It’s not your grandfather’s Goldman Sachs.
The 150-year-old investment bank founded by a Bavarian immigrant and his son-in-law has grown into a Wall Street powerhouse and one of the world’s biggest financial institutions, shrouding itself in an impenetrable mystique for most of that time.
But now Goldman Sachs is going downmarket, offering checking accounts and asset management to less wealthy individuals even as it rips the veil off its earnings and sets financial targets.
In January, the firm announced it was rebranding digital wealth management platform United Capital, which it acquired last yearOpens a new window , as Goldman Sachs Personal Financial Management and will expand into the mass affluent market.
The CEO who is transforming the bank, David Solomon, also says that starting in July Goldman SachsOpens a new window will no longer work on initial public offerings for any company that does not have at least one “diverse†board member (that is, not a white male). He argues that over the past four years, the post-IPO performance of companies with at least one female director was significantly better than those without.
Joining the trend?
A trendy Goldman Sachs? The pressure for companies to diversify their boards with women and ethnic minorities is growing worldwide, with some European countries passing legislation to require more women directors. In the US, the public awareness campaign 2020 Women on BoardsOpens a new window targeted a 20% representation of women by this year.
It achieved the target with 20.4% by last July, but only after 64% of Russell 3000 companies increased the size of their boards last year to appoint a woman.
In large IPOs last year, women accounted for only 11% of board seats, up from 10% over the 2014-18 period. Around 60 companies in the US and Europe have gone public recently with all-white-male boards, Solomon says.
He acknowledges that Goldman might lose some business but the firm intends to double down next year and insist on two diverse board members. Goldman, which has four women directors out of 11, says it will help companies find qualified women directors since the standard excuse for not diversifying is that most former CEOs and CFOs are white men.
The end of history
Through most of its history, Goldman has been a white man’s preserve. The suave investment bankers wore their tailored suits, french cuffs and silk ties like a uniform. They became treasury secretaries like Robert Rubin, Henry Paulson and Steven Mnuchin, or central bankers like former European Central Bank president Mario Draghi and outgoing Bank of England governor Mark Carney.
Then came the financial crisis of 2007-08 that brought change to the bank.
Although Goldman made money with short-selling of subprime mortgage securities, it was compelled to take funds from the government bank bailout fund and converted to a bank holding company like competitors JPMorgan Chase and Citicorp, which grew out of a commercial bank background.
The subsequent Dodd-Frank financial reform curbed proprietary trading through the Volcker Rule, which limited use of institutions’ own funds to play the market and put a dent in Goldman’s business model.
But it still remained a giant in financial advisory, including mergers and acquisitions, and securities underwriting such as IPOs. Goldman topped the league table for global M&AOpens a new window last year and headed the league table for US IPOs.
Shaking off the ‘great vampire squid’
Because of its prominence and influence, Goldman became a whipping boy for critics of Wall Street. Matt Taibbi of Rolling Stone penned the unforgettable description of the bankOpens a new window as a “great vampire squid wrapped around the face of humanity,†sucking money from the global economy.
It was subjected to numerous penalties and sanctions in the wake of the financial crisis. Most recently it has been embroiled in the controversy over embezzlement in the Malaysian development fund, 1MDBOpens a new window , further tarnishing its image.
This is the history Solomon wants to leave behind as he expands the bank’s business and raises its public profile. Critics have dismissed the board diversity commitment as a public relations stunt, but defenders insist that Goldman’s standingOpens a new window in the global IPO market means the pledge will make a difference.