“Much ado about nothing” is just one literary turn of phrase that comes to mind when considering the initial uproar over Section 342 of the Dodd-Frank Wall Street Reform and Consumer Protection Act and the long wait for its implementing regulations. Here’s some background to add some perspective to that observation. 
Section 342 of Dodd-Frank, passed by Congress and signed into law by President Barack Obama at the end of 2010, directed each of 12 affected federal financial industry regulators to establish an Office of Minority and Women Inclusion (OMWI) and to publish, no later than January 21, 2011, proposed regulations designed to increase diversity in the financial industry, in both employment and contracting. Now, nearly five years later, six of the agencies have finally met their “deadline” with the joint release on June 9, 2015, of their final diversity and inclusion standards.
The six agencies that released their standards are the Federal Reserve Board, the Consumer Financial Protection Bureau (CFPB), the Federal Deposit Insurance Corporation (FDIC), the National Credit Union Administration (NCUA), the Office of Comptroller of the Currency (OCC), and the Securities and Exchange Commission (SEC). The final standards went into effect on June 10 and apply to all entities regulated by any of the six agencies.
5 areas of focus
What makes the final standards such a “tempest in a teacup,” to borrow another literary phrase, is that they are nothing more than a policy statement that require, regulated entities to implement, address, and assess their own policies and practices on diversity and inclusion. The final standards do not create any new legal obligations, and regulated entities’ adoption of the standards is entirely voluntary.
The final standards essentially outline a framework that regulated entities may use (or not) in establishing and implementing a diversity and inclusion program and for evaluating the effectiveness of their diversity and inclusion efforts in five specific areas:
- Organizational Commitment to Diversity and Inclusion;
- Workforce Profiles and Employment Practices;
- Procurement and Business Practices―Supplier Diversity;
- Practices to Promote Transparency; and
- Self-Assessment.
Recommended actions
The final standards also provide examples of specific actions a regulated entity might take in each area of focus. For example:
- With regard to “Organizational Commitment to Diversity and Inclusion,” the standards suggest a top-down approach in which senior management approves, supports, and receives regular progress reports on the implementation and effectiveness of the entity’s diversity and inclusion policies.
- With regard to “Workforce Profiles and Employment Practices,” the standards suggest data collection activities such as “applicant tracking, hiring, promotions, separations (voluntary and involuntary), career development and retention,” all of which most regulated entities are already doing (or should be doing) to comply with their annual EEO-1 report filings and, if applicable, federal contractor affirmative action requirements.
- With regard to “Procurement and Business Practices [to Promote] Supplier Diversity,” the standards encourage regulated entities to adopt policies that allow diverse businesses to bid on all contracts. The standards further suggest an assessment methodology under which overall contract and procurement spending is analyzed to determine the total and percentage of contract/procurement dollars awarded to diverse contractors and vendors.
- With regard to “Practices to Promote Transparency,” the standards encourage regulated entities to publicize their diversity and inclusion policies on their websites and by other means, and to make public all employment and contracting/procurement opportunities.
Finally, with regard to “Self-Assessment,” the standards encourage regulated entities to conduct an annual assessment of their diversity and inclusion efforts in the above areas, report their self-assessments to the OMWI director of their primary regulator; and make the information public, presumably on their websites.
Again, however, the reporting and publication of self-assessment information is not mandatory. Nor do the standards authorize the agencies to audit regulated entities on their performance under the standards. Rather, the standards merely envision that agencies will use the self-assessment information voluntarily reported to them to monitor progress and trends in diversity and inclusion industrywide.
To self-report or not
Perhaps the most troublesome component of the final standards is the suggestion that private employers self-report and publicize confidential information about their assessment and evaluation of their diversity and inclusion efforts. Among the obvious pitfalls is the potential use of such information by enforcement agencies as grounds for initiating an investigation or by unscrupulous plaintiffs’ attorneys to stir up litigation.
Although the final standards allow employers to designate the information they voluntarily report as “confidential commercial information” and direct the regulatory agencies to follow the Freedom of Information Act (FOIA) when responding to any third-party requests for self-assessment information pertaining to a particular employer, the standards provide no assurance that the designation of self-assessment information as “confidential commercial information” will shield it from disclosure in response to an FOIA request.
Perhaps it’s for that reason, and also in recognition of the anticipated reluctance of many employers to disclose their self-assessment information, that the agencies are still soliciting and collecting comments on whether they should collect employer data at all and, if so, how. The agencies also are assessing the cost-effectiveness of contracting out the data collection and assessment function, similar to the way in which the Equal Employment Opportunity Commission (EEOC) and the Office of Federal Contract Compliance Programs (OFCCP) have contracted out the EEO-1 report collection function.
Thus, it appears the financial industry regulators currently lack the capacity, resources, or expertise to conduct any meaningful assessment of voluntarily reported diversity and inclusion data. In this regard, it bears mentioning that one of the early criticisms of the law was its apparent attempt to transform financial industry regulators into civil rights enforcement agencies.
Promoting affirmative action, diversity, and inclusion in the workplace and encouraging and supporting minorityand women-owned businesses are noble goals. Likewise, publicizing your policies on affirmative action and diversity and inclusion, both in your employment and contracting/procurement practices, is good for business and increases opportunities for all. However, the results of your efforts and your own assessment and evaluation of your efforts should remain confidential and protected from disclosure. Good thing the new final diversity and inclusion standards allow you to keep it that way.
Bottom line
Despite the voluntary nature of the final standards, there likely will be heavy pressure on banks and other financial institutions to adopt them, including the standard on reporting and publicizing self-assessment information. For the reasons discussed above and others, the decision whether to disclose, how much to disclose, and how to disclose will pose some tricky issues. So any banks or financial institutions that decide to implement the standards―and, in particular, the self-assessment and disclosure standard ― should consult with counsel before self-reporting anything to their regulators or otherwise making self-assessment information public.
Mark Adams is a senior partner in Jones Walker LLP‘s labor relations and employment practice. He may be contacted at madams@joneswalker.com.
