Diversity Management: Trends and Practices in the Financial Services Industry and Agencies after the Recent Financial Crisis
Released: 2013-05-16T00:00:00

Letter

Background

The financial services industry is a major source of employment in the United States. EEOC data we obtained and analyzed showed that financial services firms we reviewed for this work employed more than 2.9 million people in 2011. We defined the financial services industry to include the following sectors: depository credit institutions, which include commercial banks, thrifts (savings and loan associations and savings banks), and credit unions; holdings and trusts, which include investment trusts, investment companies, and holding companies; nondepository credit institutions, which extend credit in the form of loans and include federally sponsored credit agencies, personal credit institutions, and mortgage bankers and brokers; the securities sector, which is composed of a variety of firms and organizations that bring together buyers and sellers of securities and commodities, manage investments, and offer financial advice; and the insurance sector, including carriers and insurance agents that provide protection against financial risks to policyholders in exchange for the payment of premiums.

Financial Services Industry and Diversity

We previously conducted work on the challenges faced in the financial sector for promoting and retaining a diverse workforce, focusing on private-sector firms.management level in the financial services industry did not change substantially from 1993 through 2008 and that diversity in senior positions was limited. We also found that without a sustained commitment among financial services firms to overcoming challenges to recruiting and retaining minority candidates and obtaining “buy-in” from key employees, limited progress would be possible in fostering a more diverse workplace.

In 2010, we reported that overall diversity at the In a 2005 report, we defined diversity management as a process intended to create and maintain a positive work environment that values individuals’ similarities and differences, so that all can reach their potential and maximize their contributions to an organization’s strategic goals and objectives. We also identified a set of nine leading diversity management practices that should be considered when an organization is developing and implementing diversity management. They are (1) commitment to diversity as demonstrated and communicated by an organization’s top leadership; (2) the inclusion of diversity management in an organization’s strategic plan; (3) diversity linked to performance, making the case that a more diverse and inclusive work environment could help improve productivity and individual and organizational performance; (4) measurement of the impact of various aspects of a diversity program; (5) management accountability for the progress of diversity initiatives; (6) succession planning; (7) recruitment; (8) employee involvement in an organization’s diversity management; and (9) training for management and staff about diversity management.

Diversity Requirements under Section 342 of the Dodd-Frank Act

Section 342 of the Dodd-Frank Act required specific federal financial agencies and Reserve Banks each to establish, by January 21, 2011, an OMWI, responsible for matters relating to diversity in management, employment, and business activities.agencies.

Industry Diversity Levels Remained about the Same from 2007 through 2011

Diversity has remained about the same at the management level in terms of the representation of both minorities and women, while industry representatives noted the continued use of leading diversity practices and some challenges. According to EEOC data, the representation of minorities at the management level stood at 19 percent in 2011. The representation of women in management remained at about 45 percent, according to EEOC data. The nine leading diversity practices that we previously identified in 2005 remain relevant today, according to industry representatives with whom we spoke. Industry representatives also noted some challenges, such as the difficulty in recruitment because of a limited supply of diverse candidates.

Diversity in the Financial Services Industry Remained about the Same at the Management Level from 2007 through 2011

At the overall management level, the representation of minorities increased from 17.3 percent to 19 percent from 2007 through 2011 according to EEOC data we obtained, which are reported by financial services firms (see fig. 1). While this is not a substantial increase, it shows a continued upward trend from our 2006 report, in which data showed that management-level representation by minorities increased from 11.1 percent to 15.5 percent from 1993 through 2004.

The representation of minorities varied among management positions, which EEOC splits into two categories: (1) first- and mid-level officials and managers and (2) senior-level officials and managers. In 2011, the representation of minorities among first- and mid-level managers stood at 20.4 percent, about 1 percentage point higher to the representation of minorities among all management positions, according to EEOC data (see fig. 2). In contrast, at the senior management level, representation of minorities was 10.8 percent in 2011, about 8 percentage points below their representation among all management positions; yet representation of minorities in first- and mid-level management positions consistently increased from 18.7 percent to 20.4 percent over the 5-year period. First- and mid-level management positions may serve as an internal pipeline in an organization through which minority candidates could move into senior management positions.

