One of his main competitors, JP Morgan, is in no hurry to take such measures, although in 2016 he created a service that helps companies “diversify” their boards of directors.

The BlackRock investment company, which manages almost $ 7 trillion in assets, is making much efforts in this direction. BlackRock has set up a special “diversity and inclusiveness” fund that will invest in firms at the top of the Thomson Reuters rating.

The leader in this rating at the moment is Irish consulting company Accenture, which aims to increase the number of women among corporate employees to 50% by 2025 (now 41%). The second place goes to the alcohol giant Diageo, whose goal is a little more modest – 40% of women among top management by the same date. However, most of these companies, unlike Goldman Sachs, are engaged in introducing diversity at home and do not try to influence the legitimate business practices of their customers and counterparties.

Most often, such policies are pursued by states and individual territories. So, California in March 2019 adopted a law according to which any company should have at least one woman on the board of directors. By 2021, this number should be increased to three. Similar regulations are about to be passed in the near future by Massachusetts and New Jersey. A 40 percent quota for women in company management has been introduced in several European countries, including Norway, Spain and France.

At the same time, the conviction that diversity in the modern sense is, of course, good for business, rests on rather unstable ground. Indeed, some studies have shown a definite correlation between the representation of various social groups in leadership with financial results. Studies based on purely scientific work show that there is no significant relationship between indicators and the presence of women or minorities on the board of directors.

Do not confuse correlation with causality either. Research by consulting firms often compares oranges with apples: for example, “progressively” minded companies located in fast-growing megacities, with much more modest organizations in the outback. Obviously, the former are likely to record the best indicators, regardless of the gender and ethnic composition of the leadership. Finally, the dependence may be the opposite – it is possible that already quite rich and aggressively expanding firms “can afford” a policy of diversity without fear of failure.

Establishing the requirements for diversification in a “voluntary-compulsory” order may ultimately lead to the opposite effect, when people are appointed to the council by quotas, whose task will be to take up a seat exclusively. Conversely, the number of vacancies for worthy candidates – including those from women and minorities – will decrease over time.

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