Financial Reform Includes Diversity Requirement

By Bill Leonard Jul 26, 2010

While the sweeping financial reform bill, signed into law by President Barack Obama on July 21, 2010, focuses on changing the way U.S. banks and lenders operate, one provision in the law will reshape the diversity and inclusion programs within the federal government—and possibly the entire financial services industry.

The largely overlooked provision requires that every federal financial services agency establish an Office of Minority and Women Inclusion. According to the law, a primary goal of the inclusion offices is “to ensure equal employment opportunity and the racial, ethnic and gender diversity” of the federal agencies.

In addition, the agencies will be required to develop standards for “increased participation of minority-owned and women-owned businesses in the programs and contracts of the agency” and for “assessing the diversity policies and practices of entities regulated by the agency.”

The provision drew criticism from several business- and banking-related groups that claimed that the measure’s broad language could give federal agencies unprecedented powers in dictating the lending and hiring practices of private financial institutions.

Rep. Maxine Waters, D-Calif., a chief sponsor of the reform law’s diversity provision, addressed the criticism in a letter to the Wall Street Journal by stating that “nothing in the bill mandates lending to minorities or women.”

In the letter, Waters wrote that the provision was not an effort to politicize the Federal Reserve or to force banks to provide more loans to women and minorities.

“The provision does not even mention lending,” the letter stated. “The [Minority and Women Inclusion] offices will only be responsible for employment, management and business activities of the agencies.”

Waters and other supporters of the provision pointed to the low percentage of women and minorities working in financial services and said a change was needed.

“Many industries lack the inclusion and participation of people of color and women, perhaps none more egregiously than the financial services sector,” Waters said in a written statement posted on her congressional web site. “I wrote this legislation to make sure that federal financial regulatory agencies ensure diversity in their hiring and promotion, as well as in their contracting, so that competent and qualified minority and women professionals and small, minority- and women-owned businesses have a seat at the table.”

The measure requires that federal financial services agencies establish new diversity and inclusion offices, to replace existing diversity programs or civil rights offices, by Jan. 20, 2011—or six months after the president signed the law. According to sources familiar with the issue, the law affects at least 20 federal agencies—including all branches of the Federal Reserve. And if the Secretary of the Treasury decides during the regulatory process to include all the agencies within the Treasury Department, 29 federal agencies will comply with the new requirements.

Critics of the measure claim the provision is unnecessary because the U.S. Equal Employment Opportunity Commission (EEOC) is responsible for overseeing the federal government’s EEO practices. Some say that the new requirement could create confusion and conflicting hiring standards in the federal government.

However, supporters of the measure argue that the provision reflects the Obama administration’s commitment to hiring and promoting women and minorities and to making all federal agencies “employers of choice.”

“The historic lack of racial, ethnic and gender diversity in the federal financial services agencies is well known and documented,” Waters said. “Expanding opportunities for female and minority professionals is the right thing to do, not only out of fairness, but also to best serve the needs of our diverse population.”

It is unclear what impact the provision might have on private banks and other companies that conduct business with federal financial service agencies. However, because the law requires that the diversity and inclusion offices develop standards for increasing participation of minority-owned and women-owned businesses in agency programs and contracts, federal contractors could face a changing landscape.

Some critics argue that the provision could have serious implications for contractors and force them to deal with two sets of regulations and guidelines—those enforced by the Office of Federal Contract Compliance Programs (OFCCP) and those promulgated by the new diversity and inclusion offices.

Bill Leonard is a senior writer for SHRM.

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