Similar to the total representation of minorities across all management positions, specific races/ethnicities have not changed significantly, but EEOC data show slight variations of representation for specific races/ethnicities. For example, the representation of African Americans decreased from 6.5 percent in 2007 to 6.3 percent in 2011, according to EEOC data (see fig. 3). In contrast, representation of most other races/ethnicities increased, and the highest increase was in the representation of Asians, from 5.4 percent to 6.5 percent over the same time period.

From 2007 to 2011, the representation of African Americans went down in both management levels, while the representation of other specific races/ethnicities either increased or remained stable (see fig. 4). At the senior management level, the representation of Asians remained stable at about 4.1 percent from 2007 through 2011. However, the representation of African Americans in senior management positions decreased from 3.1 percent to 2.7 percent, and the representation of Hispanics increased from 3 percent to 3.3 percent. Among first- and mid-level management positions, the representation of Asians increased from 5.6 percent to 6.9 percent and the representation of Hispanics increased from 5.2 percent to 5.5 percent, while the representation of African Americans decreased from 7.2 percent to 6.9 percent.

Over the same 5-year period, the representation of women at the management level remained at about 45 percent in EEOC data, which show a slight decrease from 45.1 percent to 44.7 percent (see fig. 5). In 2006, we reported an increase with representation of women at about 42.9 percent in 1993 to about 45.8 percent in 2004.

Among all women in management positions, EEOC data showed that the representation of minority women increased, from 20.4 percent to 22 percent over the same 5-year period (see fig. 6). In addition, EEOC data show that the representation of minority men increased from 14.8 percent to 16.6 percent.

Among first- and mid-level management positions, the representation of women has been at about 48 percent, slightly higher than the representation of women among all management positions. In contrast, women represented about 29 percent of all senior management positions from 2007 through 2011—about 16 percentage points below the representation of women for all management positions, according to EEOC data (see fig. 7).

Based on EEOC data, minority women had greater representation at the first and mid levels of management compared to the senior level over the 5-year period. As shown in figure 7, among female senior managers, representation of minority women remained at about 13 percent over the 5-year period. In contrast, among female first- and mid-level managers, the proportion of minority women increased during the same period from 21.2 percent to 22.9 percent.

The representation of minorities increases for both women and men as the firm size increases (see fig. 8). For example, in 2011 the representation of minorities at firms with 100-249 employees was about 18 percent among women and about 12 percent among men, while at firms with more than 1,000 employees, the representation of minorities was about 23 percent among women and about 17 percent among men. For additional analysis of EEOC data by workforce position and industry sector, see appendix II.

A survey of the general population shows some similar trends in the representation of both women and minorities in the financial services industry. The CPS is administered by the Bureau of the Census for the Bureau of Labor Statistics and is a monthly survey of about 60,000 households across the nation. The CPS is used to produce official government figures on total employment and unemployment issued each month. According to the CPS data, from 2007 through 2011 the representation of women at the management level decreased from an estimated 49.1 percent to 47.3 percent. In addition, CPS data show a smaller increase from an estimated 14.1 percent to 15.1 percent in the representation of minorities in management over the same 5-year period.

Leading Diversity Practices Remain Relevant but Challenges Exist Regarding Recruitment and Other Issues

The nine leading diversity practices that we previously identified in 2005 are still relevant today, according to industry representatives with whom we spoke. Some industry representatives highlighted practices among these nine that they considered the most important to foster diversity and inclusion in their organizations. For example, top leadership commitment drives the other eight leading diversity practices, according to 9 of 10 industry representatives. In addition, accountability helps to promote the implementation of the other leading diversity practices because an issue is more likely to be addressed if it is tracked, according to 2 industry representatives. Moreover, creating awareness of the benefits of diversity for an organization among management and employees is important because it increases commitment to further the diversity goals of the organization, according to 7 industry representatives whom we interviewed.some firms that do not see the importance of diversity. In addition, 2 industry representatives said these 9 leading diversity practices should be expanded beyond workforce management to include, for example, an organization’s contracting efforts.

