Beginning on June 30 this year, financial industry giant Goldman Sachs will no longer provide initial public offering services to companies in the US and Europe that do not have at least one “diverse” member on their board of directors, the bank announced at the World Economic Forum yesterday. The policy will initially focus on having at least one woman director, but will also extend to directors who come from traditionally under-represented groups. 

While it is already fairly common practice for companies going public to add diversity to their boards, to formalize the policy as Goldman Sachs has now done strengthens the message that the financial industry has been sending. Goldman Sachs is not the largest investment bank around, but it is the biggest underwriter of IPOs in the US and has worked with well-known tech names such as Facebook, Pinterest, and Airbnb.

Speaking to the media at Davos, Goldman Sachs CEO David Solomon said that there is a business reason for the change: over the past four years, the IPOs of US companies with at least one female director on their boards have performed significantly better than the IPOs of companies that lack board diversity.

"From a governance perspective, diversity on boards is a very, very important issue," Solomon told CNBC. “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.”

Goldman Sachs, which itself has four women on its 11-member board, is not the first Wall Street institutional investor to demand diversity from its business partners. In 2018, Blackrock made the news for writing to companies in the Russell 1000 Index with fewer than two women on their boards and asking them to explain themselves. State Street has been voting against the chairmen of the nominating committees on boards that lack women, and plans to start voting against entire nominating committees this year if the companies still don’t add female directors.