Diversity and Inclusion

In a notice to be published in tomorrow’s Federal Register, the CFPB, OCC, Fed, FDIC, SEC, and NCUA announce that the Office of Management and Budget has approved the “information collection” contained in their “Final Interagency Policy Statement Establishing Joint Standards for Assessing the Diversity Policies and Practices of Entities Regulated by the Agencies.”  The Policy Statement, which implemented Dodd-Frank Section 342, became effective upon its publication in the Federal Register on June 10, 2015.  The notice informs regulated entities that they may now begin to submit self-assessments of their diversity policies and practices to the Director of the Office of Minority and Women Inclusion of their primary federal financial regulator.

The final standards envision that an entity will conduct an annual “self-assessment” of its diversity policies and practices in four areas: (1) organizational commitment to diversity and inclusion, (2) workforce and employment practices, (3) procurement and business practices, and (4) practices to promote the transparency of organizational diversity and inclusion.  The standards provide for “assessment factors” for each of these areas, encouraging entities to allocate time and resources to monitor and evaluate their performance under their diversity policies and practices on an ongoing basis.  The standards also contemplate that a regulated entity will disclose certain information relating to its diversity and inclusion efforts on its website or in other appropriate communications, and will provide to its primary federal financial regulator information relating to its self-assessment.

In conjunction with the issuance of the final standards, the agencies had published a 60-day notice requesting comments on the information collection process and parameters, and how this requirement might affect regulated entities.  The notice addressed the comments received during the 60-day comment period which included concerns about agency disclosure of confidential information contained in a self-assessment.  In response, the agencies offered no assurances that the information would remain confidential, stating simply, “To the extent that a submission includes confidential information, the Agencies will keep such information confidential to the extent allowed by law.”

Ballard Spahr’s Diversity Team is working with several clients on developing and implementing diversity programs.

 

 

The CFPB’s Office of Minority and Women Inclusion (OMWI) has issued its third annual report to Congress covering the OMWI’s activities in 2015.  The Dodd-Frank Act required the CFPB and various other federal agencies, including the Fed, OCC, FDIC, NCUA, and SEC, to establish an OMWI, and also required each OMWI to submit an annual report to Congress.

From industry’s perspective, the most noteworthy task Dodd-Frank assigned to each OMWI was the development of standards to assess the diversity policies and practices relating to employment and third party contracting of the institutions regulated by the OMWI’s agency.  As the report indicates, in June 2015, the CFPB and the agencies listed above jointly issued a final policy statement establishing such standards (Final Standards).  The Final Standards became effective on June 10, 2015.

The Final Standards envision that an entity will conduct an annual “self-assessment” of its diversity policies and practices in four areas: (1) organizational commitment to diversity and inclusion, (2) workforce and employment practices, (3) procurement and business practices, and (4) practices to promote the transparency of organizational diversity and inclusion.  The Final Standards provide for “assessment factors” for each of these areas, encouraging entities to allocate time and resources to monitor and evaluate their performance under their diversity policies and practices on an ongoing basis. In its report, the OMWI states that it “has begun work on plans related to the new standards including creating processes and procedures for entities to voluntarily assess and report on their internal diversity and inclusion.”

Another task of an OMWI is to develop standards for creating diversity in an agency’s own workforce and increasing participation of minority-owned and women-owned businesses in the agency’s programs and contracts.  According to the report, as of year-end 2015, the CFPB had 1,507 employees, representing an increase of 283 employees from year-end 2014.  Of the 1,507 employees, 48% were female and 52% were male.  (The percentage of women represents a 2% increase from 2014’s percentage.)  In addition, of those employees, 68% self-identified as White, 20% as Black/African-American, 9% as Asian American, and 3% as another racial group or belonging to two or more racial groups.  The report notes that as of the end of 2015,  minorities and women held, respectively, about 26% and 41% of the CFPB’s executive leadership positions.

With regard to procurement, the report indicates that in FY 2015, the CFPB entered into 1,450 “contract actions,” totaling approximately $244.0 million.  Of the total contract dollars awarded in FY 2015, the report states that 5% went to women-owned businesses and 9% went to minority-owned businesses (consisting of businesses owned by Hispanic Americans, African-Americans, Asian/Pacific Islander Americans and American Indians/Alaskan Natives and “Others”).

As noted above, the Final Standards cover not only a regulated entity’s diversity policies and practices relating to employment but also cover its procurement and business practices.  Thus, banks and other regulated entities may want to take note of the section of the report describing the CFPB’s efforts to increase vendor diversity.