However, 1 industry representative told us there are still Some industry representatives also noted that measuring the impact of various diversity practices is an important practice but that it can also be challenging; for example, it can be difficult to link specific practices to diversity outcomes and it can be a long-term process. According to some industry representatives, financial services organizations may measure the effectiveness of their diversity practices by assessing attrition, recruiting, and promotion rates, which are similar to measures we had previously reported. For example, a financial services organization may measure the proportion of certain minority groups or women in its workforce or among its promotions to determine the effectiveness of its practices. Further, financial services firms may use surveys to gather employee perspectives on workforce diversity issues in the organization, such as perceived fairness in the promotion process or factors that affect an employee’s decision to remain with the firm, among other topics.

Additional diversity practices identified by some industry representatives that can support the leading diversity practices include the following:

Sponsor individuals. Sponsorship of women within an organization where an executive acts as a guide to help women navigate the organization and expand their networks is an important diversity practice, according to three industry representatives. This sponsorship practice goes beyond the mentoring programs we previously reported in 2006, as a sponsor acts as an advocate to help the individual advance within the organization.

Address biased perceptions. One industry representative told us about an effort to combat unconscious bias in promotions. They described a promotion system designed to address biased perceptions, such as a view of leaders as being typically male. According to the industry representative, the firm that employed this diversity practice gathered complete and objective evaluations of employees and trained its managers to recognize and address these perceptions. The result was that the firm promoted greater numbers of women into management.

No industry representatives that we contacted reported changes to diversity practices as a result of the challenges faced by many firms during the financial crisis. Although representation of minorities and women has remained about the same from 2007 through 2011, according to some industry representatives, the industry continues to be focused on diversity. However, three industry representatives did cite specific instances where funding was scaled back as a result of the recent financial crisis. One industry representative told us that investment in training programs was reduced across the organization, but when a measureable impact on employees was identified at this organization, steps were taken to address the impact.

Some industry representatives cited challenges to achieving a diverse workforce in general. We have previously reported some of these challenges, which can affect some of the leading diversity practices. Six industry representatives said that diversity recruitment is difficult because the supply (or “pipeline”) of minority and women candidates is limited. This has been a consistent challenge that we previously reported in 2006 and 2010. Available data indicate that for the internal pool of potential candidates for some management positions, representation of women varied, while representation of minorities was higher in every nonmanagement category compared to management positions (see fig. 9). For example, in 2011 the representation of women was greater in professional positions (about 51 percent) compared to sales positions (about 38 percent). In addition, the representation of minorities was higher in all nonmanagement positions than at the management level in 2011, but especially higher in technical and clerical positions at more than 29 percent in both types of positions. Further analysis of diversity in various workforce positions can be found in appendix II.

In recent years, representation in business graduate programs, a potential source of future managers in the financial industry, has remained stable for women and has increased slightly for minorities, but representation is still low for both women and minorities when compared to the overall representation of students in the university system. To assess one possible external pool of candidates for financial services firms, we obtained data from the Association to Advance Collegiate Schools of Business (AACSB) on the number of students enrolled in Master of Business Administration (MBA) degree programs in AACSB member schools in the United States from 2007 through 2011 as well as the number of students in the university system.data, the representation of women remained constant over this period, while the representation of minorities increased. For example, the representation of women among MBA students remained at about 37 percent over the 5-year period, while representation of women was slightly higher in the overall university system at about 41 percent. In contrast, as table 2 shows, the representation of minorities increased among MBA students from about 26 percent in 2007 to about 29 percent in 2011. However, when compared to the university system, representation of minorities in the overall university system was slightly higher from about 29 percent in 2007 to 34 percent in 2011.

Agency and Reserve Bank Workforce Diversity Varied, and Officials Reported Difficulty Identifying Diverse Candidates

Since the financial crisis, senior management-level minority and gender diversity at the federal financial agencies and Reserve Banks has varied across individual entities. The representation of minorities at the senior management-level increased slightly overall at both the agencies and Reserve Banks. In addition, the representation of women at the senior management-level increased slightly overall for both the agencies and Reserve Banks. Agency and Reserve Bank officials identified key challenges to increasing workforce diversity overall and at the senior management-level, including limited representation of minorities and women among internal and external candidate pools.

