Goldman Sachs on Tuesday terminated a policy requiring its IPO clients to have at least two diverse board members, citing a December court ruling over a similar initiative at the Nasdaq stock exchange.
"As a result of legal developments related to board diversity requirements, we ended our formal board diversity policy," said Goldman spokesman Tony Fratto. "We continue to believe that successful boards benefit from diverse backgrounds and perspectives, and we will encourage them to take this approach."
In December, a federal appeals court made waves when it struck down Nasdaq's efforts to get companies to diversify their boards.
Goldman embarked on a legal review of its policy following the 5th Circuit Court of Appeals decision, a spokesperson said. As the review was taking place, the bank took two companies public that did not meet those requirements: Titan America, a company that provides materials for construction, and Venture Global, a liquified natural gas producer.
Ann Lipton, a Tulane University law professor, meanwhile, questioned whether the Nasdaq ruling, which centered on the role of the Securities and Exchange Commission, a government agency, applies to companies like Goldman Sachs.
"The Fifth Circuit said Nasdaq as an exchange under SEC oversight can't require it," Lipton told BI. "It said nothing about what underwriters can require of clients."
The appeals court ruled that the SEC overstepped its authority by approving the stock exchange's diversity rules. The Securities Exchange Act of 1934 says the SEC's job is "to protect investors" and "promote competition," not make decisions about the makeup of corporate boards, the panel of judges said. Nasdaq did not appeal the December decision.
Still, Goldman's move follows rollbacks of other DEI initiatives by large US corporations, including Meta, Target, and Walmart. Goldman has historically been among the top banks taking companies public worldwide.
Goldman adopted its board diversity initiative in 2020 as CEO David Solomon vowed to work only with IPO clients that have at least one diverse board member. The next year, Goldman bumped that requirement up to two.
Around the same time, Goldman created a position dedicated to helping clients find diverse board members, which managing director Ilana Wolfe filled.
During her time as head of corporate board engagement, Wolfe and her team have placed about 125 diverse people on Goldman clients' boards.
The bank plans to continue to offer board placement service, a spokesperson said.
"I thought, 'it's great we put out this commitment, but wouldn't it be even greater if we were part of the solution and helped our clients get there?'" Wolfe told Insider in 2023.
Goldman's change of policy was reported earlier on Tuesday by Bloomberg.
