Alert July 06, 2015

Federal Agencies Issue Final Policy Statement Regarding Standards for Assessing Diversity Policies and Practices

Summary

On June 9, 2015, federal financial regulators issued a final policy statement establishing joint standards for assessing the diversity policy and practices of financial institutions and other entities regulated by the OCC, FRB, FDIC, NCUA, CFPB or SEC. The SEC has recently clarified on an informal basis that the policy statement does not apply to companies that file reports with the SEC under the Securities Exchange Act of 1934, but are not otherwise subject to regulation by one or more of the issuing agencies. While compliance with the policy statement is voluntary, a regulated entity should assume that its primary federal financial regulator will inquire as to the status of its diversity efforts and may wish to affirmatively address what, if anything, it intends to do in response to the policy statement.

On June 9, 2015, the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the National Credit Union Administration, the Bureau of Consumer Financial Protection and the Securities Exchange Commission issued a final policy statement establishing joint standards for assessing the diversity policy and practices of financial institutions and other entities regulated by the agencies.

The policy statement was issued in connection with the agencies’ obligations under Section 342 of the Dodd-Frank Act, which required each of the issuing agencies to establish an Office of Minority and Women Inclusion (“OMWI”) with responsibility for all matters relating to diversity in management, employment, and business activities, and each OMWI director to develop standards for assessing the diversity policies and practices of the agencies’ regulated entities.

To What Entities Does the Policy Apply?

The policy statement applies to all entities subject to regulation by the issuing agencies (a “regulated entity”). The SEC has recently clarified on an informal basis that the policy statement does not apply to companies that file reports with the SEC under the Securities Exchange Act of 1934, but are not otherwise subject to regulation by one or more of the issuing agencies.

The policy statement provides that a regulated entity’s use of the standards set forth in the policy statement is voluntary, and that the agencies will not use their examination and supervisory processes to enforce compliance with the standards. Nevertheless, a regulated entity should assume that its primary federal financial regulator will inquire as to the status of its diversity efforts and, in anticipation of such inquiry, may wish to affirmatively address what, if anything, it intends to do in response to the policy statement.

Regulated entities may be subject to other requirements with respect to diversity, including requirements imposed by state and local laws or contractual obligations. Many employers that are within the scope of the policy statement are required to develop affirmative action plans due to their federal government contracting requirements. In many respects, the standards set forth in the policy statement are similar to federal contracting requirements concerning the components of affirmative action plans.

Effective Date

The standards set forth in the policy statement are effective upon its publication in the Federal Register.

The agencies are requesting comments on the proposed collection of information relating to the self-assessment disclosure and reporting referenced in the policy statement and discussed further below. Comments are due 60 days after publication in the Federal Register, and the final effective date of the collection of information requirements will be announced later.

Overview of the Final Policy Statement

The policy statement sets forth a framework for a regulated entity to create and strengthen its diversity policy and practices, including (i) its organizational commitment to diversity, (ii) workforce and employment practices, (iii) procurement and business practices, and (iv) practices to promote transparency of organization diversity and inclusion. In addition, the policy statement contemplates self-reporting by regulated entities.

In drafting the standards in the framework, the agencies noted that they focused primarily on institutions with more than 100 employees, and encouraged each regulated entity to use the standards in “a manner appropriate to its unique characteristics.”

Organizational Commitment to Diversity

The agencies note the importance of leadership – from the board of directors and all levels of management – in promoting diversity and inclusion across an organization. The standards relating to the organizational commitment to diversity are:

  • Applying diversity and inclusion considerations in both employment and contracting as an important part of an entity’s strategic plan for recruiting, hiring, retention, and promotion.
  • Approval and support of the diversity and inclusion policy by senior leadership, including senior management and the board of directors.
  • Regular progress reports to the board and senior management.
  • Regular training and educational opportunities with respect to equal employment opportunity, diversity and inclusion.
  • Oversight and direction of the entity’s diversity and inclusion efforts by a senior level official, preferably with knowledge of and experience in such policies and practices.
  • The entity takes 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.

