Kathryn Koch, co-head of the fundamental equity business at Goldman Sachs Group’s asset management unit, spends a lot of time digging around the social aspects of companies.
Her team, which oversees about $60 billion in assets globally, seeks to invest in businesses with strong cultures that include gender diversity. These characteristics provide companies a competitive edge — and for GSAM, alpha.
“It will unlock shareholder value,” Koch said in a phone interview. “We’re really attuned to this because our investing team is highly diverse.”
About half of the portfolio managers in Goldman Sachs Asset Management’s fundamental equity group are women, well above the industry average, according to Koch. Her team has attracted about $4.5 billion in net inflows this year, with 89 percent of GSAM Fundamental Equity strategies outperforming benchmarks on a gross-of-fees basis through June 26.
Companies that don’t meet Koch’s expectations for gender diversity won’t find a place in her portfolio — and she’s willing to take a stand. GSAM is among the first major asset managers to vote against an entire nominating committee of any public company that fails to include at least one woman on its board.
“That’s not enough,” she said, “but it’s a place to start.”
During the 2019 proxy season, GSAM voted against directors of 214 companies in the U.S. because of their lack of gender diversity. About 37 percent of them have since added at least one woman to the board. And in this year’s proxy season, the asset manager has gone global with its insistence, voting against 1,436 directors at 780 companies.
“We’re not just being antagonistic,” said Koch. Her group is engaging companies on why diversity matters and is willing to help them find the right talent when they say it’s hard.
Based on Koch’s experience, companies will often say, “‘we’d love to add a woman to the board; we don’t know the right woman to add.’” That’s when her team suggests “board-qualified” women from Goldman’s business network. “We work with our colleagues in investment banking and put together a list,” she said.
[II Deep Dive: The ‘Dark Side’ of ESG]
GSAM now plans to push companies for broader disclosure surrounding diversity, including people of color, according to Koch. While companies need to disclose the gender composition on their boards, they aren’t required to share data on other areas of diversity, she explained.
“If the treatment of people is diverse, inclusive, empowering — that’s good for the employees and stakeholders,” said Koch. “And if it’s the opposite, and it can be exploitative, that’s going to be bad long term.”
A couple years ago, Koch’s fundamental equity team made a trip to Japan to meet with a maker of household products, including for infants. Of particular interest was its claim to have the best bottle mimicking breastfeeding. But given the company’s entirely male management team and board, Koch said GSAM’s female portfolio managers were skeptical it could achieve long-term success selling infant products.
GSAM divested from the business, she said, and although the company has since added three women to its board, it has not gone far enough to create gender diversity in its workforce. Seventeen percent of company’s executives and management were women in 2019, a small rise of 4 percent over the previous five years, according to GSAM.
Broad diversity stats may be helpful for investors, but they don’t signify inclusion.
“Inclusive organizations tend to have different representation at the top,” said Koch. Beyond senior positions, her team looks for diversity across different roles. An organization claiming to be gender diverse when all the women are in marketing and all the men are in engineering is falling short of real diversity, she said.
Knowing that culture is a strong determinate of success, Koch’s investment team speaks to C-suite executives, boards — and, most importantly, the employees at companies. She said this helps GSAM avoid investment risks and produce alpha, with diversity being a sign of how well companies treat their employees and reflect the communities they’re targeting.
“We don’t think that this is just an issue of equitability,” said Koch. “We also think it is an issue of profitability — for ourselves and for our portfolio companies.”
Among companies GSAM likes based on their diversity and inclusion are retailer Ulta Beauty, software company Workday, and childcare provider Bright Horizons.
Ulta Beauty has strong female representation in management roles, including 50 percent of its senior leaders, according to GSAM. Women also represent half of its 12-person board.
Workday recently began offering customers a real-time dashboard that provides workforce diversity data to help them recruit and manage talent. Bright Horizons, meanwhile, is helping companies retain top employees by providing childcare benefits.
“Diverse organizations are going to outperform,” said Koch. “They’re going to land on more authentic marketing messages and they’re going to build products that are relevant for their audiences.”
According to Koch, GSAM hopes to work with other asset managers who are minority shareholders seeking stronger diversity and inclusion, as it will help the value of companies.
“Together we can actually make a really big difference on this issue,” she said. “It’s very clear that consumers are increasingly focused on the social aspects of companies.”
