Anneliese M. Bruner
Section 342 of the Wall Street Reform Act aims to transform the complexion of the financial services industry.
The global financial crisis has loomed large in the minds of the American public and of elected officials responsible for the public good.
Determined to prevent such a massive meltdown in the future, Congress enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act, last July. Dodd- Frank seeks to create a regulatory environment attuned to correcting the entrenched, systemic causes of the crisis, but it also contains a provision to right other shortcomings within the industry as well. Introduced by Rep.
Maxine Waters (D-CA), Section 342 of Dodd- Frank calls for an Office of Minority and Women Inclusion (OMWI) to be established at the various federal regulatory agencies, including the Treasury, the Federal Deposit Insurance Corporation (FDIC), the 12 regional Federal Reserve banks (FRB), the Securities and Exchange Commission (SEC), and the new Consumer Financial Protection Bureau. These OMWIs will address the scarcity of people of color and women in senior management within the financial services industry. The legislation also extends to all contractors–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– doing business with these agencies, which is estimated to be worth billions of dollars each year.
A 2010 Government Accountability Office (GAO) report on the financial services industry, Trends in Management Level Diversity and Diversity Initiatives, indicates “that overall diversity at the management level in the financial services industry did not change from 1993 through 2008, and diversity in senior positions remains limited.” This dearth of diversity is no secret.Rather, it has been part of an entrenched and persistent culture of homogeneity in the financial services industry.
In a speech delivered in September 2010, SEC Commissioner Luis A. Aguilar cited findings from the GAO report reflecting data collected by the Equal Employment Opportunity Commission (EEOC) showing that “in 2008, white males held 64 percent of senior positions, African Americans held 2.8 percent, Hispanics 3 percent, and Asians 3.5 percent.” The reasons to remedy the situation these stark figures portray are several-fold, according to Aguilar, and one reason is of particular importance. “The financial services industry serves as an important pipeline into corporate boardrooms across this country.Improving the diversity statistics in the industry will significantly expand the pool of candidates for board seats.”
Almost on cue, those who question the value of diversity, or the wisdom of promoting it through regulation, have already begun the naysayers’ chorus. In her July 8, 2010 response to Article 342 in Real Clear Markets, Diana Furchtgott-Roth, former chief economist at the Department of Labor and current senior fellow at the Manhattan Institute, said, “Race and gender ratios, if not quotas, must be observed by private financial institutions that do business with the government. In a major power grab, the new law inserts race and gender quotas into America’s financial industry. … This has had no coverage by the news media and has large implications.” Furchtgott-Roth’s provocative narrative is being repeated throughout the blogosphere and is gaining traction.Opponents of the larger legislation have even introduced a bill to repeal it in the form of H.R. 87 [112th].
As this debate continues, it is incumbent upon financial services firms that are owned by people of color and women to be prepared for the opportunity the establishment of OMWI offices represents. Defenders of the law rightly point out that existing provisions, although well intentioned, have not resulted in full inclusion of women and people of color, and that Wall Street is still predominantly white and male. In an opinion piece in The National Law Journal of October 4, 2010, Pamela Bethel, formerly an attorney with the SEC and who testified before Congress when Dodd-Frank was being debated, writes: “In October 2008, Congress passed the Emergency Economic Stabilization Act, which contains a provision requiring the treasury secretary to develop and implement standards and procedures to ensure, to the maximum extent practicable, the inclusion of women- and minority-owned businesses in TARP. But in practice, this admirable goal was not met. Of 52 contracts awarded by Treasury under TARP, minority-owned firms got only three. That is why Congress passed Section 342.”
The question of who deserves inclusion is simply answered by accepting that women and people of color are not exempted from the responsibility of taxpayer obligations such as TARP, so implying that they should have no expectation of participating in business contracts related to TARP and other mainstream financial opportunities goes against the American ethos with regard to inclusion and representation. And to harp on the fear that unqualified women and people of color will be hired to the exclusion of white males is to accept that all white males working in the crisis-stricken financial services industry are intrinsically more qualified than any female or minority candidates; a debatable assertion at best, and statistically un-provable. Such hysteria is countered by factual precedent. “During the savings and loan crisis of the 1980s and 1990s, the Resolution Trust Corporation (RTC), which was cleaning up the mess, took a major step toward inclusion of minorities,” Bethel writes. “The RTC hired many private law firms to assist the government in its work. Those law firms were not allowed to staff the projects in their normal fashion. They were required, on each assignment, to enter into a joint venture with a minority-owned law firm. The results were that the work was performed successfully and cost-effectively and that a whole new cadre of minority-owned law firms emerged and gained respect and financial success.” As the question of why diversity matters continues to be asked, it’s as though precedent has not borne out its value. “What we have learned as a culture is that we do best when we open up the door of opportunity, when the contract and work force look like America,” said Bethel during a recent interview with EDM Journal, adding that contrary to what the law’s detractors are saying, the provision doesn’t demand numbers or quotas. “That is unconstitutional.”
Diversified leadership has been shown to make a positive difference in outcomes, and Section 342 of the Dodd-Frank Act seems poised to open more opportunities for well-qualified women and minorities to enter senior and leadership positions in the financial industry.As entities affected by the legislation are called to account for their diversity efforts, the FDIC and the FRB announced the establishment of OMWI offices on January 18. Women and minority owned funds firms that could benefit from healthier levels of inclusion in the industry would be well served to gear up to secure a share of the business and/or contracts that fall under OMWI’s purview. The Web sites of participating agencies are useful resources for announcements about seminars and other available opportunities. Firms might also look to team up with others to respond to RFPs on projects that require a broader skill set than any one firm may possess. “These are the ways for those who have not been in the Federal arena to move closer to the front of the line,” Bethel says. EDM