The Dodd-Frank act, conceived as a hammer to keep the excesses of the financial industry in check, also seeks to promote diversity in a non-diverse environment.

One of it requirements is that each of the 30 federal financial agencies and departments, including the Securities and Exchange Commission and all 12 Federal Reserve banks, must establish an Office of Minority and Women Inclusion. Each office will be responsible for developing standards for equal employment opportunity and diversity of the workforce, as well as the increased participation of minority-owned and women-owned businesses in the programs and contracts of the agency. 

If the Director of the Office determines that an agency contractor or subcontractor has failed to make a good-faith effort to include minorities and women in its workforce, "the Director shall make a recommendation to the agency administrator that the contract be terminated."

This section is very controversial.  Said Michael Yaki, a member of the U.S. Commission on Civil Rights, "This is a wake-up call for Wall Street: women, black Americans, Asian Americans, Latino Americans, they all pay for your bailouts . . . Firms must take steps to be more reflective of America."

"This will destroy the financial industry," warned Diana Furchtgott-Roth, a senior fellow at the Hudson Institute and the Department of Labor’s (DOL’s) chief economist under President George W. Bush. "If the CEOs of American financial institutions have to be worried about the diversity regulations, whereas those in other countries are worrying about their profits, we are going to fall behind," she said.

Six agencies (the Board of Governors of the Federal Reserve System, Consumer Financial Protection Bureau, Federal Deposit Insurance Corporation, National Credit Union Administration, Office of the Comptroller of the Currency, and Securities and Exchange Commission) are proposing joint standards to bring contractors into compliance with the law. The proposed standards cover four key areas:

• Organizational commitment to diversity and inclusion
• Workforce profile and employment practices
• Procurement and business practices and supplier diversity
• Practices to promote transparency of organizational diversity and inclusion

In developing these proposed standards, the six agencies tailored them to account for variables including asset size, number of employees, governance structure, income, number of members or customers, contract volume, location, and community characteristics. The agencies recognize standards may need to change and evolve over time. Once published in the Federal Register, the proposed policy statement will be available for public comment for 60 days.

One major component is that each financial organization must also have in place systems for tracking and analyzing workforce data to ensure it is meeting the proper level of diversity for its size, as established under the Equal Employment Opportunity Commission (EEOC) and the Office of Federal Contract Compliance Programs (OFCCP). Organizations that are not subject to EEOC or OFCCP rules would also be required to have such systems in place.

It would also make confidential information public.  The proposed standards would require financial institutions to make their diversity policies and practices "transparent," so that the public is aware of those policies and practices. To achieve this, an organization can post its diversity plan on its website and also make announcements regarding new hires and promotions. In addition, each organization will have to demonstrate the extent to which it has established a diverse workforce, by providing a demographic breakdown, as well as the diversity of its suppliers and other business partners.

Although broader than the requirements under Executive Order 11246, depending on how these standards are implemented there may be much confusion for compliance officers in the financial industry.  No one appears exempt.  There could be circumstances under which financial institutions will be found violating the law and in compliance at the same time.  Further, it could lead to these institutions being targeted by lawsuits.

Linda Nahra is the president and chief executive of Community West Bank in Goleta, California. She is the type of person the provision aims to help. But she thinks it's unnecessary. "Do we need an office in each federal regulatory agency?" she said. "I think that's overkill, and it's not the best use of money."

Source: Consumer Financial Protection Bureau 10/23/13, The Greenline Institute, 10/24/13, The Los Angeles Times 8/25/10, Compliance Week8/27/10, Mortgageorb.com 10/24/13