Six federal financial agencies—the Federal Reserve Board, the Federal Deposit Insurance Corporation, the National Credit Union Administration, the Office of the Comptroller of the Currency, the Consumer Financial Protection Bureau, and the Securities and Exchange Commission (the “Agencies”)—joined forces to issue a final interagency policy statement on June 9, 2015, which establishes joint standards for assessing the diversity policies and practices of the entities they regulate. Section 342 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 mandated that each agency establish an Office of Minority and Women Inclusion to establish these standards as well as be responsible for all matters of the agency relating to diversity in management, employment, and business activities.
According to the standards, “diversity” includes minorities, as defined in section 342(g)(3) of the Dodd-Frank Act (that is, Black Americans, Native Americans, Hispanic Americans, and Asian Americans), and women, but this definition does not preclude an entity from using a broader definition. “Inclusion” means a process to create and maintain a positive work environment that values individual similarities and differences, so that all can reach their potential and maximize their contributions to an organization. The Agencies encourage the regulated entities to use the standards to assess policies and practices that impact the inclusion of minorities and women in the regulated entity’s workforce and the existence of minority-owned and women-owned businesses among a regulated entity’s suppliers of products and services.
The final standards, which are very similar to the proposed standards, cover four key areas and set forth a number of recommendations, a few of which are listed below:
- Organizational Commitment to Diversity and Inclusion (refers to the commitment of senior leadership to diversity and inclusion):
- The entity has a diversity and inclusion policy that is approved and supported by senior leadership, including senior management and the board of directors.
- The entity takes proactive steps to promote a diverse pool of candidates, including women and minorities, in its hiring, recruiting, retention, and promotion practices, as well as in its selection of board members, senior management, and other senior leadership positions.
- Workforce Profile and Employment Practices (concerns the evaluation of programs and areas to be improved):
- The entity utilizes both quantitative and qualitative measurements to assess its workforce diversity and inclusion efforts, which may be reflected in, for instance, applicant tracking, hiring, promotion, and separation (voluntary and involuntary).
- The entity holds management at all levels accountable for diversity and inclusion efforts.
- Procurement and Business Practices and Supplier Diversity (references policies providing fair opportunity to minority- and women-owned businesses):
- The entity has methods to evaluate its supplier diversity, which may include metrics and analytics related to annual procurement spending and percentage of contract dollars and contracts awarded to minority-owned and women-owned business contracts.
- Practices to Promote Transparency of Organizational Diversity and Inclusion (relates to making information about diversity and inclusion strategy publicly available).
- The entity publicizes its diversity and inclusion strategic plan, policy on its commitment to diversity and inclusion, and progress toward achieving diversity and inclusion in its workforce and procurement activities.
During the comment period for the proposed standards, some commenters argued that the Agencies’ recommendations do not go far enough and should be mandatory, while others expressed concerns that the standards required the unlawful use of quotas, classifications, or preferences. The Agencies clarified that the final standards would not create new legal obligations for regulated entities but are considered voluntary, recognizing that each entity is unique with respect to characteristics such as its size, location, and structure and that a one-size-fits-all standard would not work for all entities. The Agencies further noted that they do not intend to use their examination or supervisory processes in connection with these standards but encouraged the regulated entities to conduct self-assessments, which they should disclose publicly.
The Agencies will, however, use information submitted to them to monitor progress and trends in the financial services industry with regard to diversity and inclusion in employment and contracting activities to identify those policies and practices that have been successful and highlight best practices.
Though the Agencies do not plan to identify particular entities publicly, the Agencies themselves will be aware of those entities that are on the forefront of implementing these standards. BakerHostetler can help entities develop their strategy to adopt recommended policies and practices “in a manner reflective of the individual entities size and other characteristics” as the Agencies suggest in the final standards.