Goldman Sachs CEO David Solomon on Thursday threw down the gauntlet to milquetoast corporate boards everywhere when he told CNBC's "Squawk Box" that the bank would no longer help companies go public that did not have at least one "diverse" board member.
"Starting on July 1st in the U.S. and Europe, we're not going to take a company public unless there's at least one diverse board candidate, with a focus on women," said Solomon from the World Economic Forum in Davos, Switzerland.
The policy will go into effect on June 30, with plans to double the requirement in 2021. While Solomon admitted that the policy might lose the investment bank business in the short-term, the executive made the case that more diverse boards are ultimately good for business.
A Goldman Sachs study found that companies with two or more female board representatives saw their average price performance improve 44 percent within one year, compared to 13 percent for companies with no female board representation. It also found that more than 60 U.S. and European companies went public in the last two years without any female board members, and 100 went public with just one female board member.
"We believe strongly in the business case for diversity, and that having diverse perspectives on the Board leads to better governance and better company performance," a company spokesperson told Cheddar.
Over the next six months, Goldman said it will work with existing clients to improve board diversity in the lead-up to their IPOs. For those daunted by the task, the bank said it would leverage its network of partnerships and potential candidates to help them out.
While Goldman's commitment signals top-level support for corporate diversity, progress toward less homogenous board rooms has been ongoing for over a decade.
The overall percentage of female board members in Fortune 500 companies jumped from 16 percent in 2008 to 27 percent in May of 2019, according to the most recently available data from ISS Analytics.
Ethnic and racial minorities made slower progress, increasing from 8 percent to 10 percent of total board representation over the same span.
Each year brings fresh blood, however, and the latest batch of appointees shows greater progress toward gender and racial parity. Among the new board members appointed in 2019, 46 percent were women, which is up six percent from the year prior. The number of racial and ethnic minorities among rookie board members was 21 percent, up from 18 percent the year prior.
But companies haven't made the shift entirely on their own. There has been increased pressure from legislators to speed up the process.
In spring 2019, Maryland passed legislation urging public companies to have a minimum of 30 percent of female directors on their boards by Dec. 31, 2022. Illinois passed a law over the summer that requires publicly-traded companies to have a woman, a Latino person, and a black person on their boards by the end of 2020. California passed a similar bill in 2018.
Goldman Sachs' support puts weight behind the movement, Crunchbase research lead Gené Teare told Cheddar.
"They are the most storied firm taking companies public, and I think everyone will take note," Teare said. "It's high time to have these very big and powerful voices weigh in. I think it just adds to the pressure on companies to make those numbers shift."