New federal regulations intended to promote workforce and supplier diversity in the financial services industry are welcome, but they are being criticized by a broad swath of industry observers as ineffective.
On June 10, six federal agencies that regulate the country’s banks, credit unions, publicly traded companies, mortgage companies, pension funds and the like published standards to encourage those entities to assess their diversity policies and practices in their U.S. operations. The specific areas of assessment are organizational commitment to diversity and inclusion; workforce profile and employment practices; procurement and business practices (supplier diversity); and practices to promote transparency of organizational diversity and inclusion.
Issued under the title “Final Interagency Policy Statement Establishing Joint Standards for Assessing the Diversity Policies and Practices of Entities Regulated by the Agencies,” the policy statement falls under Section 342 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, commonly called “Dodd-Frank,” which requires financial regulators to create offices of minority and women inclusion in order to assess the diversity policies and practices of entities subject to their regulation. Dodd-Frank itself was Congress’ attempt to reform Wall Street after the big crash of 2008.
In their final statement, which became effective upon publication, the Federal Reserve Board, Consumer Financial Protection Bureau, Federal Deposit Insurance Corp., National Credit Union Administration, Office of the Comptroller of the Currency and the Securities and Exchange Commission shied away from creating “new legal obligations” for the entities they regulate. Instead, they provided for “self-assessment” of diversity policies and practices using the standards, and “voluntary disclosure” of the self-assessment to the federal agencies. And while the policy calls upon the entities to publish their diversity efforts in order to increase the public’s awareness and understanding, it does not stipulate that such publication is mandatory.
Finance industry practices have come under close scrutiny since the crash, but most companies have yet to publish detailed information on the number of women and minorities they employ. The backlash against the joint standards now puts the regulators under the spotlight. “In the end, the agencies have chosen to do what is convenient for the companies, rather than doing the right thing for the long-term benefit of our country,” SEC Commissioner Luis A. Aguilar said in a public statement that took issue with the standards.
According to the U.S. Census Bureau, minorities — including Hispanic and Asian Americans — make up about 8 percent of financial service employees. An April 2013 report by the U.S. Government Accountability Office shows the industry as 81 percent white as of 2011, and no substantial changes in the number of minorities and women in management in the industry between 2007 and 2011. Women — white women, generally — fare better than minorities in the industry. The GAO report shows women accounting for close to 30 percent of senior management at financial firms and approximately 36 percent of senior management at financial regulators, and the representation of minorities in senior management level positions at just 11 percent at financial firms and 17 percent at regulators. White women alone held 28.4 percent of upper-management jobs; African-Americans held just 2.7 percent of those jobs.
No sooner had the regulators released their final policy statement on diversity policies and practices in the industry than they came under fire from lawmakers, consumer groups, business leaders and civil rights groups. In a joint public statement of their own, California Rep. Maxine Waters, the ranking Democrat on the House Financial Services Committee, and Ohio Democrat Joyce Beatty accused the agencies of merely providing “lip service” to diversity efforts. The standards “appear to do nothing to bring transparency to this industry, which has a long history of failing to promote diversity in its workforce,” they said, and added that the final policy “is fraught with ambiguity, fails to make the disclosure of diversity data mandatory for financial institutions and prevents the public from easily accessing the information it was designed to provide.”
Valerie White, J.D., founder and principal of Valerie D. White LLC, a New York-based consulting firm specializing in housing finance solutions for corporate, institutional investor and government clients worldwide, weighed in with comments to The Network Journal. “The purpose of the Dodd-Frank Act is to provide certain protections to the public and lower risks associated with the practices of the financial industry regulated by various government agencies. While the Act includes some examination of the diversity efforts and practices of these organizations, the implementation of real policies that can promote clear diversity in the industry is absent,” she said.
Although many of the elements outlined in Section 342 that pertain to regulated entities are general commonplace in the financial industry, there still is little movement in diversity at these entities, particularly when it comes to women of color in senior and C-suite roles, said White, a former managing director and lead analytical manager for U.S. Housing & Structured Securities at Standard & Poor’s Ratings Services.
“Many of the recent discussions and articles regarding women of color in leadership roles have called the financial industry to task. Key criticisms have been that leadership at many firms are not including specific incentives and performance related metrics to ensure diversity is real and measured goal,” she noted. “Provisions pursuant to Dodd-Frank that would identify similar metrics and implement incentives — positive for exceeding goal metrics and negative for lack of achieving metrics — would go a long way toward moving diversity at all levels in regulated financial institutions.”
Responding to the backlash, Stuart Ishimaru, director of the Consumer Financial Protection Bureau’s Office of Minority and Women Inclusion office said via email from a spokesman that the standards are only a “first step” and promised that his agency will “continually look to the question of whether the standards and these processes can be improved, and what further guidance may help financial institutions improve diversity and inclusion.”
At the time this issue of TNJ went to press, Ishimaru was the only agency official willing to publicly defend the standards. “We decline to comment,” a spokesperson for the Office of the Comptroller of the Currency told TNJ in an email.