Diversity Reform on Wall Street

This is mainly due to a provision of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act, which established an Office of Minority and Women Inclusion (OMWI) at each of the eight banking agencies and 12 Federal Reserve banks.

The concern within the industry, however, is that these offices will create another set of requirements in addition to the U.S. Equal Employment Opportunity Commission (EEOC) reporting requirements. Directors at several of the offices have said all of the agencies are struggling to develop a common standard that isn’t too burdensome.

The standards also have to cover many of the country’s smallest banks and credit unions, as well as non-banks, such as mortgage servicing firms, payday lenders and credit bureaus — many of which are exempt from EEOC reporting requirements.

“One big challenge is the diversity of our regulated entities — including diversity in size and experience,” said Stuart Ishimaru, OMWI director for the Consumer Financial Protection Bureau, another arm established under Wall Street reform. “Some depository institutions are also subject to local and state regulation, and many are government contractors that have additional requirements under federal law. We are trying to avoid duplicative requirements.”

While Section 342 of Dodd-Frank requires the offices to assess the diversity programs of each of its “regulated entities,” it does not authorize the offices to punish institutions if they do not meet targeted goals. “If our regulated entities haven’t made progress, the question then becomes: What can we do going forward?” Ishimaru said.

Further, as these agencies struggle to develop a common standard, the offices are also focused on developing ways to help foster diversity programs at the institutions they regulate.

“My hope is that our review will help these institutions do better improving their diversity,” Ishimaru said. “Some institutions have few employees or no diversity programs, so their challenge is getting started. We want to help them develop their diversity programs and then measure their improvements to see if they have made progress.”

Developing Goals
Another challenge is developing baseline data for such a varied industry and developing goals that are appropriate for each institution, said James Ballentine, executive vice president of congressional relations and political affairs at the American Bankers Association (ABA).

“I think it’s very important that the agencies continue to work their way through this process in an analytical way that will allow them to outreach to individual institutions, which have very different populations,” Ballentine said. “I hope they don’t look at raw numbers and paint too broad of a picture, without speaking to each institution.”

John Daniel, executive vice president and chief human resources officer at First Tennessee Bank and its parent company, First Horizon National Corp., said the offices would be most effective if they focus on sharing with the industry what diversity initiatives work best. He said it is unclear what the bill will require that is different from what is required of a government contractor.

“We are required to have an affirmative action plan, which is updated annually. We are required to act affirmatively in our employment practices, and there are a number of policies, practices and reporting we must have in place. We believe the agencies can add value if they help companies become aware of best practices that help ensure diversity and inclusion.”

First Tennessee, through its parent company, formalized its goals several years ago, and Cindy Cleveland, manager of talent acquisition, talent management and inclusion, said the company now has “a more clearly defined diversity and inclusion strategy.”

One initiative has expanded the number of its employee resource groups from one to eight — including two diversity networking associations in Memphis and Chattanooga. In addition to social networking, the group mentors high school students in preparation for college and sponsors professional development presentations by First Horizon’s executive leaders.

The initiative was developed by the company’s diversity council, which is composed of employees who advise the Strategic Diversity Advisory Council, a steering committee of members from the company’s executive committee.

First Horizon also has a mentoring program. While the program is open to all employees, the company uses it to build networks of diverse employees so their talents are more well-known to decision-makers, Daniel said. Participation in the mentoring program rose 40 percent in 2012 from the year-earlier period, and 49 percent of the matches were women or minorities.

The company also has a 10-month, highly selective internal leadership development initiative, its Emerging Leader Program, created to promote a more robust talent pool. The council aims to ensure that every class has a diverse makeup, and to date 31 percent of the program’s graduates have been promoted or moved into new opportunities. Of those moves, 90 percent have been women or minorities, Daniel said.

Shared Initiatives
The offices created by Dodd-Frank should share initiatives like these, according to Wayne Abernathy, ABA’s executive vice president for financial institutions policy and regulatory affairs. “The offices want to find out what different ideas people have, as there is not a single solution that benefits every bank,” he said. “Each community is very different, and what may work in Baltimore may not work in Topeka.”