Senior Management-Level Representation of Minorities and Women Varied at Agencies and Reserve Banks, with Slight Changes Overall

Senior management-level representation of minorities and women varied across individual federal financial agencies and the 12 Reserve Banks. The agencies included FDIC, the Federal Reserve Board, NCUA, OCC, and Treasury. Complete data for this period were not available for CFPB, FHFA, and SEC, and we excluded these agencies from our analysis of changes in senior management-level diversity from 2007 through 2011, but provide recent data when available. Data for each agency are provided in appendix IV. CFPB assumed responsibility for certain consumer financial protection functions in July 2011 and has not yet reported workforce information to EEOC. However, we received recent employment profile data from CFPB as of May 2012. FHFA, which was established in July 2008, started reporting workforce data for 2010; while our analysis provides 2010 and 2011 data for FHFA, our analysis across the agencies excludes FHFA from aggregated totals. SEC reported data for 2007 through 2011, but revised how it reported officials and managers during the 5-year period; while our analysis provides 2011 senior management-level data for SEC, we excluded SEC from our senior management-level trend analysis.

In our review of agency reports, we found that from 2007 through 2011, the representation of minorities among senior management-level employees, when aggregated across FDIC, the Federal Reserve Board, NCUA, OCC, and Treasury, increased slightly, from 16 to 17 percent for the agencies combined (see fig. 10). From 2007 through 2011, three agencies—FDIC, the Federal Reserve Board, and Treasury—showed an increase in the representation of minorities at the senior management- level, by between 1 and 3 percentage points. Two agencies—NCUA and OCC—experienced no percentage point change in their representation of minorities at the senior management-level from 2007 through 2011. In 2011, the representation of minorities among senior management-level employees of these agencies, FHFA, and SEC ranged from 11 percent at SEC to 24 percent at FHFA. Additionally, CFPB employment data showed about 28 percent representation of minorities among senior officials as of May 2012.

In our review of EEO-1 reports provided by the Reserve Banks, we found that the representation of minorities among senior management-level employees in aggregate across the 12 Reserve Banks increased from 11 percent to 14 percent from 2007 through 2011 (see fig.11). The population of senior management-level employees at each bank in 2011 ranged from 9 employees at the Reserve Banks of Chicago, Dallas, and Minneapolis, to 59 employees at the Reserve Bank of New York, and the population of minority senior management-level employees at each bank ranged from zero employees at the Reserve Bank of Cleveland to 7 employees at the Reserve Bank of New York. Specific information on each Reserve Bank is provided in appendix IV.

In general, the representation of women at the senior management-level increased slightly since the beginning of the financial crisis in 2007 at agencies, but representation percentages varied for each entity. In our review of agency reports, we found that from 2007 through 2011, the representation of women at the senior management-level increased slightly from 34 to 36 percent across FDIC, the Federal Reserve Board, NCUA, OCC, and Treasury, in aggregate (see fig. 12). Changes varied by agency, from a decrease of 5 percentage points at OCC to an increase of 5 percentage points at NCUA. Four of the five agencies—FDIC, the Federal Reserve Board, NCUA, and Treasury—showed an increase of between 3 and 5 percentage points in the representation of women at the senior management-level from 2007 through 2011. In 2011, the representation of women among senior management-level employees ranged among the agencies from 31 percent at FDIC to 47 percent at FHFA. Additionally, CFPB employment data showed the representation of women among senior officials at about 35 percent as of May 2012.

In our review of EEO-1 reports provided by the Reserve Banks, we found that from 2007 through 2011, the representation of women at the senior management-level increased from 32 percent to 38 percent for the Reserve Banks, in aggregate (see fig. 13). As mentioned previously, the population of senior management-level employees at each bank in 2011 ranged from nine employees at the Reserve Banks of Chicago, Dallas, and Minneapolis, to 59 employees at the Reserve Bank of New York. The population of women among senior management-level employees at each bank in 2011 ranged from two employees at the Reserve Bank of Boston to 25 employees at the Reserve Bank of New York. Specific information on each Reserve Bank is provided in appendix IV.

Several agencies reported on existing diversity practices related to retaining and promoting employees to build management-level diversity. For example, according to agency reports, some Treasury offices conduct formal mentoring programs, and the Federal Reserve Board has customized mentoring programs within its divisions, which in conjunction with a leadership exchange program sponsored by the Federal Reserve System, provide employees opportunities to develop new skills and experiences. Further, OCC reported having development programs for employees within its bank supervision division that provide leadership and development opportunities to staff, and agency-sponsored employee network groups implemented mentoring circles to assist in the career development and retention of the agency’s workforce.

