Corporate Governance

The Dodd-Frank Wall Street Reform Act and the SEC: Profound Bits and Pieces (Diversity, the Commission, and the Securities Industry)

By J Robert Brown Jr.

One item that slipped into the DFA was the requirement that certain agencies, including the Commission, create an Office of Minority and Women.  See Section 342.

The provision was designed to ensure that the designated agencies had an office "responsible for all matters of the agency relating to diversity in management, employment, and business activities."  Goals include increasing the "participation of minority-owned and women-owned businesses in the programs and contracts of the agency"

The SEC has issues with diversity, as we have noted, so an office that will be an internal advocate for increased diversity is a good idea. 

The more significant impact, however, may be on industry.  The SEC has already begun looking into board diversity.  See Item 407(c)(2) of Regulation S-K ("Describe the nominating committee's process for identifying and evaluating nominees for director, including nominees recommended by security holders, and any differences in the manner in which the nominating committee evaluates nominees for director based on whether the nominee is recommended by a security holder, and whether, and if so how, the nominating committee (or the board) considers diversity  in identifying nominees for director. If the nominating committee (or the board) has a policy with regard to the consideration of diversity in identifying director nominees, describe how this policy is implemented, as well as how the nominating committee (or the board) assesses the effectiveness of its policy"). 

The office has been given the responsibility for "assessing the diversity policies and practices of entities regulated by the agency."  In other words, advisers and brokers, at a minimum, will have their diversity practices become subject to SEC review.  To the extent that this evolves into anything other than information gathering, the results could be significant.  Like boards of directors, the securities industry does not have a particularly good record when it comes to diversity.  As the 2007 Report by the Securities Industry and Financial Markets Association on Workforce Diversity Reported that: "From the Associate level onward, representation of women and people of color decreases at each higher level across the survey organizations."  More specifically, a recent GAO report concluded that "white males held 64 percent of senior positions [in the financial services industry] in 2008, African-Americans held 2.8 percent, Hispanics 3 percent, and Asians 3.5 percent."  The report further noted that "overall diversity management-level positions did not change substantially from 1993 through 2004."

Given these numbers, it is possible that the SEC's Office of Minority and Women will provide some muscle behind increased diversity in both the Commission and the industries it supervises. 

The Dodd-Frank Wall Street Reform Act and a short Summary of the legislation are posted online.  The provision creating the Office of Minority and Women is included below.

SEC. 342. OFFICE OF MINORITY AND WOMEN INCLUSION.

(a) OFFICE OF MINORITY AND WOMEN INCLUSION.-

(1) ESTABLISHMENT.-

(A) IN GENERAL.-Except as provided in subparagraph (B), not later than 6 months after the date of enactment of this Act, each agency shall establish an Office of Minority and Women Inclusion that shall be responsible for all matters of the agency relating to diversity in management, employment, and business activities.  (B) BUREAU .-The Bureau shall establish an Office of Minority and Women Inclusion not later than 6 months after the designated transfer date established under section 1062.

(2) TRANSFER OF RESPONSIBILITIES.-Each agency that, on the day before the date of enactment of this Act, assigned the responsibilities described in paragraph (1) (or comparable responsibilities) to an other office of the agency shall ensure that such responsibilities are transferred to the Office.

(3) DUTIES WITH RESPECT TO CIVIL RIGHTS LAWS.-The responsibilities described in paragraph (1) do not include enforcement of statutes, regulations, or executive orders pertaining to civil rights, except each Director shall coordinate with the agency administrator, or the designee of the agency administrator, regarding the design and implementation of any remedies resulting from violations of such statutes, regulations, or executive orders.

(b) DIRECTOR.-

(1) IN GENERAL.-The Director of each Office shall be appointed by, and shall report to, the agency administrator. The position of Director shall be a career reserved position in the Senior Executive Service, as that position is defined in section 3132 of title 5, United States Code, or an equivalent designation.

(2) DUTIES.-Each Director shall develop standards for- (A) equal employment opportunity and the racial, ethnic, and gender diversity of the work-force and senior management of the agency;(B) increased participation of minority-owned and women-owned businesses in the programs and contracts of the agency, including standards for coordinating technical assistance to such businesses; and(C) assessing the diversity policies and practices of entities regulated by the agency.

(3) OTHER DUTIES.-Each Director shall advise the agency administrator on the impact of the policies and regulations of the agency on minority-owned and women-owned businesses.