Ballard Spahr’s Diversity Team advises clients on the design and implementation of diversity and inclusion programs and counsels CFPB-supervised entities on developing and implementing diversity programs.

 

 

Regulated entities should be aware of two recent developments concerning the final diversity and inclusion standards issued this summer under Dodd-Frank Section 342 by the CFPB, OCC, Fed, FDIC, NCUA and SEC.  Given that the final standards have been in effect since June 10, 2015, entities should begin taking steps to incorporate them into their daily business practices and plan for their self-assessments.

The first development was the CFPB’s release of its Diversity and Inclusion Strategic Plan for 2016-2020.  The plan sets forth the CFPB’s diversity and inclusion vision statement and describes how the CFPB will promote diversity and inclusion in the workforce and with its suppliers, as well as assess and strengthen diversity and inclusion within its regulated entities. The CFPB expects such entities to take similar steps within their organizations.

The second development is a joint notice, request for comment, and notice of information collection published in the Federal Register on November 6, 2015 by the six agencies that issued the final diversity and inclusion standards.  In conjunction with the issuance of the final standards, the agencies had published a 60-day notice requesting public comments on the information collection process and parameters, and how this requirement might affect the regulated entities.  The Notice addresses the four comments received during the 60-day comment period, and invites additional comments on the collection of information.  Comments are due by December 7, 2015.

For more information about these developments, see our legal alert.

 

On March 3, 2015, the World Bank Group announced the creation of an External Advisory Panel (Panel) for Diversity & Inclusion. This announcement comes on the heels of the newly released diversity Standards, developed pursuant to the Dodd-Frank Act, which are applicable to regulated entities, including financial institutions doing business in the United States. World Bank’s announcement, while not linked directly to the new Standards, states that the Panel is intended to provide a conduit to the global community and to serve as a sounding board for advice on matters relating to diversity and inclusion. The press release is available here.

The Panel will advise World Bank President Jim Yong Kim and his senior management team on strategies to achieve a diverse and inclusive workplace; provide guidance on how to address challenges affecting WBG’s diversity and inclusion efforts; and add an external perspective to enhance the strategies and views of the WBG’s internal Council on Diversity and Inclusion.

The following six individuals were selected to be members of the inaugural Panel based on their on their commitment and contributions to diversity and inclusion in their organizations and/or the broader community: Elizabeth Adu, Former World Bank Group Director and Deputy General Counsel; Richard Bernal, Counselor for Jamaica, Inter-American Development Bank; Julius Coles, Director, Andrew Young Center for Global Leadership, Morehouse College; Indra K. Nooyi, Chairman and Chief Executive Officer, PepsiCo.; Paula Yacoubian, CEO of Integrated Communications; and Kenji Yoshino, Chief Justice Earl Warren Professor of Constitutional Law, New York University.

On August 12, 2015, Dee Spagnuolo, a Ballard Spahr partner, will be a faculty member at an American Bar Association webinar: “Dodd-Frank: Implications for Your Diversity and Inclusion Program.”  The program will focus on how Dodd-Frank Section 342 impacts regulated entities, including financial institutions and publicly traded companies, and include a discussion of best practices for compliance.

New Diversity and Inclusion Standards jointly issued by six federal agencies pursuant to
Section 342 went into effect on June 10, 2015.  The Standards apply to all entities regulated by any one of the federal agencies subject to Dodd-Frank.  Thus, the entities affected do not just include financial institutions, but any publicly traded company, mortgage company, and any other entity regulated by one of the six agencies, including all of the federal banking agencies and the CFPB.

A link to register is available here.

Just days after the release of the final diversity standards under Section 342 of the Dodd-Frank Act, several prominent lawmakers and business leaders have criticized the new standards for not going far enough to promote diversity and inclusion within the financial services industry.  The standards were issued jointly on June 9 by six federal agencies—the Federal Reserve Board, the Consumer Financial Protection Bureau, the Federal Deposit Insurance Corp., the National Credit Union Administration, the Office of the Comptroller of the Currency, and the Securities and Exchange Commission.  The standards apply both to any entity subject to regulation by these agencies, including financial institutions, mortgage companies, and all publicly traded companies.

Under Section 342, federal financial agencies are required to create Offices of Minority and Women Inclusion, each charged with “assessing the diversity policies and practices of entities” subject to regulation by the agencies.  Issued as a result of this directive, the new standards provide covered entities with a framework to conduct annual self-assessments of their diversity practices and commitments, to provide opportunities for minorities and women in hiring practices and vendor relationships, and to increase transparency with respect to diversity and inclusion practices.  The standards offer “assessment factors” for each of these areas.  The final standards, however, are “voluntary,” according to the agencies.

