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On Compliance: Tackling Dodd-Frank’s Diversity Policies

November 2017: Vol 40 No 11
Brian D. Pedrow, Dee Spagnuolo and Carolyn A. Pellegrini
Section 342 addresses under-representation of women and minorities.

diverse group of people looking upExcerpted and reprinted with permission from Mortgage Compliance magazine. 

Section 342 of the Dodd-Frank Wall Street Reform and Consumer Protection Act mandated the creation of the Office of Minority and Women Inclusion in all agencies covered by the act and requires that each OMWI develop standards for assessing the diversity policies and practices of entities regulated by those agencies. 

The National Credit Union Administration was among six federal agencies that published the Final Interagency Policy Statement Establishing Joint Standards for Assessing the Diversity Policies and Practices of Entities Regulated by the Agencies in June 2015. Additionally, the Consumer Financial Protection Bureau published a Diversity and Inclusion Strategic Plan 2016-2020. 

These agencies have provided practical advice for compliance with Section 342, which was enacted to address the under-representation of women and minorities in the financial services industry. While programs will vary according to each organization’s characteristics, regulated entities of any size would be well served to heed the agencies’ guidance. This brief overview outlines recommendations for creating a compliant diversity and inclusion program and conducting annual self-assessments in four areas: (1) organizational commitment to D&I, (2) workforce and employment practices, (3) procurement and business practices, and (4) practices to promote transparency of organizational D&I.

While the final standards are “voluntary,” there are compliance, business and social corporate responsibility reasons why entities would be well served to comply with the Final Standards. First, in a highly regulated industry, entities should always strive to be seen as good corporate citizens in the eyes of their regulators. Second, diversity leads to innovation, expands the reach into multicultural markets and correlates with stronger financial performance. And finally, it is the right thing to do in a world that is increasingly diverse and global.

1. Define Diversity and Inclusion for Your Organization
The first step in establishing a D&I program is to establish a baseline definition for “diversity.” The Final Standards narrowly define diversity and use the term to include minorities (African Americans, Native Americans, Hispanic Americans, and Asian Americans) and women, though the standards do not preclude using a broader definition. The CFPB Strategic Plan defines diversity more broadly as “the range of differences including backgrounds, identities (including but not limited to, race, ethnicity, age, sexual orientation, disability, gender, gender identity, religion, disability, and sex), perspectives, and working styles that employees and stakeholders bring to the CFPB to better serve consumers.” 

It is important that your compliance program recognize the difference between diversity and inclusion. Diversity is quantitative (e.g., how many diverse vice presidents does an entity have?) and exists on some level in every organization. The standards define inclusion as “a process to create and maintain a positive environment that values individual similarities and differences, so that all can reach their potential and maximize their contributions to an organization.”

2. Conduct a Self-Assessment to Identify Existing Practices and Opportunities for Growth
Conducting self-assessments allows businesses to expand initiatives that are already a part of the organization’s culture and to identify opportunities for new programs to drive progress. Nothing in the standards requires an organization to start from square one. In fact, entities are often surprised to learn what various departments within their organization are doing in furtherance of D&I objectives, even in the absence of a formal initiative. Many organizations conclude the self-assessment process with a uniquely tailored strategic plan for launching entirely new initiatives to promote D&I within their organizations.

A word of caution about self-assessments: While federal agencies have stated they will not use their examination or supervisory processes in connection with the Final Standards, that does not mean that an entity’s submission of a self-assessment will remain confidential. Organizations should anticipate that agencies could produce self-assessments in response to Freedom of Information Act requests.

3. Tailor Your D&I Program to Fit the Needs of Your Organization
Section 342 programs are not “one size fits all.” The standards allow each entity to tailor its approach to compliance, taking into account its size, total assets, number of employees, governance structure, revenue, number of members and/or customers, contract volume, geographic location and community characteristics. While the Final Standards focus primarily on entities with more than 100 domestic employees, smaller entities are encouraged to comply to the extent applicable.

4. Demonstrate the Organization’s Commitment to D&I
We recommend that entities develop a strategic plan approved and supported by senior leadership, focusing on supplier diversity and employment practices (hiring, recruiting, retention and promotion). In drafting the strategic plan, entities should set real but attainable goals and regularly measure progress toward achieving them. The entity also should identify a senior D&I official to oversee and direct these efforts. Senior-level management should not only be involved in approving D&I hiring and procurement decisions but should be engaged in policy decisions affecting D&I. The executive team should also should evaluate its own demographics to ensure that diverse points of view are present at that level and look for opportunities to integrate D&I into organizational culture and core values.

5. Emphasize the Importance of Tracking D&I-Related Initiatives
Metrics are an invaluable component to the success of any D&I program, as they help to illustrate successes and challenges. In our experience, quantitative data can provide a clearer picture than anecdotal information alone with respect to where organizations should focus their efforts. 

6. Make D&I Part of Your Workforce Profile and Employment Practices
A compliant Section 342 program includes proactive employment practices focused on raising the organization’s D&I profile. An entity should take steps to ensure diverse candidate pools by recruiting at diverse events, partnering with diverse organizations and conducing community-specific outreach. Once diverse candidates are hired, efforts to retain them must also be made, such as instituting talent and leadership development programs, fostering mentorship and sponsorship programs and establishing employee affinity groups. 

7. Establish a Supplier Diversity Program with Procurement Goals
Entities should develop a supplier diversity policy to ensure that the goal of engaging diverse-owned businesses is achieved, including minority-owned business enterprises and women-owned business enterprises. Entities should consider including requests for D&I information in requests for proposal from suppliers and create and publish a supplier guide notifying suppliers of the company’s commitment to supplier diversity and the factors the company considers when awarding supplier contracts. 

8. Celebrate Organizational D&I Initiatives Through Promotion and Transparency
Entities should publicize their commitment to D&I by publishing a public D&I report and statements from top executives explaining the importance of D&I initiatives, for example. D&I reports should include metrics to demonstrate progress toward short- and long-term goals.

9. Make Community Engagement Part of Your D&I Initiatives
While not articulated in the standards, entities might also consider their community investment initiatives that benefit minority-led and minority-serving charitable organizations. In working with regulated entities, we have found that many organizations already engage in community partnership activities with a diversity focus, including board service, sponsorships, cash support and in-kind contributions. 

10. Start Now, But Take a Long-Term Approach
Because D&I should touch all facets of an organization, a successful Section 342 program will not be developed overnight. Its creation takes thoughtful planning, molding the entity’s unique characteristics into a workable design to further meaningful D&I on an enterprise-wide basis.
The authors are attorneys with Ballard Spahr LLPBrian D. Pedrow leads the firm’s Labor and Employment Group. Dee Spagnuolo is a White-Collar Defense/Internal Investigations partner who focuses on internal investigations and compliance and regulatory matters. Carolyn A. Pellegrini is a member of the Labor and Employment and Higher Education Groups.

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