The Business Case for Boardroom Diversity

When big banks see a benefit in helping companies recruit more diverse directors, it’s a sign that there are not just morals at play — there is money at stake, too.

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When Goldman Sachs announced that it would help companies go public only if they had at least one diverse board member — meaning that the bank wouldn’t work with I.P.O. hopefuls whose directors were all white men — it was met with a mix of support and skepticism. In the year since, with less fanfare, the bank has also built up a business to help recruit directors for those boards, which has expanded to cover public companies as well.

“It became very clear to us early on that board diversity is something that’s important — and should be — to all of our clients,” said Ilana Wolfe, Goldman’s head of corporate board engagement.

For its part, JPMorgan Chase has had a board advisory service since 2016. It’s not focused exclusively on diversity, but that has been a priority since its early days. Of the 42 board members the service has placed, 30 are women and five are people of color.

Big banks getting involved in helping boards diversify suggests that there is a business case for it. Or, put more bluntly, there are future fees to be made.

For the banks, there is the dual attraction of helping society in general, via greater equality, and their business in particular, by meeting a demand from clients and forging relationships with directors who may be a source of future revenue.

When I called Ursula Burns, the former Xerox chief executive and director on many boards, she urged me to not make this “a bank story.” For good reason: advocacy groups have been pushing for greater board diversity long before banks took a serious interest. To formalize this work, Ms. Burns, the first Black woman to run a Fortune 500 company, helped start the Board Diversity Action Alliance last year to address the “glacial” progress of hiring racially and ethnically diverse board members.

Indeed, women account for around a quarter of directors at S&P 500 companies and roughly the same share of board members self-identify as a race or ethnicity other than white, according to the Conference Board. Only 5 percent of the 3,000 largest listed companies in the United States have a board with an equal gender balance, per the group Women on Boards. Progress on these measures has been gradual, despite some research that shows more diverse boards are linked with

Source: The New York Times

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