United States: Will Dodd-Frank’s Diversity Mandates Go Far Enough?

The lack of employment diversity in the financial services sector has been well documented. According to an April 2013 report of the U.S. Government Accountability Office, in the wake of the financial crisis, the number of minorities and women in management in the financial services industry, its regulating agencies and the Federal Reserve banks has not substantially changed from 2007 to 2011. Women represent approximately 30 percent of senior management at financial firms and 36 percent at financial regulators. The number of minorities in senior management positions is even lower with only approximately 11 percent representation at financial firms and 17 percent at their regulators.1

Congress has acted in an attempt to remedy historical practice. On July 10, 2010, in response to the financial crisis, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 was signed into law. Section 342, an often overlooked provision of the act, was adopted to help correct racial and gender imbalances at financial institutions and their regulators by prescribing inclusion requirements at the specified U.S. government agencies that regulate the financial services sector,2 entities that contract with the agencies and the private businesses they regulate.

Both Section 342 and the standards proposed by certain of the regulated agencies focus on transparency and awareness of diversity policies within the agencies, but generally do not prescribe quotas, mandate specific actions or impose penalties. While this law is a step in the right direction to achieve diversity in the financial services sector, the ultimate impact of Section 342 remains to be seen.

Section 342

Pursuant to Section 342, each agency has established an Office of Minority and Women Inclusion, or OMWI. The OMWIs and their appointed directors are charged with:

  • developing diversity standards for the agency's workforce;
  • increasing participation of minority- and female-owned businesses in the agency's programs and contracts; and
  • assessing the diversity policies and practices of the financial entities regulated by the agency.

Each OMWI is required to submit an annual report to Congress outlining the agency's actions under Section 342. The report must indicate the percentage of total contracting fees paid to minority and women contractors and identify the successes and challenges faced with respect to diversity outreach.

Diversity in the Agencies' Workforces. The agencies must take "affirmative steps" to seek diversity within their own workforces at all levels. These steps must, at a minimum, include recruiting at colleges that have historically had a high percentage of minority and female students enrolled, sponsoring and recruiting from job fairs in urban communities, and advertising employment opportunities in publications targeted at minorities and women.

Diversity and Inclusion in the Agencies' Business Activities. Each agency must also develop and implement standards and procedures to ensure the fair inclusion and utilization of minorities and women (and businesses owned by these groups) in all of their business activities. This mandate has expansive reach and applies to all agency contracts of any kind, including those with most financial service entities and law firms.

The agencies are also required to adopt standards and procedures to determine whether a contractor has made a "good faith effort" to include minorities and women in its workforce. The penalties for a contractor's noncompliance are steep and can include termination of the contract or a referral to the office of the Federal Contract Compliance Programs of the U.S. Department of Labor.

Diversity in the Agencies' Regulated Entities. Pursuant to Section 342, six of the agencies3 have proposed joint standards to provide guidance on the scope of the required assessment. The proposed standards do not mandate an examination or supervisory assessment process, but instead focus on self assessment and public disclosure.

A model assessment process would include a quantitative and qualitative self evaluation of the entities' diversity and inclusion policies and a voluntary report of the findings to the regulating agency. Further, the entity would include information regarding its efforts to comply with the proposed standards on its public website, annual reports and other disclosure documents.

The proposed standards cover the following four key categories of assessment to be implemented in a manner reflective of the entity's size and other characteristics.

  • Organizational Commitment to Diversity and Inclusion. A diversity and inclusion policy should be approved and supported by senior management and the board, which should receive regular progress reports. A senior level officer who oversees and directs diversity efforts should be appointed and should ensure that there is regular equal employment and diversity and inclusion education and training. Finally, the entity must take proactive steps to promote a diverse pool of candidates for senior leadership and board positions.
  • Workforce Profile and Employment Practices. Management should be held accountable for the success of diversity and inclusion efforts. Entities should adopt metrics to evaluate and assess workforce diversity and inclusion efforts, in all areas of employment across all levels of the organization. Policies and practices that create diverse applicant pools for both internal and external opportunities should be implemented, including (1) participation in conferences and other events and (2) outreach to organizations and educational institutions primarily aimed at serving minority and female populations.
  • Procurement and Business Practices — Supplier Diversity. Steps that can be taken in this regard include adopting (1) a supplier diversity policy providing for a fair opportunity for minority- and women-owned businesses to compete in the procurement of business and services, (2) procedures to evaluate and assess supplier diversity, and (3) practices to promote a diverse supplier pool, including publicizing procurement opportunities and outreach to minorities and women.
  • Practices to Promote Transparency of Organizational Diversity and Inclusion. Transparency in an entity's diversity and inclusion program is crucial to attaining the objectives of Section 342. Information on the entity's commitment to diversity and inclusion, its plans for achieving its goals, its progress against those goals and the metrics it uses to measure success should be made available to the public on the entity's website and annual shareholder reports.

Section 342 expressly provides that it should not be construed to impose any requirement on, or otherwise affect the lending policies and practices of, any regulated entity or require any specific action based on the findings of an assessment.