The voluntary nature of the standards has drawn sharp criticism from members of Congress and civil rights advocates.  Congresswoman Maxine Waters (D-CA), one of the chief architects of Section 342, said the new standards are disappointing in both structure and scope.  In essence, Waters views the final standards as hobbled by ambiguity and a lack of meaningful enforcement mechanisms.  In a June 18 press release issued by Waters and Congresswoman Joyce Beatty (D-OH), the two lawmakers criticized the federal agencies for paying little more than “lip service” to important diversity issues.  U.S. Senator Bob Menendez (D-N.J.) and SEC Commissioner Luis A. Aguilar also spoke out against the final standards.  According to Senator Menendez, the new standards “unfortunately fall short of what is necessary to achieve real progress” with respect to diversity in the financial industry.  Commissioner Aguilar issued a formal dissent to the final standards, pointing to the financial sector’s historically poor diversity record while expressing disappointment that the agencies responsible for the new standards chose “to do what is convenient for the companies, rather than the right thing for the long-term benefit of our country.”

Stuart Ishimaru, Executive Director the CFPB’s Office of Minority and Women Inclusion, responded to the criticism by noting that the standards are a “first step” and that the CFPB is developing plans to use the standards to engage with regulated entities and to encourage increased levels of diversity and inclusion.

Some observers see good reasons why regulated entities should and will pay attention to diversity issues, notwithstanding the voluntary nature of the final standards.  Many companies regard diversity and inclusion as the right thing to do from a corporate social responsibility perspective.  Moreover, regulated entities will likely find themselves in front of one or more of these agencies at some point, seeking regulatory approval or defending their actions.  Under these circumstances, opting to ignore the standards will not put the entity in a positive regulatory light.  In addition, many entities recognize the competitive advantage that diversity and inclusion offers when competing for diverse talent and attempting to expand market share into the expanding U.S. multicultural market.

The CFPB was among six federal agencies that issued final new diversity and inclusion standards earlier this week.  The other agencies were the OCC, Fed, FDIC, NCUA and SEC.  The standards go into effect on June 10, 2015 and apply to all entities regulated by the CFPB or one of the other agencies.  Given the June 10 effective date, regulated entities have little time to waste in taking steps to incorporate the standards into their daily business practices.

Dodd-Frank Section 342 required the CFPB and other agencies to create an Office of Minority and Women Inclusion (OMWI) and directed each OMWI to develop standards for assessing the diversity policy and practices of entities regulated by the agency.  While the final standards generally track the standards proposed by the agencies in October 2013, they provide some clarifying language in response to public comments.  They also recognize that one size does not fit all and allow each entity to tailor its compliance approach to fit the entity, taking into account its size, total assets, number of employees, governance structure, revenues, number of members and/or customers, contract volume, geographic location, and community characteristics.

The final standards contemplate that regulated entities will make certain information available to the public and their primary federal financial regulators.  The CFPB and other agencies invite comments on topics regarding the information collection process and parameters, seeking input on how this requirement might affect regulated entities.  Comments must be submitted by August 10, 2015, and the effective date of the collection of information will be announced in the Federal Register following Office of Management and Budget approval.

For a more detailed discussion of the final standards, see our legal alert.  Ballard Spahr will be hosting a webinar at 3 p.m. ET on July 15, 2015 for regulated entities interested in learning more about the standards and how best to comply.  A link to register for the webinar is available here.  (Please note that due to scheduling issues, we have changed the webinar date that is indicated in our legal alert and on the registration form.)

 On April 29, 2014, the Office of Minority and Women Inclusion (OMWI) of the Consumer Financial Protection Bureau (CFPB or Bureau) released its third Annual Report for 2014, as mandated by section 342(e) of the Dodd-Frank Act (Act).

In the Report, CFPB stated that six agencies under Dodd-Frank have completed the final diversity policy statement, which now is undergoing final approval by the agencies, signaling that release of the final standards may be imminent.  The balance of the Report addressed the measures CFPB has taken to further principles of diversity within the agency.

For more on the CFPB’s Report, see our legal alert.

Last week, the Office of Inspector General published its findings following an audit assessing the CFPB’s human resources-related operations and other efforts for equal employment.  The audit, which was conducted in response to a congressional request for information on the CFPB’s activities related to diversity and inclusion (D&I), analyzed the CFPB’s efforts to ensure equal opportunities for minorities and women to obtain senior management positions and to increase racial, ethnic, and gender diversity in the workforce.  The CFPB is subject to certain federal employment provisions, including those contained in the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank).  Specifically, Dodd-Frank required that the CFPB establish an Office of Minority and Women to handle all management, employment, and business diversity issues.

