Diversity in Finance
The Center for Diversity in Finance and Industry
Information, Implications, and Guidance on Section 342 of the Dodd-Frank Legislation
Co-Founder, The Center for Diversity in Finance and Industry, LLC
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 authorizes the federal government to audit the diversity efforts of financial institutions, including private asset management firms, investment and mortgage banking firms and other regulated financial entities and agency contractors. With the apparent aim of diversifying the workforce of the entire financial industry – both public and private - Congress has mandated … "to the maximum extent possible, the fair inclusion and utilization of minorities, women, and their respective minority-owned businesses...." (Section 342 (c)(1)).
To accomplish its goal, the legislation requires that each covered governmental agency establish an Office of Minority and Women Inclusion ("OMWI"), responsible for developing standards and monitoring diversity in management, employment, and business activities in each respective agency. The statute empowers each OMWI to scrutinize and "assess the diversity policies and practices of entities regulated by the agency." (Section 342(b)(2)(B). The statute also extends its reach to contractors performing services to a covered agency under a contract or sub-contract. Each agency’s OMWI Director is authorized to consider the employment diversity of a potential contractor, as well as provide for the increased participation of minority and women-owned businesses before awarding contracts, and can recommend the termination of a contract if it determines an agency contractor has "failed to make a good faith effort to include minorities and women in their workforce." (Section 342 (c)(3)(B)(i)).
Surveillance and regulatory oversight are not new to the financial industry, however, affirmative action compliance and hiring and recruitment monitoring as mandated in the Dodd-Frank regulatory scheme is brand new to those financial firms not heretofore subject to oversight by the Office of Federal Contract Compliance ("OFCCP") or other regulatory statutes. Until the passage of Dodd-Frank, no other governmental agency has been charged with conducting personnel-related system reviews comparable to the OFCCP, an agency designed to diversify the construction industry. Now the financial industry, like the construction industry and the workforce subject to OFCCP scrutiny, will be assessed by their regulator on their affirmative steps to ensure equal opportunity in all aspects of employment, and therefore must engage in rigorous self-analysis to target and measure the effectiveness of their own efforts to eradicate and prevent discrimination.
THE IMPLICATIONS OF THE DODD-FRANK LEGISLATION
The implications of this Wall Street reform legislation remain to be seen, however, some of its provisions are potentially more far-reaching than statutory schemes designed to undertake similar efforts. Dodd-Frank is distinguishable by virtue of OMWI’s evaluative powers over practices of regulated and non-regulated entities. While the OFCCP, Housing and Economic Recovery Act (HERA), and the EEOC (enforcement arm of many of these laws) require businesses to undertake efforts to promote equal opportunity and increase participation of minority-owned businesses, those statutes also make allowances and provide exemptions based on headcount of employees, the size of the business and whether a monetary threshold of governmental business has been reached. The Dodd-Frank bill provides for no such exceptions or exemptions.
Dodd-Frank’s requirements have neither been specifically defined nor tested, nor has the legislation addressed how its new requirements are to be coordinated with a firm’s pre-existing obligations arising from other statutes (e.g., compliance reporting requirements as directed by the OFCCP). However, the goals of the legislation are clear: racial and gender diversity must be taken seriously-both by governmental financial agencies and private financial institutions that do business with or are regulated by the government. There can be no question Congress has specifically targeted the financial industry to correct an historical lack of employment diversity in the workforces of all financial institutions and all financial service entities.
HOW PRIVATE FINANCIAL ENTITIES CAN COMPLY WITH THE DODD-FRANK LEGISLATIVE MANDAT
The following are suggestions to guide financial entities on how to most expediently and economically meet the newly implemented standards and procedures set forth in the Dodd- Frank bill:
- It is essential to be proactive in hiring, recruitment, and retention of minority and female employees. To the extent a firm does not already have a diversity goal in place, a legitimate plan to promote equal employment opportunities and to increase racial, ethnic, and gender diversity of the firm’s workforce should be immediately established. Employers should actively recruit from minority colleges and universities, minority publications, and engage in meaningful outreach to communities likely to reach a wider pool of minority constituencies.
- Maintain up-to-date reporting of genuine good faith efforts on the part of your business to achieve success in increasing diversity of your firm’s workforce. Section 342 (e) (3) requires the reporting of success achieved and challenges faced in developing minority and women outreach programs and hiring minority and women employees. The OMWI has a reporting obligation to document the progress each agency has achieved in monitoring, hiring, and contracting with minorities and women in addition to contracting with minority-owned businesses. Prepare compliance reports on a routine basis.
- Consistent with various state employment discrimination laws and the numerous federal statutes, regulatory schemes, and agencies designed to protect employees from businesses that engage in discriminatory employment practices, this legislation requires financial firms to take affirmative and effective action (preventative and remedial, if necessary) to accomplish the mission of workforce diversity. While Frank-Dodd does not require your firm to hire under-qualified workers or maintain quotas, the financial firms must show they acted reasonably and in good faith to satisfy the mandates of the legislation. There are a number of methods used to accomplish these goals causing little to no interruption in the day-to-day operation of your business.
- Hire a consultant to work directly with the OMWI to ensure your firm is in compliance with the new law and is able to avoid legal conflicts and lawsuits, regulatory trouble and/or the possibility of losing a contract.
- Develop a strategic plan, which will focus on the recruitment, hiring, mentoring, career development, promotion, and retention of diverse employees.
- ·Utilize innovative collaborative technology to promote and distribute progressive in-house programs that ensure your firm maintains a diverse, welcoming, litigation-free workplace environment with the capability of recruiting and retaining minorities and women. Use technology to enable your firm to self-assess and quantify its on-going diversity and inclusion efforts.
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Susan Rubenstein has practiced employment law for over 30 years in San Francisco, Washington, DC and New York. She is a co-founder of The Center for Diversity in Finance and Industry, LLC (CDFI), a consulting firm specializing in developing diversity guidelines for financial companies to comply with Section 342 of the Dodd-Frank law.
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