As the dust settles on the recent final interagency policy statement, employers should discuss with qualified counsel how to develop and encourage a diversity and inclusion strategy within the existing law.
Recently, the US Securities and Exchange Commission (SEC) and five other federal agencies issued a final interagency policy statement establishing joint standards for assessing the diversity policies and practices of the entities that they regulate. Issued as a result of section 342 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act) directive that covered federal agencies must develop standards to advance diversity and inclusion in the financial services industry, the final interagency policy statement identifies important components of diversity and inclusion programs and initiatives and provides a framework for covered entities to perform self-assessments of such efforts within the financial industry and beyond. Adhering to the standards outlined in the statement, however, is a voluntary decision for regulated employers.
Section 342 of the Dodd-Frank Act allows the government to compel financial institutions and their vendors to diversify their workforces and to include women and minorities “to the maximum extent possible.” Compliance with section 342 includes, among other things, the creation of an Office of Minority and Women Inclusion at each of the federal financial agencies subject to the Dodd-Frank Act’s provisions and the requirement that these agencies develop standards to assess the diversity policies and practices of entities that they regulate. Thus, affected entities include not only financial institutions but also any publicly traded company, mortgage company, and other entity regulated by one of the designated agencies, including all of the federal banking agencies and the Consumer Financial Protection Bureau (CFPB).
In response to section 342’s mandate that covered federal agencies develop standards for regulated entities to create and strengthen their diversity policies and practices, the SEC, the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the National Credit Union Administration (NCUA), and the CFPB released the Final Interagency Policy Statement Establishing Joint Standards for Assessing the Diversity Policies and Practices of Entities Regulated by the Agencies.
The new standards provide covered entities with a framework to conduct annual self-assessments of diversity and inclusion efforts and focus specifically on the following components as important to an overall successful diversity and inclusion strategy:
- Organizational commitment to diversity and inclusion
- Workforce profiles and employment practices
- Improving procurement and business practices related to supplier diversity
- Improving transparency in diversity and inclusion efforts
Notably, for each focus area, the agencies provide examples of specific actions that an employer may take to advance its diversity and inclusion efforts. These include regularly conducting diversity and inclusion training; having a senior-level official with knowledge of and experience in diversity and inclusion policies and practices to oversee and direct the entity’s diversity and inclusion efforts; ensuring that a diversity and inclusion policy is supported at the senior leadership level, including by the board of directors; and participating in conferences, workshops, and events that attract and serve minority populations and women.
Regulated entities, as well as employers outside the financial services industry committed to advancing diversity objectives through the implementation of diversity programs or initiatives, should pay particular attention to the components identified in the interagency policy statement.
For regulated entities, notwithstanding the voluntary nature of the final standards, it cannot be said that the statement is an empty proclamation. At a minimum, adhering to the standards will improve the odds of success in the likely event that regulated entities find themselves before one or more of these agencies defending particular actions or seeking regulatory approval. Moreover, although the final standards do not provide further guidance about the scope of “regulated entities,” such entities should expect that agencies will apply the mandate as broadly as possible. The NCUA, for example, is requiring credit unions to answer questions regarding diversity in the quarterly call reports that they file with the NCUA.
For employers outside the financial services industry, especially those looking to begin diversity and inclusion efforts or to incorporate new strategies into existing diversity and inclusion policies, the standards provide a useful framework to offer opportunities for minorities and women in hiring practices and vendor relationships, to increase transparency with respect to diversity and inclusion practices, and to conduct annual self-assessments of diversity practices and commitments.
Employers should discuss with qualified counsel how to develop and encourage a diversity and inclusion strategy within the existing law.