Several Reserve Banks identified practices targeted to improve management-level diversity, including changes to hiring practices and mentoring programs. For example, officials from several Reserve Banks we contacted said their organizations revised their hiring policies to open all management-level positions to external applicants in addition to current employees as a way to build management-level diversity by hiring diverse, experienced candidates from outside the organization. Additionally, the Reserve Banks of Dallas and New York began piloting new mentoring programs in 2011, and each planned to expand its program based on initial feedback its OMWI had received. These banks and several others with existing mentoring programs reported that mentoring programs were important to retaining and developing minorities and women within their organizations. Later in this report, we provide additional information on the agencies’ and Reserve Banks’ recruitment practices as part of their efforts to implement section 342 of the Dodd- Frank Act.

Total Workforce Minorities and Women Representation Varied but Decreased Slightly Overall

Based on our analysis of minority and gender diversity at all levels from 2007 through 2011, workforce diversity varied at the federal financial agencies and Reserve Banks, with slight decreases in aggregate. Specifically, the representation of minorities decreased slightly from 31 percent to 30 percent from 2007 through 2011 across FDIC, the Federal Reserve Board, NCUA, OCC, SEC, and Treasury, in aggregate. Additionally, CFPB employment data showed the representation of minorities of all agency employees at about 33 percent as of May 2012. Three agencies—NCUA, OCC, and SEC—showed a 1 percentage point or greater increase in the overall representation of minorities during the 5- year period, according to agency reports. In 2011, the representation of minorities at the agencies ranged from 25 percent at NCUA to 44 percent at the Federal Reserve Board. Our analysis of EEO-1 reports provided by the Reserve Banks for 2007 through 2011 showed that the representation of minorities across the Reserve Banks declined slightly in aggregate, from 38 percent to 36 percent. The Reserve Banks of Minneapolis and New York showed a 2 percentage point increase in the overall representation of minorities working at Reserve Banks, the Reserve Bank of Boston showed no percentage point change, and the remaining nine banks showed decreases of 1 to 8 percentage points. In 2011, the representation of minorities at the Reserve Banks ranged from 16 percent at the Reserve Bank of Kansas City to 53 percent at the Reserve Bank of San Francisco.

Similarly, we found that overall gender diversity varied at individual agencies and Reserve Banks, and generally declined slightly from 2007 through 2011. The overall representation of women in the workforce aggregated across FDIC, the Federal Reserve Board, NCUA, OCC, SEC, and Treasury declined slightly from 47 percent to 45 percent over the 5- year period. Additionally, CFPB employment data showed the representation of women of all agency employees at about 49 percent as of May 2012. Two agencies—NCUA and SEC—showed no percentage point change in the representation of women during the 5-year period; OCC showed a decrease of about 1 percentage point, and the other three agencies—FDIC, the Federal Reserve Board, and Treasury— experienced decreases of 2 percentage points. In 2011, the representation of women among all employees at the agencies ranged from 42 percent at FDIC to 48 percent at SEC and Treasury. The overall representation of women across the Reserve Banks, in aggregate, declined from 49 percent to 45 percent from 2007 through 2011. All Reserve Banks showed declines in the representation of women among all employees during the 5-year period, ranging from a 1 percentage point decrease at the Reserve Bank of New York to a 7 percentage point decrease at the Reserve Bank of Cleveland. For example, in 2007, 827 of the Reserve Bank of Cleveland’s 1,568 employees were women, and in 2011, 500 of the bank’s 1,094 employees were women; the bank’s workforce changed from having around 53 percent women employees to about 46 percent women employees. In 2011, the overall representation of women at Reserve Banks ranged from 40 percent at the Reserve Banks of Philadelphia and Richmond to 53 percent at the Reserve Bank of Minneapolis. See appendix III for additional information on the overall workforce representation for the agencies and Reserve Banks.

According to officials from five Reserve Banks and the Federal Reserve Board, consolidation of check processing and other operations, some of which occurred since the financial crisis, had eliminated many administrative and service worker positions. Since these positions are often held by minorities and women, these consolidations affected overall employment diversity at affected Reserve Banks. In response to declines in the use of paper checks and greater use of electronic payments, the Reserve Banks took steps beginning in 2003 to reduce the number of locations where paper checks were processed. In 2001, the Federal Reserve System employed around 5,500 people in check processing functions across 45 locations, and in 2008, around 2,800 employees supported check processing functions across 18 locations. By 2010, one paper check processing site remained in Cleveland, along with an electronic check processing site in Atlanta. As of January 2013, approximately 480 employees supported check processing functions across the Federal Reserve System. The Federal Reserve System is projected to complete its consolidation of check processing functions in 2013.

Officials Reported Difficulty Identifying Diverse Candidates as the Main Challenge to Building Workforce Diversity

OMWI officials described challenges to building workforce diversity both at the management level and overall. Four agencies—FDIC, the Federal Reserve Board, FHFA, and OCC—and three Reserve Banks—the Reserve Banks of Chicago, Minneapolis, and St. Louis—cited underrepresentation of minorities and women within internal candidate pools as a challenge to building management-level diversity, as many management-level positions are filled through promotions or internal hiring processes. Additionally, the Reserve Banks of Dallas, Minneapolis, Philadelphia, and San Francisco said low turnover was a challenge to increasing their management-level diversity profiles because it limited opportunities to increase organizational diversity through hiring and promotion.

Federal financial agencies and Reserve Banks identified other challenges to building workforce diversity generally. The Reserve Banks of Atlanta, Boston, Chicago, Kansas City, and St. Louis cited competition from the private sector for recruiting diverse candidates as a challenge. In addition, FHFA and the Reserve Banks of Cleveland, Philadelphia, and San Francisco cited limited representation of minorities within external candidate pools as another challenge. The Federal Reserve Board and the Reserve Banks of Chicago and Kansas City reported that the availability of external candidates could be an issue in particular for hiring certain specialized positions, such as economists, which would involve a small candidate pool with limited representation of minorities. Additionally, three Reserve Banks identified geographic impediments to their national recruitment efforts, explaining that it is difficult to attract candidates from outside their region. For example, the Reserve Banks of Kansas City and St. Louis said it was difficult to recruit candidates lacking ties to the central United States, and the Reserve Bank of San Francisco cited difficulty recruiting from the eastern United States. Further, several agencies and Reserve Banks identified other challenges to building workforce diversity. For example, Treasury cited budget constraints on hiring and the Reserve Bank of Cleveland cited time constraints on recruitment practices as challenges. Additionally, NCUA cited as a challenge establishing tracking systems to help identify barriers to recruiting, hiring, and retaining minorities.

Dodd-Frank Requirements Are Being Implemented, but Enhanced Reporting of Efforts to Measure Progress Is Needed

Federal financial agencies and Reserve Banks have begun implementing key requirements of section 342 of the Dodd-Frank Act. First, all agencies and Reserve Banks have established OMWIs. Most agencies and all of the Reserve Banks used existing policies to establish standards for equal employment opportunity required by the act. Although many agencies and Reserve Banks had been using recruitment practices required by the act prior to its enactment, the majority of OMWIs have expanded these or initiated other practices. In addition to meeting requirements regarding their diversity policies, the federal financial agencies have taken preliminary steps to develop procedures for assessing the diversity policies and practices of entities they regulate, as required under the act. Finally, nearly all the agencies and all of the Reserve Banks are reporting annually on their diversity practices. While many OMWIs have implemented or are planning efforts to measure and evaluate the progress of their diversity and inclusion activities, information on such efforts is not yet reported consistently across the OMWI annual reports. Such information could enhance their efforts to report on measuring outcomes and the progress of their diversity practices.

Agencies and Reserve Banks Have Established Offices of Minority and Women Inclusion and Diversity Standards

All federal financial agencies and all Reserve Banks have established an OMWI. Six of the seven agencies that existed when the Dodd-Frank Act was enacted established OMWIs by January 2011, pursuant to the time frame established in the act. Additionally, SEC formally established its OMWI in July 2011, following House and Senate Appropriations Committees’ approvals of the agency’s request to create an OMWI. SEC selected an OMWI director in December 2011, who officially joined the office in January 2012. CFPB, which assumed responsibility for certain consumer financial protection functions in July 2011, established its OMWI in January 2012 and its OMWI director officially joined the agency in April 2012.

Many agencies and most of the Reserve Banks established their OMWIs as new, separate offices. Four of eight agencies and 9 of 12 Reserve Banks established their OMWIs separate from other offices, including four banks that refocused existing diversity offices as their OMWIs. Three agencies—FDIC, the Federal Reserve Board, and OCC—and three banks—the Reserve Banks of Atlanta, Kansas City, and Philadelphia— established their OMWIs within existing offices of equal employment opportunity (EEO) or diversity. FHFA established its OMWI and then merged its EEO function into that office. OMWI officials from several agencies with separate OMWIs said their staff worked with their EEO offices to address agency diversity issues. Similarly, many agency and Reserve Bank OMWI officials said they coordinated with other offices across their organizations, such as human resources, recruiting, procurement, and management, to support ongoing diversity and inclusion efforts organizationwide.

Federal financial agencies and Reserve Banks all have taken steps to staff their OMWIs. As of January 2013, the agencies had allocated between 3 and 40 full-time equivalent positions to their OMWIs (see table 3), and all agencies had open positions they planned to fill among these allocated positions. FDIC had allocated 40 full-time equivalent positions to its combined OMWI/EEO office as of January 2013. Many of FDIC’s OMWI staff, including eight EEO specialists, support the office’s EEO functions, and OCC and FHFA also reported EEO specialists among their staff. The agency OMWIs included directors and analysts among their staff, as well as some positions specific to certain functions of the OMWIs. For example, four of the agencies—CFPB, FDIC, NCUA, and SEC—had allocated staff specifically to recruitment and outreach functions, and four of the agencies—NCUA, OCC, SEC, and Treasury— had allocated staff specifically to business and supplier diversity. Four agencies—the Federal Reserve Board, FHFA, NCUA, and OCC—had each allocated a position to help implement the Dodd-Frank Act requirement to review the diversity practices of regulated entities. Additionally, two of the agencies—CFPB and SEC—had attorney positions among their OMWI staff.

The Reserve Banks had allocated between three and seven full-time equivalent positions to their OMWIs as of January 2013 (see table 4). Ten of the 12 Reserve Banks had filled all of these positions, while the Reserve Banks of Cleveland and St. Louis each had one open position. The Reserve Bank OMWIs included directors and analysts among their staff. Few Reserve Banks designated specific OMWI functions to certain positions. Three banks, the Reserve Banks of Atlanta, Boston, and St. Louis, had each allocated one position to supplier or business diversity, and two other banks, the Reserve Banks of Chicago and Cleveland, had each allocated one position to help carry out the reporting functions of the OMWIs.

Perspectives on the role of OMWIs varied across some Reserve Bank officials with whom we spoke. While several Reserve Bank officials said their OMWIs were involved in policy development with a commitment to improving the Reserve Bank’s diversity efforts over time, officials from one Reserve Bank said their OMWI was compliance-focused and primarily analyzed the banks’ human capital resources and recruiting functions for compliance with Dodd-Frank Act requirements. Reserve Bank of Dallas officials told us they considered the OMWI staff members as objective critics of the Reserve Bank’s recruitment, procurement, and financial education efforts, and that bank management is responsible for fostering diversity and inclusion across the organization.

The act also required federal financial agency and Reserve Bank OMWIs to develop standards for equal employment opportunity and the racial, ethnic, and gender diversity of the workforce and senior management. Six of eight agencies and most Reserve Banks indicated either their previously established equal employment opportunity standards or MD- 715 requirements for agencies helped satisfy the Dodd-Frank Act requirement to establish equal employment opportunity standards with minimal changes, while two agencies and one Reserve Bank were still determining how to respond to the requirement. Treasury and CFPB planned to develop benchmarks of best practices as standards for diversity and inclusion. For example, Treasury officials said they planned to identify qualitative measures or indicators for assessing workforce diversity practices. Additionally, the Reserve Banks of Kansas City and San Francisco revised their diversity and inclusion policies pursuant to Dodd-Frank Act requirements. One agency established new standards separate from its existing equal employment opportunity policies as standards for the diversity of the workforce and senior management. Specifically, NCUA developed a diversity and inclusion strategic plan in response to a government-wide executive order that provides diversity standards and goals, which officials said the agency used to help establish expectations for staff.