Workforce and Employment Practices

The policy statement notes the importance of outreach, workplace culture, and the use of analytical tools to track metrics relating to the inclusiveness of the workforce. The standards relating to workforce and employment practices include:

  • Policies and practices related to workforce diversity and inclusion implemented in a manner that complies with all applicable laws.
  • The provision of equal employment opportunities for all employees and applicants for employment and prevention of unlawful employment discrimination based on gender, race, or ethnicity.
  • Policies and practices that create diverse applicant pools for both internal and external opportunities that may include: (i) outreach to minority and women organizations; (ii) outreach to educational institutions serving significant minority and women student populations; and (iii) participation in conferences, workshops, and other events to attract minorities and women and to inform them of employment and promotion opportunities.
  • The use of both quantitative and qualitative measurements to assess the entity’s workforce diversity and inclusion efforts. These efforts may be reflected, for example, in applicant tracking, hiring, promotions, separations (voluntary and involuntary), career development, and retention across all levels and occupations of the entity, including the executive and managerial ranks.
  • Management at all levels held accountable for diversity and inclusion efforts – for example, by ensuring that such efforts align with business strategies and individual performance plans.

Procurement and Business Practices

The policy statement notes the competitive advantage to a regulated entity in having a broad selection of available suppliers, contractors and subcontractors from which to choose. Regulated entities should consider the following standards with regard to all advisers and third-party vendors:

  • Implementing 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.
  • Use of methods to evaluate its supplier diversity, which may include metrics and analytics related to: (i) annual procurement spending; (ii) percentage of contract dollars awarded to minority-owned and women-owned business contractors by race, ethnicity, and gender; and (iii) percentage of contracts with minority-owned and women-owned business sub-contractors.
  • Practices promoting a diverse supplier pool, which may include: (i) outreach to minority-owned and women-owned contractors and representative organizations; (ii) participation in conferences, workshops, and other events to attract minority-owned and women-owned firms and inform them of contracting opportunities; and (iv) an ongoing process to publicize its procurement opportunities.

Practices to Promote Transparency of Organization Diversity and Inclusion

The policy statement notes the importance of publicizing diversity and inclusion activities, specifically by recommending that regulated entities make the following information available to the public annually through its website or other appropriate communication methods:

  • The entity’s diversity and inclusion strategic plan;
  • The entity’s policy on its commitment to diversity and inclusion;
  • The entity’s progress toward achieving diversity and inclusion in its workforce and procurement activities; and
  • Opportunities available at the entity that promote diversity, which may include: (i) current employment and procurement opportunities; (ii) forecasts of potential employment and procurement opportunities; and (iii) the availability and use of mentorship and developmental programs for employees and contractors.

Self-Assessment; Disclosure and Reporting

The policy statement encourages regulated entities to submit self-assessments to their primary federal financial regulator, which assessments may be designated as confidential commercial information as appropriate.

The agencies may use the information submitted to them to monitor progress and trends in the financial services industry with regard to diversity and inclusion in employment and contracting activities, and to identify and highlight those policies and practices that have been successful.

The policy statement includes the following standards for self-assessment, disclosure and reporting:

  • The entity conducts self-assessments of its diversity policies and practices annually.
  • The entity monitors and evaluates its performance under its diversity policies and practices on an ongoing basis.
  • The entity provides information pertaining to the self-assessments of its diversity policies and practices to the OMWI Director of its primary federal financial regulator.
  • The entity publishes information pertaining to its efforts with respect to the standards.

Summary of Actions to Take

Regulated entities should consider taking the following actions:

  • Review the entity’s website and public filings: What are the current public disclosures about diversity and inclusion policies and practices, including (i) current and/or forecast employment and procurement opportunities, and (ii) mentorship and development programs for employees and contractors? Augment or update those disclosures as appropriate.
  • Review all current policies on diversity and inclusion, including policies relating to (i) hiring, recruiting, training, education, retention and promotion; and (ii) supplier/third-party vendor diversity. Augment or update those policies as appropriate.
  • Assess the quantitative and qualitative metrics, if any, currently being used to track workforce and supplier diversity and inclusion efforts. How is information being gathered and disseminated?
  • Assess current organizational structure and reporting practices: Is there a senior executive responsible for overseeing diversity and inclusion efforts? Do senior management and the board of directors receive regular progress reports? Is management being held accountable for diversity and inclusion efforts?
  • Finally, consider whether and how to structure  self-assessment and reporting to the primary federal financial regulator.