Goldman Sachs Should Ditch the Virtue Signaling, and Re-Emphasize 'Long-Term Greedy'
A former Goldman Sachs employee, one who was Managing Director level in the investment bank's London office, once explained to me the immense pressures that come with being a GS partner. He spoke with awe. Lightly paraphrasing him, "Once you make partner you have to do something truly amazing to maintain the designation, and you must do so quickly." His implicit point was that there's no coasting once you reach the top of the proverbial mountain at Goldman. A meritocracy first and foremost, partners must routinely earn their keep.
This financier's comments came to mind last week while reading a Financial Times report about a new initiative presently being hatched inside Goldman Sachs. CEO David Solomon told CNBC that “Starting on July 1 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. And we’re going to move towards 2021 requesting two.” About this bit of news from Solomon, FT reporters Laura Noonan and Patrick Temple-West pointed out how hollow the pledge was when it’s remembered that Solomon didn’t mention Asia. Figure that the latter is a huge source of profits for Goldman, yet it seems the diversity-for-the-sake-of-diversity mania hasn’t caught on there yet.
That Asia wasn’t mentioned calls into question Solomon’s assertion that companies making their market debut tend to perform “significantly better” than those without women, or other human symbols of “diversity” on their boards. Correlation isn’t always causation, and it seems Asian companies are performing just fine despite boardrooms defined by gender uniformity of the male variety. Knowing this, Solomon wasn’t about to turn his or Goldman’s nose up to revenues in a part of the world that hasn’t caught up to his allegedly evolved view of the world. Basically Solomon will aggressively signal his and Goldman’s self-proclaimed virtue, but with all sorts of outs. With good reason.
Indeed, Asian companies yet again thrive, they’re plainly great investment banking clients as Solomon's silence indicates, and they do so without pandering to the diversity police. It’s a reminder that companies with diverse boards don’t necessarily succeed as public companies because their boards look like a Benetton ad, but instead do well because some with diverse boards happen to also be well-run companies.
And while it may well be true that some really prosperous businesses have diverse boards, it should be stressed that their success isn’t necessarily a consequence of that diversity. If it were, then it’s safe to say that Asian companies wouldn’t be attractive investment banking targets simply because the scarcity of women and minorities counseling corporate executives would have long ago rendered them less than dynamic. It’s worth repeating that Solomon’s failure to mention Asian companies as being required to appoint based on gender and race speaks to how slim is the correlation he attempted to draw about U.S. and European companies, and the variegated nature of those advising them.
Looking deeper into the equity returns of supposedly diverse companies in the U.S. and Europe, it’s also worth broaching the possibility that Solomon’s confidently stated correlation is a bit backwards. Think about it. Is it possible that the best, most successful companies are best positioned to placate those focused on diversity? Given the times in which we live is it unreasonable to suggest that the biggest and the best companies, eager to quiet those with little common sense but enormous megaphones, appoint board members based on gender and race just to save themselves from the anti-return distractions brought on by the easily triggered?
Thinking about Solomon’s excitement about diversity more broadly, implicit in his posturing is that corporations have for too long discriminated against women and minorities. Fine for now, but if we accept Solomon’s implicit statement as truth, isn’t it also true that Goldman’s CEO is fighting discrimination by calling for more discrimination? Solomon’s argument seems to be that gender and race were for too long used as excuses to not hire or appoint to corporate boards women and minorities, so now that same closed-minded thinking should be embraced by corporations, albeit in reverse. Wise business minds that have the temerity to be male, white, or part of some other favored group will now see their advisory numbers at corporations shrunk solely because they’re male, white, or part of some other favored group. Will Solomon call for discrimination against Ivy League grads next?
About the above question, it’s not as flippant as some might think. Assuming total purity on the part of Solomon and Goldman when it comes to diversity, the firm’s underlying point seems to be that merit hasn’t always factored into corporate board appointments, this non-focus on merit has resulted in mostly male boards at companies that underperform, so Goldman will only offer up its undeniable financial genius to companies that similarly don't stress merit, but do so in ways that please the diversity-at-all-costs crowd that seemingly includes Goldman. If Solomon protests the previous characterization, then he should define his terms. Figure that he can’t have it all ways. Either he’s for merit-based hiring and merit-based appointment to corporate boards without regard to gender or color, or he’s for gender/race-based hiring and gender/race based corporate appointments that requires discrimination based on gender or color, and that de-emphasizes merit precisely because it emphasizes gender and color. Solomon can’t credibly express disdain for discrimination while explicitly calling for it at the same time. Nor can he cheer merit while also demanding gender and racial head counting at the companies Goldman aims to finance.
Better it would be if Solomon ditched the virtue signaling while re-emphasizing the multi-decade Goldman principle of “long-term greedy.” The latter was all about Goldman offering the best advice to clients in the here and now with an eye on the long-term growth of those clients. While occasionally this focus on the long-term might crimp advisory or trading profits in the near-term, the best, most profitable clients are those that keep coming back.
If Goldman aims to be long-term greedy, it should demand the same of the companies it takes public. Rather than hiring and appointing to boards people based on gender or color, it should strongly advise the businesses fortunate enough to benefit from its financial advice that they should hire the best employees and best board members they can, without regard to gender and race. Notable here is that Goldman hires the best people it can, and in pursuing those with the most merit it ends up with a diverse workforce and board.
Which is why Solomon in particular should have no problem supporting such a meritocratic stance; one that ignores gender and race in consideration of his deeply held belief that diversity correlates with better shareholder returns. If what the CEO believes is true, then it's also true that a diverse workforce and board will be a natural, as opposed to a forced consequence of corporations striving to boost shareholder returns by hiring the best of the best.
In short, and if Solomon is right, then he and Goldman needn't demand the very race and gender-based discrimination that they aim to stamp out. Crucial here is that racial and gender discrimation can't be erased with more of the same. David Solomon should ditch the virtue signaling in favor of the meritocratic hiring that has long underlay Goldman's long-term greedy view of achievement.