The Business Case for Boardroom Diversity

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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 better financial performance.

Pressure for change is now coming from all sides. A renewed focus on diversity from the Biden administration, expressed in several executive orders, puts a spotlight on equity and inclusion that will filter down into boardrooms. The swearing-in of Vice President Kamala Harris, the first woman and the first person of color to hold the nation’s second-highest office, was also a landmark moment. Mr. Biden’s pick for chairman of the Securities and Exchange Commission, Gary Gensler, is expected to push for company disclosure of diversity data.

Last year, California passed a law mandating a minimum level gender diversity on corporate boards. Starting this year, State Street will vote against certain board nominees at companies that do not disclose diversity data, and BlackRock may do the same. Nasdaq is seeking regulatory permission to require diverse boards and related disclosures at companies that list on its exchange, or face expulsion. (When asset managers and exchanges speak up about diversity, it follows that banks would take notice.)

“The old guard has moved out,” said Rebecca Thornton, who leads JPMorgan’s director advisory service. “Many stood in an ivory tower with a bias that ‘this board is only CEOs and we are not going to trade on quality to get diversity.’ Those who are evolved enough to ignore the title and take the meeting see the value of having that diverse voice in the room.”

But boards are also mindful of getting the recruiting process right, lest they give ammunition to critics of quotas and other mandates. This week, Arthur Levitt Jr., the former S.E.C. chairman during the Clinton administration, called Nasdaq’s proposals “political at their core,” questioned the link between director diversity and financial performance, and said new rules would not break hiring habits that “depend on informal social networks where friends recommend each other.”

That’s where groups like Ms. Burns’s Board Diversity Action Alliance, the Executive Leadership Council, Latino Corporate Directors Association and Women Corporate Directors come into play, expanding networks beyond the usual suspects.

“Finding qualified diverse directors is not unduly difficult. In a country with over 330 million people, there are plenty of qualified candidates,” wrote John Rogers and Mellody Hobson of Ariel Investments in a letter to the S.E.C. supporting Nasdaq’s diversity proposal. Ms. Burns also explained the fallacy of the so-called pipeline problem at DealBook’s Online Summit in November:

Gloria Boyland, a former FedEx executive, joined the board of the industrial technology company Vontier last year, with the help of JPMorgan. (FedEx is an important client of the bank.) Conversations with representatives from JPMorgan, before they had a board opening to pitch her, gave the bank’s team a better understanding of her, she said. That was particularly important because her job at FedEx was in operations and service support, a less easily categorized role than, say, a finance role. (She retired from FedEx last year.)

“The conversation was really around understanding my experience, and what I might bring to a board,” she said, rather than immediately scouting for a specific opportunity. Ms. Boyland, who is Black, was already a director of Chesapeake Energy at the time she joined Vontier, a position she got through her network.

Karen Francis, Vontier’s chair, got to know JPMorgan’s recruiting service through of its annual conferences for directors. She later called them when she was building a new board after Vontier was spun off from its former parent. She did not necessarily require that directors have past board experience, as long as they “had a really good comprehension of what the board does,” she said.

“What I would say to chairs who don’t want to bring on first-time people would be: ‘Well, aren’t you expert enough that you can train that person?” Ms. Francis said.

Her first priority was finding someone with audit committee chair experience, and she found Andrew Miller, a white man, to fill the post. Later, Ms. Thornton of JPMorgan suggested Ms. Boyland as a candidate for a director role, who Ms. Francis said was a great fit for the board’s needs.

Banks, of course, aren’t the only way for companies to tap diverse talent pools, but perhaps by putting their considerable resources behind promoting boardroom diversity, they will encourage others to do the same.

What do you think? Is there a better way to recruit directors? What’s the business case for boardroom diversity? Let us know: dealbook@nytimes.com.