Financial Reform’s Hidden Surprise: Diversity Requirements

The Dodd-Frank Wall Street Reform and Consumer Protection Act (also known as “financial reform” or “the Wall Street bill”) made headlines when President Barack Obama signed it into law on July 21. However, many employers probably don’t realize the legislation contains diversity provisions that could affect them if they are contractors, subcontractors, or service providers for certain federal government agencies. More specifically, the diversity requirements found in the bill will affect financial industry organizations and those connected to them.

Office of Minority and Women Inclusion

The federal financial regulatory agencies affected by the legislation will have to establish an Office of Minority and Women Inclusion. According to the legislation, each office is “responsible for all matters of the agency relating to diversity in management, employment, and business activities.” Each agency must establish an office no later than six months after the date of the bill’s enactment, and each agency administrator (head of the agency) will appoint an office director.

The agencies subject to these requirements include:

• the departmental offices of the U.S. Department of the Treasury;

• the Federal Deposit Insurance Corporation;

• the Federal Housing Finance Agency;

• all of the Federal Reserve banks;

• the Board of Governors of the Federal Reserve System;

• the National Credit Union Administration;

• the Office of the Comptroller of the Currency;

• the Securities and Exchange Commission; and

• the Bureau of Consumer Financial Protection established by the legislation.

Office Functions Standards

Office directors must develop standards for:

1. equal employment opportunity and the gender, racial, and ethnic diversity of the agency’s workforce
   and senior management;
2. the increased participation of businesses owned by minorities and women in the agency’s programs and contracts; and
3. evaluation of the diversity policies and practices of entities that are regulated by the agency.

Directors must also advise the agency administrator regarding the impact of the agency’s policies and regulations on businesses owned by minorities and women. Additionally, office directors must develop and implement standards and procedures to make sure the agency fairly includes and uses minorities, women, and businesses owned by minorities and women in all of its activities and business. That includes procurement, insurance, and all kinds of contracts.

Contracts

The agency’s procedures for reviewing and evaluating contract proposals and for hiring service providers must include “a component that gives consideration to the diversity of the applicant.” Additionally, contractors doing business with the agencies must submit a written statement that they will make sure (to the maximum extent possible) that they (and their subcontractors, if applicable) fairly include women and minorities in their workforce.

Termination

If a director determines that an agency contractor (or subcontractor) didn’t make “a good-faith effort” to include women and minorities in its workforce, the director will recommend contract termination to the agency administrator. After the administrator receives such a recommendation, she can:

1. terminate the contract;
2. refer the issue to the Office of Federal Contract Compliance Programs (OFCCP); or
3. take other appropriate action.

Affected Employers

Employers that deal with the above agencies may be affected by these new diversity requirements. According to the legislation, these requirements apply to the following service providers:

• 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.

Additionally, the term “contracts” includes “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.”

What You Need to Know

If you’re a federal contractor, subcontractor, or service provider for one of the federal agencies listed above or you expect to become involved with one of those agencies, you may be facing more regulatory review of your organization’s employment practices. However, exactly what these regulations will entail isn’t clear yet since each agency’s office will develop its own standards.
Even though the agencies haven’t yet developed the new standards, if you think you may be subject to this legislation, it’s a good idea to start planning ahead. More specifically, you should:

• Determine whether your current contracts, subcontracts, or service agreements would cause you to fall under the legislation.

• Review your current diversity programs and practices.

• Review the OFCCP’s standards and determine how your organization’s practices and programs compare (since many speculate the new standards will be similar to OFCCP standards).

• Decide whether you think you will need to implement new diversity programs and practices to comply with the new standards.