Without serious structural changes, Wall Street will continue to look like a country club.

Three women filed a sex discrimination suit against Goldman seeking class action status. It has gotten some attention in the press and on the Web for not the best reasons, namely, the complaint recounts in some detail how one of the plaintiffs, Christina Chen-Oster, a convertible bonds sales rep, had had a colleague force himself on her after a business-related group outing to a strip club. When she reported it some time after the fact (the perp had asked her to keep it secret), she was increasingly ostracized and marginalized.

While the salacious allegations are a vivid reminder of the sort of indignities that women can experience even in ostensibly well-run firms, they are the most obnoxious and disheartening example of the second-class status that women typically occupy in male-dominated fields. The fact is that Goldman has had long-standing problems with women, and the lawsuit's charges are far more damaging and potentially costly than the commentary indicates.

I joined Goldman in its corporate finance department nearly 30 years ago. Goldman had just been sued for sex discrimination, and the firm seemed eager to counter its reputation as the worst place for women on Wall Street. But it wasn't clear to me that things had changed so much as the worst extremes were addressed. For instance, a highly respected Vice President had propositioned every woman in the department. He was finally hauled before the Management Committee and told to cut it out. I arrived at the firm to learn that there was a betting pool on whether he would revert to his old form with me. While he didn't, a partner in the firm did make advances. When he eventually backed off, the fallback was to give me a checklist of the sort of woman he wanted to date and ask me to set him up with suitable candidates.

Fast forward, and while the firm now has policies on dating, the area where the rubber really hits the road, pay and promotion, appears to be as retrograde as ever. Some of this may result from the shift at Goldman from having a substantial investment banking business to one where traders, the most macho and individualistic players, are now dominant.

Make no mistake: the charges in the suit are serious. It seeks class action status, and gender discrimination suits with similar allegations have won class certification (the process is that the plaintiffs do limited discovery to prove they meet the four criteria for class certification). That means that should the plaintiffs prevail, every woman at the firm in a to-be-determined target time period would be considered in arriving at damages.

The central charge is a classic pay act claim, that women are paid less for doing the same work as the boys. There are multiple mechanisms by which this occurs, in addition to allegations of simply lower compensation for comparable performance. Women are also set up to do less well: the best assignments and territories go to men (the suit gives examples of plum territories and clients being stripped from women and assigned to male colleagues); are asked to do clerical work and training far more than men; and receive less informal mentoring.

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The suit describes how business unit managers have unlimited discretion on pay and promotion of their subordinates. This may not seem unusual, but according to the plaintiffs, a lot of "human capital management" procedures are easily and often gamed. For instance, the firm has "360 degree" reviews, but the boss picks who gets to review a particular subordinate, which can be used to stack the deck, and when he gets back the ratings, he can still rank his troops as he sees fit. Perhaps most important, pay is compounded. If one person is paid 10% less than other people in their unit, their next year pay is set as a percent increase over prior year pay. So a one-year setback, whether justified or not, will lead to widening differentials over time.

There is every reason to believe this suit will be costly to Goldman, yet have perilously little long-term impact. One of the two firms representing the plaintiffs, Lieff Cabraser, is a class action heavyweight. Goldman is likely to be advised to settle the suit quickly. It does not want Lieff Cabraster doing a lot of discovery. Lieff Cabraster will probably go to the class certification stage (that's when the numbers will start to get large) and see if Goldman initiates settlement talks.

Assuming this plays out according to the normal script, all affected women will get checks. Those who remain, even if the firm agrees to modify some of its pay and promotion practices to manager discretion, are unlikely to see much change. Big dealer firms delegate substantial authority to producers; a Wal-Mart, with its highly codified managerial processes, is in a far better position to curb abuses than a firm where managers operate what amount to franchises in a larger corporate umbrella.

There's nevertheless a tendency to see people like the plaintiffs in this suit as sore losers, when the reality is far more complex. Unfortunately, legal remedies can reinforce the idea that minorities and women can’t succeed on their own and need quotas or other measures to assure they are represented in sufficient numbers. By implication, diversity is in conflict with merit-based policies. As transgendered scientist Ben Barres has pointed out, citing research, “When it comes to bias, it seems that the desire to believe in a meritocracy is so powerful that until a person has experienced sufficient career-harming bias themselves, they simply do not believe it exists.” And examples are widespread in other fields. For example, a 1997 Nature paper by Christine Wenneras and Agnes Wold, “Nepotism and Gender Bias in Peer-Review,” determined that women seeking research grants need to be 2.5 times more productive than men to receive the same competence score. In 1999, MIT published the results of a five-year, data-driven study that found that female faculty members in its School of Science experienced pervasive discrimination, which operated through “a pattern of powerful but unrecognized assumptions and attitudes that work systematically against female faculty even in the light of obvious good will.”

It isn't widely recognized outside the human resources field, but performance appraisal systems have been criticized for over 100 years as being unable to live up to their objectives. Thus, the typical defense against the failure to achieve diversity, that the company was in fact hiring and promoting based on achievement, is hollow. These systems not only are subjective (inherent to most ratings) but also often lead to capricious, even unfair results.

The idea that Goldman, and Wall Street generally, which for decades have had their pick of top business and law school graduates, can't find women of the same caliber as men simply doesn't pass the common sense test. But “diversity” has the effect of shifting attention away from the fact that companies may be inbred. Conservatism and a common preference to hire in your own image leads many firms to stick with their tried-and true profile, which in most cases is Caucasian and male. Sadly, the C level and boards at most large companies still look more like country clubs than the US as a whole, and that's still not likely to change soon.

Yves Smith is the founding editor of Naked Capitalism. She is a former employee of Goldman Sachs.