In its audit, the Inspector General noted that the CFPB has taken steps since July 2011 to instill a diverse and inclusive workforce, including elevating the Office of Minority and Women Inclusion and the Office of Equal Employment Opportunity to the Office of the Director; holding sessions with employees to identify and address fairness, equality, and inclusion issues; and creating an internal advisory council and working groups to consider D&I issues.   Notwithstanding those efforts, the Office of the Inspector General recommended the following improvements:

  • Make D&I training mandatory for CFPB employees, supervisors, and senior managers;
  • Strengthen data quality in tracking spreadsheets for equal employment opportunity complaints and negotiate grievances and analyze data related to performance management for trends that could be indicative of potential D&I issues;
  • Finalize a D&I strategic plan and strengthen supervisors’ and senior managers’ accountability for implementing D&I initiatives and human resources-related policies; and
  • Develop a formal succession planning process to help ensure that the CFPB will have a diverse pool of candidates for senior management positions.

The Office of Inspector General circulated a draft report containing recommendations to the CFPB prior to issuing the final report.  In response to the draft report, the CFPB outlined planned, ongoing, and completed initiatives designed to analyze performance management data and performance management training and to track equal employment opportunity (and non-equal employment opportunity) complaints.  The Inspector General also noted that the CFPB has approved standard operating procedures to address several of its recommendations and is in the process of developing a new performance management system.

Our Diversity Group is working with clients to be sure that they do not have any similar problems.

The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”), signed by President Obama in 2010 in response to the financial crisis, includes a provision intended to remedy racial and gender discrepancies at federal financial regulatory agencies and private financial institutions.  Section 342 of Dodd-Frank directs each of the federal financial regulatory agencies to create an Office of Minority and Women Inclusion (OMWI) to oversee diversity efforts at the agencies, and further, to develop standards for assessing diversity policies and practices at regulated financial entities.  In October 2013, six federal agencies proposed joint diversity standards for public comment.  Final standards could be issued in the near future.

Two reports recently issued by the Offices of Inspector General at the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC) may provide some insight on the impending final standards.  (FDIC Report; OCC Report).  The House Financial Services Committee requested the reviews of the FDIC and OCC in response to a 2013 Government Accountability Office report on diversity, which concluded that very little had changed from 2007 to 2013 at federal financial agencies, despite the diversity provisions of Dodd-Frank.  Committee members questioned whether agency practices were systemically disadvantageous to women and minorities.

The reviews focused in part on agency demographics, personnel practices, and efforts to increase diversity.  The Inspectors also assessed the impact of the newly-established OMWIs on agency policies and diversity efforts.  In both reviews, the Inspectors compared the resulting data to that of the national civilian labor force.  Despite the fact that the FDIC and OCC had taken measures to promote diversity as directed by Dodd-Frank, both reports concluded that more could be done.

In particular, the FDIC report highlighted a lack of Hispanics and women throughout the agency and in senior executive positions.  Noting that female and minority representation at the FDIC remained relatively static since 2008, the Inspector discussed ongoing challenges to the agency’s efforts to increase diversity in the overall workforce.  Many of these challenges are socioeconomic and thus beyond the agency’s control, such as low turnover of existing managers and executives, competition from the private sector for diverse candidates, and limited representation of minorities and women in certain parts of the country or in certain occupations.  After identifying several areas for improvement, the Inspector offered specific recommendations relating to recruiting and workforce engagement, reliability of diversity data, and diversity policies.

The OCC fared somewhat better under review.  The report noted that the OCC’s diversity initiatives—which included enhanced diversity tracking, outreach, and employee networking—resulted in the agency achieving overall workforce numbers that closely aligned with the national civilian labor force.  However, the report also pointed out that these numbers did not translate across the entire organization, with representation of minorities and women at supervisory and senior-level positions falling well below that of the agency’s workforce as a whole.

These reports may offer insights into how the agencies will approach diversity issues for regulated entities under the final diversity standards for regulated entities.  While these standards were expected before year-end 2014, their issuance has been delayed.  Financial institutions and publicly traded companies subject to the standards can expect increased regulatory scrutiny of their diversity policies and procedures once the final standards are issued.  Ballard Spahr’s Diversity Practice already is assisting financial institution clients with compliance measures.