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From Banking and Finance Law Daily, October 23, 2013

Policy statement on assessing firms’ diversity and inclusion efforts proposed

By Richard A. Roth, J.D.

Six federal financial industry regulatory agencies are jointly proposing an interagency policy statement on how their Offices of Minority and Women Inclusion will assess diversity policies and practices at regulated businesses. The proposed policy statement offers four broad principles, each of which is accompanied by several more specific standards. Importantly, the agencies make clear that the examination and supervision process will not be used to make assessments.

The Dodd-Frank Act requires each of the agencies—the Office of the Comptroller of the Currency, Federal Reserve Board, Federal Deposit Insurance Corporation, National Credit Union Administration, Consumer Financial Protection Bureau, and Securities and Exchange Commission—to establish an Office of Minority and Women Inclusion and charges the offices with creating standards for assessing the diversity policies and practices of supervised firms (see 12 U.S.C. 5452). However, given that the act also makes clear the agencies cannot “require any specific action based on the findings of the assessment,” they are interpreting the act’s goal as promoting transparency and awareness.

“Assessment” is a broad term, the agencies note, and includes self-assessments by the supervised firms. They also note that many firms already are required to report employment diversity-related data to the Equal Employment Opportunity Commission. What would be required of an assessment depends on the firm’s size and characteristics.

Diversity principles. The proposed statement first says that each institution should have an organizational commitment to diversity and inclusion. This includes making diversity and inclusion part of the firm’s strategic plan and designating a senior level individual to oversee diversity efforts.

Second, the institutions should engage in activities that promote diversity and inclusion, including outreach programs and the use of appropriate metrics. As part of their performance evaluations, managers should be held accountable for their diversity and inclusion efforts.

Third, institutions need to encourage diversity among their suppliers, although the agencies concede that it might be more difficult to assess supplier diversity policies. Again, outreach efforts and the use of appropriate metrics will be valuable. Financial firms also can use contract terms to encourage their contractors to use minority-owned and women-owned subcontractors.

Finally, an institution’s program should be transparent. This means the firm should make public, on its website or in other ways, information such as its strategic plan, its progress toward diversity goals, the make-up of its current workforce and suppliers, and current employment and contracting opportunities.

What is an “assessment”? The agencies intend to rely principally on self-assessments by supervised firms. A self-assessment should include both a quantitative and qualitative evaluation of the firm’s policies, and the results should be disclosed voluntarily to the firm’s regulator. Information on the self-assessment also should be included on the firm’s public website and included in its annual reports, the statement proposes.

Comments requested. As this is just a proposed interagency statement, the agencies are asking for comments. They specifically are asking for comments on how effective the proposed standards would be and how they could be improved, as well as whether they are sufficiently flexible to be useful for firms of different sizes and business characteristics.

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