Public Policy and Advocacy

In recent years, Federal, State and Local policymakers have endeavored to craft laws and regulations designed to increase transparency and promote greater diversity and inclusion performance in the financial services sector.  Greater diversity and inclusion performance is a business imperative and cannot be attained through new laws and regulations.  

CONGRESS

The Congressional Black Caucus (CBC) and Congressional Hispanic Caucus (CHC) have each established Diversity and Inclusion Task Forces that work with private companies and membership organizations to recognize that diversity is good for the bottom line, develop best practices to help firms increase diversity, and to strengthen networks of diverse candidates. The CBC and CHC have each established Diversity and Inclusion Task Forces that work with private companies and membership organizations to recognize that diversity is good for the bottom line, develop best practices to help firms increase diversity, and to strengthen networks of diverse candidates.

The Congress itself is undergoing a radical change from a diversity perspective.  Fifty years ago, white men made up more than 97 percent of the House. Both parties were equally male and equally monochromatic. In the 50 years since, the palette has changed, dramatically. White men now represent a minority share of the House Democratic Caucus. The current Congress has a record-breaking number of women, 125, and twenty-one percent of the Congress is Hispanic, Native American and people of color, another record.

These trends have been on the rise for years and the 116th Congress is the most-diverse in our nation’s history. What’s more, members of the CBC and CHC will assume the Chairmanship of exclusive committees and serve in key leadership positions in the House. In fact, women and minority Members are in line to assume as many as half of the 21 committee chairmanships.  

DODD/FRANK SECTION 342

In 2010, Members of the Congressional Black Caucus (CBC) and Congressional Hispanic Caucus (CHC) championed Section 342 of the Dodd/Frank Wall Street Reform Act of 2010. Section 342 mandated the creation of Offices of Minority and Women Inclusion (OMWI) at key Agencies who regulate the financial services sector.

The OMWI offices were tasked with crafting policies that enhance the Agency’s workforce diversity and inclusion performance, enhances the Agency’s supplier diversity performance and to assess the diversity and inclusion performance of firms regulated by the Agency.  In 2017, the OMWI Directors disseminated self-assessment tools to regulated entities to encourage disclosure of diversity performance data.  The OMWI Directors plan to aggregate diversity performance data and are allowing regulated entities to provide data submissions anonymously.  Nevertheless, questions remain regarding the potential for FOIA requests and the oversight role of Congress.  The OMWI Directors are considering efforts to access the EEO-1 filings of covered entities. While the OMWI Directors have sought collaboration with regulated entities, covered firms should fully consider a range of factors when sharing performance data.

BOARD DIVERSITY PROPOSALS

California Governor Jerry Brown (D) recently signed into law (SB 826) which requires any public company with shares listed on a major U.S. stock exchange that has its principal executive offices in California to have at least one woman on its board by Dec. 31, 2019. By year-end 2021, such companies with five directors would be required to have two women on the board, and companies with six or more directors would be required to have three women on the board.  Companies that fail to comply face fines of $100,000 for a first violation and $300,000 for a second or subsequent violation.

In 2017, the SEC’s Advisory Committee on Small and Emerging Companies (“Advisory Committee”) provided a recommendation to the SEC regarding corporate board diversity. The Advisory Committee’s recommendation encouraged the SEC to “amend Item 407(c)(2) of Regulation S-K to require issuers to describe, in addition to their policy with respect to diversity, if any, the extent to which their boards are diverse.”  Several Members of Congress have encouraged SEC Chairman Jay Clayton to consider efforts to promote greater transparency regarding certain corporate boards.  In March of 2017, Representative Carolyn Maloney (D-NY) reintroduced a bill on board gender diversity that would require the SEC to establish a group to study and make recommendations on ways to increase gender diversity on boards. Companies must also disclose the gender composition of their boards.

The California Public Employees' Retirement System has sent letters to 504 companies in the Russell 3000 Index regarding diversity on their board of directors. The letters outline the growing evidence that board diversity has a positive economic impact on business performance. CalPERS requested that each company develop and disclose its corporate board diversity policy and implementation plan to address the lack of diversity.  

COMPENSATION EQUITY PROPOSALS

In 2017 and 2018 several states have considered and/or enacted policy proposals that would require employers to disclose compensation data in an effort to achieve greater pay equity for women and people of color.  California, New York, Massachusetts, Puerto Rico, Oregon and a number of municipalities — such as San Francisco and New York — have enacted their own version of pay equity laws. These laws are designed to remove salary and compensation history from the hiring process.

In 2017, Governor Cuomo of New York issued executive order 162 which requires state contractors to disclose data on the gender, race, ethnicity, job title, and salary of employees performing work on state contracts issued and executed on or after June 1, 2017.  In 2018, the California Assembly considered SB 1284, that would have required employers with 100 or more employees to annually report pay data from employees’ W-2 forms for specified job types and pay bands, broken down by sex, race, and ethnicity.

INSTITUTIONAL AND PENSION FUND DIVERSITY INITIATIVES

In recent years, institutional and pension funds have increased their focus on the diversity and inclusion performance of asset managers and corporations. Those efforts extend to diversity within the firms’ workforce, executive leadership team and board of directors. California Public Employees' Retirement System (CalPERS), the New York City Retirement Systems, Chicago Policemen's Annuity & Benefit Fund and the Minnesota State Board of Investment are actively engaged in these efforts.

The California Public Employees' Retirement System has sent letters to 504 companies in the Russell 3000 Index regarding diversity on their board of directors. The letters outline the growing evidence that board diversity has a positive economic impact on business performance. CalPERS requested that each company develop and disclose its corporate board diversity policy and implementation plan to address the lack of diversity.

The New York City Retirement System currently allocates $12 billion of its $175 billion assets to investment firms and businesses owned by women and people of ethnic minority backgrounds. This allocation has risen by 25% in just four years, in line with its strongly held belief that diversity is a fiduciary duty.

The Congress itself is undergoing a radical change from a diversity perspective.  Fifty years ago, white men made up more than 97 percent of the House. Both parties were equally male and equally monochromatic. In the 50 years since, the palette has changed, dramatically. White men now represent a minority share of the House Democratic Caucus. In the current Congress, racial and ethnic minorities represent 40 percent of the Caucus and women comprise a third of all House Democrats.

Both numbers have been on the rise for years and are expected to expand after the November elections. What’s more, these minority Democrats are expected to assume some of the party’s most powerful jobs. For example, minority Members are in line to assume as many as half of the 21 committee chairmanships.

At this critical juncture, its vital the financial services sector amplify its voice to engage, educate and collaborate with federal and state policymakers.  The sector must proactively define its emerging commitment in some cases, and longstanding commitment in others, to greater diversity in the workforce, the industry’s retail client base and among its suppliers.