Federal regulators issue standards to evaluate company Diversity and Inclusion Standards

Blog Post
Per the Dodd-Frank Act, final Diversity and Inclusion (D&I) Standards were issued on June 9, 2015, by the following agencies: the Office of the Comptroller of the Currency (OCC), the Board of Governors of the Federal Reserve System (Federal Reserve), the Federal Deposit Insurance Corporation (FDIC), the National Credit Union Administration (NCUA), the Consumer Financial Protection Bureau (CFPB), and the Securities and Exchange Commission (SEC). These D&I Standards, effective as of June 10th, apply to all institutions and companies regulated by the aforementioned entities, reaching beyond just financial institutions to any publicly traded company.

Section 342 of Dodd-Frank mandated the creation of the Office of Minority and Women Inclusion (OMWI) for the six agencies, which, in turn, would oversee all agency matters relating to diversity in management, employment, and business activities. In addition, the OMWI was to develop standards for assessing the diversity policy and practices of entities regulated by those agencies.

These D&I Standards provide a framework for regulated entities to create and strengthen their diversity policies and practices related to their organizational commitment to diversity, workforce and employment practices, procurement and business practices, and practices to promote transparency of organizational diversity and inclusion within the entities’ U.S. operations. In drafting the D&I Standards, the agencies focused primarily on institutions with more than 100 employees, and allow entities to tailor compliance efforts to their size, total assets, number of employees, governance structure, revenue, number of members and/or customers, contract volume, geographic location, and community characteristics. 

The following chart summarizes the standards established for each category:

Commitment to Diversity and Inclusion Workforce Profile and Employment Practices Supplier Diversity
Transparency of Organizational Diversity and Inclusion
Diversity and inclusion considerations be an important part of employment and contracting as part of its strategic plan for recruiting, hiring, retention, and promotion
Implementation of policies and practices related to workforce diversity and inclusion in a manner that complies with all applicable laws.
Establishment of a supplier diversity policy that provides for a fair opportunity for minority-owned and women-owned businesses to compete for procurement of business goods and services; including contracts for (1) the issuance or guarantee of any debt, equity, or security, (2) the sale of assets, (3) the management of the entity's assets, and (4)the development of the entity's equity investments; as well as any other contracts.
The following information should be available the public annually through its Web site or other appropriate communication methods:  (1) Diversity and inclusion strategic plans, (2) Policy on its commitment to diversity and inclusion, (3) Progress toward achieving diversity and inclusion in its workforce and procurement activities, and (4) Opportunities available at the entity that promote diversity.
Diversity and inclusion policy be approved and supported by senior leadership, including management and board of directors.
Provision of equal opportunities for all employees and applicants for employment; no unlawful employment discrimination based on gender, race, or ethnicity.
Use of metrics and analytics to evaluate its supplier diversity, which may include:  annual procurement spending; percentage of contract dollars awarded to minority-owned and women-owned business contractors by race, ethnicity, and gender; and percentage of contracts with minority-owned and women-owned business sub-contractors.

Regular progress reports be provided to board and senior management.
Adoption of policies and practices that create diverse applicant pools for both internal and external opportunities that may include:  Outreach to minority and women organizations; 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.
Implementation of practices to promote a diverse supplier pool, which may include:  
outreach to minority-owned and women-owned contractors and representative organizations; participation in conferences, workshops, and other events to attract minority-owned and women-owned firms and inform them of contracting opportunities; and
an ongoing process to publicize its procurement opportunities.

Regular training and provision of educational opportunities on equal employment opportunity and on diversity and inclusion.
Utilization of quantitative and qualitative measurements to assess its workforce diversity and inclusion efforts.

Establishment of senior level official, preferably with knowledge of and experience in diversity and inclusion policies and practices, to oversee and direct the entity's diversity and inclusion efforts.
Management at all levels to be held accountable for diversity and inclusion efforts, for example by ensuring that such efforts align with business strategies and individual performance plans.

Proactive steps to promote a diverse pool of candidates, including women and minorities, in its hiring, recruiting, retention, and promotion, as well as in its selection of board members, senior management, and other senior leadership positions.

The D&I Standards employ a definition of “diversity” that includes minorities (African Americans, Native Americans, Hispanic Americans, and Asian Americans) and women, but entities can employ a broader definition to include those with disabilities, veterans, and LGBT individuals. “Inclusion” is defined to mean “a process to create and maintain a positive work environment that values individual similarities and differences, so that all can reach their potential and maximize their contributions to an organization.”

The OCC, Federal Reserve, FDIC, NCUA, CFPB, and SEC expect that entities will allocate time and resources to monitor and evaluate their diversity and inclusion performance on an ongoing basis and conduct annual “self-assessments.” However, the agencies make clear that no new legal obligations are being created and the D&I Standards will not be used as part of examinations or supervisory processes. The failure to make the D&I Standards mandatory prompted SEC Commissioner Luis A. Aguilar to dissent, stating:

Today, the Securities and Exchange Commission failed to take meaningful steps to advance diversity and inclusion in the financial services industry, as required by Section 342 of the Dodd-Frank Act.[1] Accordingly, I have no choice but to dissent from the Final Interagency Policy Statement Establishing Joint Standards for Assessing the Diversity Policies and Practices of Entities Regulated by the Agencies (the “Final Policy Statement”) that was issued today by the SEC and a number of other financial regulators.

Instead, the regulators call for voluntary self-assessments to be voluntarily disclosed to an appropriate regulator and publicly disclosed by the entities. The agencies will then use the information submitted to monitor progress and trends in the financial services industry with regard to D&I in employment and contracting activities.

Entities that voluntarily engage in the contemplated in this process should be aware that such self-assessments could be potentially discoverable by private plaintiffs in fair lending and fair employment litigation. Accordingly, to ensure the maximum protection, firms should consider engaging legal counsel to conduct same.
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