(4) RULE OF CONSTRUCTION.-Nothing In paragraph (2)(0) may be construed to mandate any requirement on or otherwise affect the lending policies and practices of any regulated entity, or to re-
quire any specific action based on the findings of the assessment.

(c) INCLUSION IN ALL LEVELS OF BUSINESS ACTIVITIES.-

(1) IN GENERAL.-The Director of each Office shall develop and implement standards and procedures to ensure, to the maximum extent possible, the fair inclusion and utilization of minorities, women, and minority-owned and women-owned businesses in all business and activities of the agency at all levels, including in procurement, insurance, and all types of contracts.

(2) CONTRACTs.-The procedures established by each agency for review and evaluation of contract proposals and for hiring service providers shall include, to the extent consistent with applicable law, a component that gives consideration to the diversity of the applicant. Such procedure shall include a written statement, in a form and with such content as the Director shall prescribe, that a contractor shall ensure, to the maximum extent possible, the fair inclusion of women and minorities in the workforce of the contractor and, as applicable, subcontractors.

(3) TERMINATION.- (A) DETERMINATION .-The standards and procedures developed and implemented under this subsection shall include a procedure for the Director to make a determination whether an agency contractor, and, as applicable, a subcontractor has failed to make a good faith effort to include minorities and women in their work-force.  (B) EFFECT OF DETERMINATION.- (i) RECOMMENDATION TO AGENCY ADMINISTRATOR.-UpOn a determination described in subparagraph (A), the Director shall make a recommendation to the agency administrator that the contract be terminated.  (ii) ACTION BY AGENCY ADMINISTRATOR.-Upon receipt of a recommendation under clause (i), the agency administrator may--(I) terminate the contract; (II) make a referral to the Officeof Federal Contract Compliance Programs of the Department of Labor; or (III) take other appropriate action.

(d) APPLICABILITY.-This section shall apply to all contracts of an agency for services of any kind, including the services of financial institutions, investment banking firms, mortgage banking firms, asset management firms, brokers, dealers, financial services entities, underwriters, accountants, investment consultants, and providers of legal services. The contracts referred to in this subsection include all contracts for all business and activities of an agency, at all levels, including contracts for the issuance
or guarantee of any debt, equity, or security, the sale of assets, the management of the assets of the agency, the making of equity investments by the agency, and the implementation by the agency of programs to address economic recovery.

(e) REPORTS.-Each Office shall submit to Congress an annual report regarding the actions taken by the agency and the Office pursuant to this section, which shall include -

(1) a statement of the total amounts paid by the agency to contractors since the previous report;
(2) the percentage of the amounts described in paragraph (1) that were paid to contractors described in subsection (c)(I);
(3) the successes achieved and challenges faced by the agency in operating minority and women outreach programs;
(4) the challenges the agency may face in hiring qualified minority and women employees and contracting with qualified minority-owned and women-owned businesses; and
(5) any other information, findings, conclusions, and recommendations for legislative or agency action, as the Director determines appropriate.

(f) DIVERSITY IN AGENCY WORKFORCE.-Each agency shall take affirmative steps to seek diversity in the workforce of the agency at all levels of the agency in a manner consistent with applicable law. Such steps shall include--

(1) recruiting at historically black colleges and universities, Hispanic-serving institutions, women's colleges, and colleges that typically serve majority  minority populations;
(2) sponsormg and recruiting at job fairs in urban communities;
(3) placing employment advertisements in newspapers and magazines oriented toward minorities and women;
(4) partnering with organizations that are focused on developing opportunities for minorities and women to place talented young minorities and women in industry internships, summer employment, and full-time positions;
(5) where feasible, partnering with inner-city high schools, girls' high schools, and high schools with majority minority populations to establish or enhance financial literacy programs and provide mentoring; and
(6) any other mass media communications that the Office determines necessary.

(g) DEFINITIONS.-For purposes of this section, the following definitions shall apply:
(1) AGENCY.-The term "agency" means-
(A) the Departmental Offices of the Department of the Treasury;
(B) the Corporation;
(C) the Federal Housing Finance Agency;
(D) each of the Federal reserve banks;
(E) the Board;
(F) the National Credit Union Administration;
(G) the Office of the Comptroller of the Currency;
(H) the Commission; and
(I) the Bureau.

Full post as published by The Race to the Bottom on August 04, 2010 (boomark / email).