Accordingly, the proposed standards do not impose consequences if an entity does not implement appropriate diversity and inclusion policies. They simply state that the agency will use the information as a resource for carrying out their diversity and inclusion responsibilities. The comment period on the proposed standards closed on Feb. 7, 2014, and the agencies received more than 45 comments.

Our Thoughts

We applaud the goals and purpose of Section 342 and the proposed standards. Greater diversity and inclusion will promote stronger, more effective and more innovative businesses, and we urge all U.S. entities, not just those in the financial services industry, to foster diversity and inclusion in their workforce and business dealings.

However, while the proposed standards may impact employment and recruiting practices, it is unclear whether they, or Section 342 itself, go far enough and will actually lead to greater diversity and inclusion at financial services institutions.

To begin with, there is no enforcement mechanism under Section 342, and the proposed standards do not mandate reporting, disclosure or other specific actions. The rationale for this approach is that public awareness and transparency will drive changes in practice.

Public disclosures have often resulted in significant changes to public entity policies. For instance, in recent years, the U.S. Securities and Exchange Commission has significantly overhauled its compensation disclosure rules. While the commission did not regulate the amount or form of compensation, the enhanced disclosures permitted the public to better understand an issuer's compensation programs and to use their voting power and the press to effectuate change in compensation practices.

While this is theoretically translatable to diversity policies, it will not necessarily drive change in the financial services industry, where there has been significant pressure to create a more diverse environment for a number of years. Also, many financial institutions have already implemented significant programs and policies that will likely satisfy the proposed standards.

For example, to ensure compliance with employment laws, most entities maintain equal opportunity policies and have adopted procedures to handle discrimination and harassment complaints (including anti-retaliation policies). Many also gather statistical data regarding the gender and racial demographics of their employee populations and applicant pools in connection with the preparation of Forms EEO-1 and affirmative action plans.

Further, forming an office of diversity and employing a senior diversity officer has become commonplace, particularly at large public companies. Finally, many entities actively recruit minority and women candidates and maintain outreach and mentoring programs to foster racial and gender diversity in the leadership ranks.4

Unfortunately, these steps have not significantly altered the demographics at financial services entities to date, particularly at executive and senior-level positions. According to the U.S. Equal Employment Opportunity Commission, in 2012, while white men account for 65 percent of the executive and senior management populations in the financial services industry, minorities and women account for only 10 percent and 29 percent of these positions, respectively.5

In contrast to Section 342, the European Union has introduced diversity initiatives with more concrete obligations. The Capital Requirements Directive IV requires relevant financial institutions to set a target for representation of the underrepresented gender for its board and to prepare a policy on how to achieve that target.

Proposed EU legislation would require all publicly listed companies to ensure that, by 2020, at least 40 percent of nonexecutive directors are female. In addition, by 2020, companies would be required to meet self-regulated targets regarding the representation of both genders among executives.

Finally, many EU member states, including Norway, Spain, Italy and France, have introduced country-specific gender diversity quotas for boards of directors. U.S. Rep. Maxine Waters of California, the author of Section 342, noted that "many industries lack the inclusion and participation" of minorities and women, with none "more egregiously ... than the financial services sector." Section 342 provides the opportunity to "not only give oversight to diversity, but to help the [a]gencies understand how to do outreach [and] how to appeal to different communities."

In order to achieve a meaningful change, financial service entities in the United States can seize this opportunity and make inclusion and diversity a high-profile priority in both words and actions, and the regulators should mandate a clear set of guidelines and consequences for failure to comply. It remains to be seen whether Section 342 and the final standards as adopted will bring us closer to this result.

Footnotes

1 Unites States Government Accountability Office, Report to the Ranking Member, Committee on Financial Services, U.S. House of Representatives, Diversity Management: Trends and Practices in the Financial Services Industry and Agencies after the Recent Financial Crisis, April 2013. The report notes that there is an increase in both minorities and women in first- and mid-level management positions, which may create a pipeline for increased representation in senior management positions in the future.

2 The agencies include: (1) the Office of the Comptroller of the Currency, (2) the Board of Governors of the Federal Reserve System, (3) the Federal Deposit Insurance Corporation, (4) the National Credit Union Administration, (5) the Bureau of Consumer Financial Protection, (6) the U.S. Securities and Exchange Commission, (7) the Departmental Offices of the Department of the Treasury, (8) the Federal Reserve Banks and (9) the Federal Housing Finance Agency.

3 The U.S. Department of the Treasury, the Federal Reserve Banks and the Federal Housing Finance Agency did not participate in the joint policy statement.

4 A number of the comment letters assert that the information contained in these reports should be sufficient for the agencies to assess diversity and that imposing additional obligations will further burden the institutions with little positive effect.

5 2012 Job Patterns for Minorities and Women in Private Industry (EEO-1), 2012 EEO-1 National Aggregate Report by NAICS-2 Code (Finance and Insurance), (2012), available at http://www1.eeoc.gov/eeoc/statistics/employment/jobpat-eeo1/2012/index.cfm#centercol .

Originally published in Law360, New York (April 11, 2014, 6:46 PM ET) --

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions