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Embracing diversity is good for business.

More diverse companies, both at board level and throughout the workforce, can outperform on financial metrics such as return on equity and higher earnings per share. They can also generate higher returns compared to their indices, according to GS Sustain 2020. Moreover, embracing diversity is key to ensuring that boards and management teams have a broad range of skillsets, opinions, and ideas.

While companies have made progress in bringing diverse voices to the boardroom, there is still a long way to go. Society is diverse, and companies need to reflect this. For example, in the U.S. racial or ethnic minorities make up 42% of the population but hold just 21% of S&P 500 board seats. Globally, women represent half the population and over $40 trillion in global consumer spending, yet in 2020 they held only 21% of corporate board seats.

As an active asset manager, we believe investors should be active stewards of the companies in which they invest. We believe that proactive engagement and thoughtful proxy voting at our investee companies is important, and we seek to encourage companies to make positive changes in ways that serve the interests of shareholders as well as their wider stakeholders. In our view, shareholders should advocate for greater diversity in the boardroom and should cast their votes accordingly.

At Goldman Sachs Asset Management, we have steadfastly pursued this aim by engaging with companies and evolving our proxy voting policies. In the 2021 proxy voting season, we voted against the full board in the U.S. and the nominating committee outside the U.S. at companies with no women on the board. We voted against 808 companies globally on these grounds last year.

For the 2022 season, we are raising the bar even higher. We will expect all companies to have at least two women on the board, unless the board has fewer than 10 members, or where local requirements or formal targets are already higher than this minimum.

We also plan to use our votes to recognize and promote diversity outside of gender. We plan to expect companies in the S&P 500 and the U.K.’s FTSE 100 to have at least one director from an underrepresented ethnic minority group. For U.S. companies outside the S&P 500, we will continue to expect boards to have at least one woman and at least one other diverse director, who could be a woman, a member of an underrepresented ethnic minority group or a member of the LGBTQ+ community.

Boardroom diversity is imperative, but we also believe other shareholders should join us in seeking to enhance diversity beyond the boardroom to management and the wider workforce. For instance, as shareholders we can encourage companies to set ambitious diversity goals and hold them accountable for meeting these ambitions. Sometimes it might be appropriate to tie these targets to executive compensation.

Operationally, companies can be encouraged to recruit diverse candidates for open positions, adjust workforce policies such as equal pay and anti-discrimination measures, and make key appointments like chief diversity officers or equivalents. All this needs to be supported by strong “tone from the top” to ensure that the organization’s values align with their diversity, equity, and inclusion goals.

It is often said that what gets measured gets done, and so we need clear reporting from companies on the state of their workforces. As of 2020, only 6% of companies in the United States disclosed their full EEO-1 report, a breakdown of gender, race and ethnicity data. As an industry, we should proactively engage with companies and encourage them to disclose more information on their workforce and board demographics. This data is critical to allow us to hold companies to account for the statements they have made, the strategies they have implemented, and their progress to-date. Forms of diversity beyond gender and ethnicity should also be incorporated into corporate diversity strategies and data, including but not limited to religion and sexual orientation.

Diversity matters, in the boardroom and in the workforce. We intend to continue to encourage companies to improve their diversity, and we think others should continue to do so, too. In our view, shareholders should continue to challenge companies on their boardroom diversity and be unafraid to vote against companies where necessary. It’s an approach that we will continue to deploy and expand during voting season in 2022.

Julian Salisbury is co-head of Goldman Sachs Asset Management. Katie Koch is chief investment officer for public markets equity at Goldman Sachs Asset Management.