No More Bros Before IPOs
Business As Usual?
Business As Usual?
Corporate Board Diversity Makes News at Davos
Goldman Sachs’ CEO, David Solomon, announced this past week that the bank won’t underwrite U.S. and European IPOs if they have an all-white, all-male board. That’s led to a tidal wave of favorable press for the CEO because according to Bloomberg Law, Goldman Sachs was the top underwriter of U.S. IPOs in 2019 (with Pinterest, Slack, and more as clients). One thing to remember: Asian IPOs were excluded from the announcement.
(It’s also important to note that aside from being CEO of Goldman, Solomon is a DJ who goes by the name of DJ D-Sol. True story.)
The relationship between investment banks and companies about to go public have changed over time according to Matt Levine at Bloomberg Opinion. It used to be that underwriters were essentially vouching for a company. They had their reputation on the line which led to all sorts of rules. For instance, Goldman used to require two years of profitability before considering a company to take public.
But since then, things have gotten more lax. Levine writes, “Investors will not stop doing business with a bank because it underwrote the IPO of a big money-losing unicorn.” So in a way, this Goldman announcement is a throwback to a bygone era where banks had a bigger role to play in underwriting.
So why the change of heart? Some possible explanations:
States are taking action: California now requires publicly held companies based in California to have a minimum of one woman on their boards of directors and in future years the bar gets higher. A similar idea has been proposed in New Jersey.
The federal government has made some moves: In June, the House held a hearing about board diversity. Rep. Maxine Waters (a democrat from California) said: “corporate and federal boards are not living up to their responsibility to reflect America’s rich diversity” and examined proposals for board diversity.
Companies are already moving toward (somewhat) more diverse board representation: Based on numbers in November of 2019, women hold an average of 25% of board seats at S&P 500 companies, up from 15% a decade ago, according to data from BoardEx. Ethnic diversity also has grown, though more slowly than gender diversity. Approximately 10% of Russell 3000 directors currently belong to an ethnic minority group. And many potential big IPOs for this coming year, like Airbnb, have added diversity to their boards in the past couple years already. (Note: Goldman was set to underwrite the WeWork IPO until it imploded and they had an all-male board until September.)
Oh, and BlackRock already mentioned something like this: In February 2018, BlackRock said it wanted companies in which it invested to have more diversity and that they “would normally expect to see at least two women directors on every board.” It wasn’t codified, but here’s the thing: they were talking about how they invested their money. Golman is talking about who it underwrites. Which is the bigger business for Goldman? Asset management or underwriting? Asset management. In other words, if you’re a skeptic: changing Goldman’s investing strategy would be more meaningful, but it could hurt their bottom line more at the end of the day.
What Now?
Think beyond board diversity; for instance, pay equity on boards matters, too. Like when Snap’s S-1 showed their only female board member was compensated less than the men on the board.
And it’s not just about 1 “token” diverse board seat — consider the power of three! “As the lone woman, they felt they couldn’t change the culture, even though these are amazingly impressive women,” says Professor Alison M. Konrad, a corporate board researcher, “Three really makes a difference…When they have three women, it’s easier to divide that responsibility.”
Read up on the policies in place in France, Norway, and Sweden. They all have targets in place for board diversity. And also, the backlash that is beginning to brew in the U.S. as women occupy more board seats.
According to Deloitte, “Men in the baby boomer generation are more likely to see the lack of women on boards as a supply problem; their female counterparts (and the majority of men age 55 and under) see it as a clear lack of demand.” If you can, donate to groups promoting women and minorities in leadership like the Thirty Percent Coalition, Catalyst, Women Corporate Directors, African American Board Leadership Institute, Latino Corporate Directors, and others.
What Else?
A Call for Investors to Put Their Money Toward a Green Future: “targeted investing is one way to force change on carbon-emitting companies.”
“Hedge Funds Not Led by White Men Outperform Nearly 2 to 1”: “Minority and female managers fared 72% better than peers”
Casper Has Big Dreams, but Wall Street Is Waking Up to Losses as Its IPO Nears: David Hsu, Wharton professor: “There’s more discipline in today’s financial markets.”
Home ownership is the West’s biggest economic-policy mistake — “Is it possible to escape the home-ownership fetish? Few governments today can ignore the anger over housing shortages and intergenerational unfairness.”