United States: Diversity A New Requirement

The Dodd-Frank Act contains a number of provisions that go beyond consumer protection and regulation of banking activities. One of those provisions is contained in Section 342 of the Dodd-Frank Act. That provision requires each of the Federal bank regulatory agencies to establish an Office of Minority and Women Inclusion, sometimes referred to as the "OMWI Office." Each of those offices has a Director and is responsible for all matters related to diversity in management, employment and business activities of regulated financial institutions.

Section 342 directs each Agency Director to develop Standards for diversity practices and policies of the financial institutions regulated by that Agency.

The different Agency Directors have now offered for comment a set of jointly proposed standards for addressing the Section 342 requirements, in hopes of promoting a consistent approach for all of the financial institutions that they regulate.


The proposed Joint Standards, boiled down to their simplest elements, look at the hiring record and practices of a bank employer with respect to various aspects of their employment of minority and female members of their workforce. It also looks at a bank's procurement and contracting practices.

Existing Reporting Requirements

Certain financial institutions have been subject to reporting requirements regarding diversity hiring practices and results for years. In particular, banks with 100 or more employees and banks who are federal contractors and employ 50 or more employees are required to file Employer Information Report EEOC-1 with the Equal Employment Opportunity Commission (EEOC) and the Office of Federal Contract Compliance Programs (OFCCP). Banks that serve as a depository for Government funds in any amount, or banks that are issuing agent or paying agent for U.S. Savings Bonds and Notes are covered so long as they employ 50 or more workers.

Note, however, that the proposed Joint Standards do not expand on this mandatory reporting requirement. If your bank was not already required to file the EEOC-1 Report form previously, you will not be required to do so if the Joint Standards are adopted as proposed. However, the proposed Joint Standards "encourage regulated (banks) that are not required to file EEOC-1 Reports to monitor and assess their diversity policies and practices and to use the proposed standards as a guide."

So, what do the Joint Standards call for and how can a bank, particularly one not previously having to file an EEOC-1 Report, comply?

The Four Parts

The Joint Standards are divided into four parts or areas for consideration:

  • Organizational commitment to diversity and inclusion;
  • Workforce profile and employment practices;
  • Procurement and business practices; and
  • Practices to promote transparency of organizational diversity and inclusion.

Let's look at what the Joint Standards prescribe for each part.

Organizational Commitment. As you might infer, this aspect of the Joint Standards looks at ways in which the Bank's management and Board of Directors promote diversity and inclusion in both hiring and contracting practices. The Bank should pursue a strategic plan that includes hiring,

recruiting, retention and promotion for purposes of achieving diversity. Regular progress reports to management and the board could be furnished, and training on diversity and equal employment opportunity should take place. A member of Senior Management should oversee and direct the Bank's efforts to achieve diversity. The Bank should be proactive in recruiting, hiring and promoting within a diverse group of women and minorities, as well as in its selection of board members, senior management and other leadership positions.

Workforce Profile and Employment Practices. Suggestions in the Joint Standards for promoting fair inclusion of women and minorities include publicizing job opportunities, creating relationships with minority and women's organizations and including success in meeting diversity goals as an element of evaluating the performance of management. The EEOC and the OFCCP reporting requirements mentioned above provide data and supporting documentation that may serve as valuable models, even for those banks not required to provide such reports. The Joint Standards mention metrics for measuring diversity, holding management accountable for efforts made to achieve diversity in hiring policies, and practices that create a diverse pool of applicants for internal and external employment opportunities. Reaching out to minority and women's organizations, working with educational institutions, and participating in conferences, workshops, etc. are also suggested practices.

Procurement and Business Practices. The Joint Standards seem to acknowledge that this area may be one that proves difficult. Banks, particularly smaller banks, may find it difficult to gather information on the diversity practices and successes of the vendors, suppliers, and others that they use for support services. Obviously, contracting for services to be supplied by women- or minority-owned businesses would be a plus.

The Joint Standards reiterate a number of methods that can be used to evaluate and assess supplier diversity. These include inquiring about the suppliers' contracts and subcontracts with minority- and women-owned businesses, outreach to the same pool of contractors and participating in events, workshops, etc. to attract minority-owned and women-owned firms as suppliers.

Practices to Promote Transparency. Transparency involves making information about the Bank's efforts to achieve this diversity available to the public, as well as to those potential employees, suppliers, etc. that might see an opportunity. Among the ideas suggested are the increased use of the Bank's website, development of promotional materials and inclusion of diversity goals and successes in annual reports to shareholders, if applicable. Among the items of information that might be included are the Bank's strategic plan for achieving diversity and inclusion, a written commitment to diversity and inclusion, and demographic profiles for the Bank's current workforce and supplier listing. A statement of current employment and procurement opportunities could be included, as well as forecasts for potential employment and procurement opportunities.

The Proposed Approach

The Joint Standards use the term "assessment." Assessment in this context works two ways. First, it amounts to a self-assessment where the Bank looks candidly at its past, present and anticipated future efforts to achieve diversity. The Joint Standards ask for (but do not necessarily mandate) a voluntary disclosure to the Bank's Federal regulator of the efforts and results that the Bank has made and achieved. Information that regulators can readily access, such as the Bank's website and annual reports, are particularly effective ways for the Bank to disclose, and the regulators to review, efforts to achieve greater diversity. It appears that the regulators will review websites as one way of determining if your bank is making appropriate efforts in this area.

Banks that are required to file EEOC-1 Reports should, of course, continue to do so, and those not required to file should consider using that format to track the efforts related to diversity and voluntarily disclose that to their Federal regulators

The good news is that the Joint Statement specifically states that diversity will not become the subject of a separate examination procedure. Language taken from the Dodd-Frank Act states that nothing in the Joint Statement "may be construed to mandate any requirement (that may) affect the lending policies and practices of any regulated entity, or to require any specific action based on the finding of (an) assessment." Also, the Joint Statement makes frequent reference to the particular circumstances of each individual bank. Issues such as size, resources, location, demographics, etc. should be taken into account when reviewing a bank's efforts and successes in achieving diversity.

However, the Dodd-Frank Act requires the consideration of issues associated with achieving diversity and each Agency now has a Director for its Office of Minority and Women Inclusion. It is only logical to assume that sooner, rather than later, these Directors will begin to perform their assessments. To the extent practicable, your bank should make an effort to provide them with the type of information the Joint Statement outlines.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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