The federal banking regulators, Securities and Exchange Commission, and Consumer Financial Protection Bureau have jointly issued a formal policy for assessing the diversity policies and practices of the entities they regulate.
Section 342 of the Dodd-Frank Act required each of the agencies (SEC, CFPB, Office of the Comptroller of the Currency, Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, and National Credit Union Administration) to each establish an Office of Minority and Women Inclusion, responsible for oversight of their diversity in management, employment, and business activities. The legislation also instructed each OMWI Director to develop standards for assessing the diversity policies and practices of the entities their agency regulates and their supply chain.
As laid out in the final policy statement issued on Tuesday, the assessment envisioned by the agencies is not part of the examination or supervisory process. Instead, the regulators call for a “model assessment” that would include a self-assessment by each covered entity of its diversity policies and practices; voluntary disclosure of the self-assessment to its appropriate regulator; and public disclosure of those diversity efforts.
Criteria for those assessments includes:
Whether company leadership maintains a commitment to diversity and inclusion and includes those considerations in the strategic plan. Do senior officials have dedicated resources to oversee and direct diversity efforts?
Are regular progress reports sent to senior management and directors? Is management held accountable for diversity and inclusion efforts?
Does the company use qualitative and quantitative metrics, such as those contained in annual EEO-1 Reports or Affirmative Action Plans filed with the Office of Federal Contract Compliance Programs, to evaluate and assess workforce diversity initiatives? What other metrics are, or could be, used?
Other standards in the framework include:
Maintaining a diversity and inclusion policy that is approved and supported by senior leadership, including senior management and the board of directors.
Regularly conducting training on diversity and inclusion.
Having a senior level official, preferably with knowledge of and experience in diversity and inclusion policies and practices, who oversees and directs the entity's diversity and inclusion efforts.
Outreach to educational institutions serving significant minority and women student populations and participation in conferences, workshops, and other events to attract minorities and women and to inform them of employment and promotion opportunities.
Utilizing both quantitative and qualitative measurements to assess workforce diversity and inclusion efforts.
Holding management at all levels accountable for diversity and inclusion efforts, for example by ensuring that such efforts align with business strategies and individual performance plans.
In October 2013, the agencies published a proposed policy, accompanied by a call for public comments. Among concerns raised: the mandates exceed the regulators’ statutory authority and could be unlawful; references to “metrics” in the proposal were interpreted as quotas in hiring and contracting; that new requirements would impose a significant compliance burden, particularly regarding requirements to develop methodologies for assessing supplier diversity.
In the final policy, issued on Tuesday, regulators addressed some concerns by adding the following language: “This document is a general statement of policy…it does not create new legal obligations; use of the standards by a regulated entity is voluntary.” They also addressed concerns about how “diversity” is defined, clarifying that it refers to “minorities [black, Hispanic, Asian, Native American]… and women.” This definition “does not preclude an entity from using a broader definition” and include those with disabilities, veterans, and LGBT individuals.
Regarding extraterritorial application, the policy says that final standards address an entity’s U.S. operations but does not “preclude a multinational entity from also using these standards to undertake a broader assessment of its organization.”
Firms are also required to maintain a supplier diversity policy “that provides a fair opportunity for minority-owned and women-owned businesses to compete for procurement of business goods and services; methods to evaluate and assess supplier diversity (which may include metrics and analytics); and practices that promote a diverse supplier pool.”