Susan Sutherland, OMWI director for the Federal Reserve Bank of San Francisco, agreed. She said her agency has shared best practices with both area institutions and other companies involved with the Bay Area Diversity & Inclusion Roundtable 2.0.

Through such networking, the San Francisco office can delve further into best practice initiatives to identify potential problem areas — such as what to do when employee resource groups foster an “us versus them” mentality — as well as understand how to replicate the groups and link them to business objectives and an organization’s mission.

The Dodd-Frank offices also can help institutions develop new diversity programs to promote their supplier base as well as workforce initiatives around recruitment, retention and selection processes, said D. Michael Collins, OMWI director for the Federal Deposit Insurance Corp.

With regard to diversity contracting, institutions would like to know how to develop a database of female- and minority-owned businesses, including law firms, and how to ensure firm selection processes such as requests for proposals create a level playing field. “You want to ensure that minorities and women are getting a fair chance, which is basically what Section 342 states,” Collins said.

The section also requires each office to set diversity goals for its own workforce and for minority- and female-owned contractors for all business and activities in the agency. This includes agency contracts with investment banking firms, mortgage banking firms, asset management firms, brokers, dealers, financial services entities, underwriters, accountants, investment consultants and legal services providers.

If an office determines that a contractor — or even a subcontractor — has failed to make a good-faith effort to include minorities and women in its workforce, the office can recommend the agency administrator either terminate the contract, make a referral to the Office of Federal Contract Compliance Programs of the Department of Labor or take other appropriate action.

Workforce Diversity Increasing
Duane Carter, OMWI director for the Federal Reserve Bank of Minneapolis, said while his agency has a long-standing commitment to diversity, the new law has put greater focus on diversity, particularly in choosing suppliers and hiring professional positions, such as those within its information technology department.

The Federal Reserve Bank is now posting its Employer Information Report on its website, “so everyone in our community can see how much progress we’ve made,” Carter said.

As of Aug. 31 of last year, 33 percent of the Federal Reserve Bank’s executive and senior managers were women, and 44 percent were minorities. About 53 percent of the agency’s professionals were women, and 20 percent were minorities.

The agency leverages its executive diversity workforce council, which includes its president, vice president and senior vice president, all of whom review and revise existing strategies to reinforce the importance of diversity.

The agency also tries to leverage partners, particularly as it expands its supplier diversity strategy. This includes establishing partnerships with various diversity councils, such as the Midwest Minority Supplier Development Council and the Women’s Business Development Center. “We’re now doing business in Minneapolis with 65 minority business owners, and we’re talking about giving them technical assistance,” Carter said.

Union Bank in San Francisco has a stellar workforce supplier and diversity program, said George Ramirez, its chief diversity executive. Its workforce is 61 percent female and 54 percent minority. Further, in 2011, 16 percent of its discretionary vendor expense of some $768 million was with diverse business enterprise vendors. He said the company expects to meet its target of 17 percent for 2012.

The bank also has received numerous awards. JoAnn Bourne, the firm’s senior executive vice president and head of its global treasury management group, was named one of American Banker’s “Top 25 Most Powerful Women in Banking,” and Bita Ardalan, executive vice president and head of the national specialized lending group, and Erin Selleck, the bank’s treasurer, were named to American Banker’s “Top 25 Women to Watch.”

Union President and CEO Masashi Oka created Ramirez’s position to increase diversity in the bank’s executive ranks as well as among all of its business units.

“Our retail banking unit is extremely diverse, with other business lines having more opportunities to reflect more diversity,” Ramirez said. “Through research, we realize that we need to make some systemic changes in our promotion and talent development practices to ensure we’re more disciplined in our diversity efforts, so that we have the best slate of candidates that includes everyone.”

Ramirez said Union’s effort could improve more with help from the offices created by Dodd-Frank.

“It would have been nice to have had one place that we could have gone to ask questions, to find out what is and isn’t working and what were the downsides,” he said. “We had to do all of that research on our own. If the offices would like to be a clearinghouse for best practices, I would say, ‘please.’”

Katie Kuehner-Hebert is a California-based journalist. She can be reached at editor@diversity-executive.com.