Agencies and Reserve Banks Are Implementing Recruitment Practices

OMWI Annual Reports to Congress and officials we contacted indicated that federal financial agencies and Reserve Banks have implemented various practices pursuant to the Dodd-Frank Act’s requirements regarding diversity recruiting, outlined in table 5. Most agency and Reserve Bank OMWIs indicated that they had been conducting various diversity recruitment practices prior to the enactment of the Dodd-Frank Act—such as partnering with organizations focused on developing opportunities for minorities and women.

The majority of agencies and Reserve Banks focused their recruitment efforts on attending job fairs and maintaining partnerships with minority- serving institutions and organizations. According to Federal Reserve Board and Reserve Bank officials, they collectively participate in and fund recruitment activities, including national career fairs, advertisements in diverse publications, and social media initiatives. The Reserve Bank of Chicago coordinates the Federal Reserve System’s participation in national diversity recruitment events and oversees an internal training initiative aimed at developing and retaining employees within the Federal Reserve System. In addition to participating in these efforts, Reserve Banks conduct some activities independently.

Some OMWIs indicated their diversity activities had changed due in part to recent efforts to satisfy section 342 requirements as well as broadening their approaches to diversity and inclusion. For example, some OMWIs indicated the scope of their diversity and inclusion practices had broadened to include persons with disabilities as well as the lesbian, gay, bisexual, and transgender community. Further, the majority of OMWIs reported on plans to improve or expand existing practices. For example, many OMWIs described plans to pursue new or further develop existing partnerships with organizations focused on developing opportunities for minorities and women, and some OMWIs described recent efforts to expand internship opportunities for minority students.

Some OMWI officials identified practices targeted to improve organizationwide diversity, which could eventually help build management-level diversity. These included targeted recruitment to attract minorities and women, training for hiring managers and other employees on diversity hiring practices, and expanded internship programs as a way to hire a greater number of female and minority interns.

Targeted recruitment. All agencies and Reserve Banks with whom we spoke had participated in career fairs or partnerships with minority- serving organizations, as outlined in section 342 of the Dodd-Frank Act, to target diversity recruitment, and in several cases bolster recruitment of particular populations, such as Hispanics. The OMWIs at FDIC, FHFA, and SEC work with the agencies’ hiring and recruitment staff to identify strategies for recruiting diverse candidates. Additionally, the Federal Reserve Board OMWI reported that including hiring managers at diversity career fairs had made their targeted recruitment activities more effective.

Training for hiring managers. Some OMWIs reported they implemented practices to educate supervisors and hiring managers on diversity hiring practices. For example, the Reserve Bank of New York designed a training course to enhance cross-cultural interviewing skills of recruitment staff. OCC also provides diversity recruitment training to the agency’s recruitment staff, and CFPB planned to provide its hiring managers a toolkit with tips on diversity hiring practices.

Internship programs. Many agencies and Reserve Banks implemented internship programs to build employment diversity by developing a more diverse pipeline of potential entry-level candidates. For example, the Reserve Bank of San Francisco reported that it expanded its internship program to support more interns and leveraged partnerships with organizations representing minorities and women to increase the diversity of the bank’s internship program applicant pool.

Agencies Have Taken Preliminary Steps to Develop Procedures to Assess Diversity Policies and Practices of Regulated Entities

In response to section 342 of the Dodd-Frank Act, seven federal financial agencies have taken preliminary steps to respond to the requirement to develop standards for assessing the diversity policies and practices of entities they oversee. While these agencies have made initial progress, it is too soon to evaluate how effectively the agencies are responding to this requirement. The affected agencies include CFPB, FDIC, FHFA, the Federal Reserve Board, NCUA, OCC, and SEC. In addition to this requirement under the Dodd-Frank Act, FHFA is also subject to the Housing and Economic Recovery Act of 2008 (HERA), under which it must assess its regulated entities’ diversity activities and meet other provisions similar to those in section 342.

In 2010, FHFA developed an agency regulation implementing HERA requirements, in part, to ensure that diversity is a component of all aspects of its regulated entities’ business activities. The agency’s regulated entities include Fannie Mae, Freddie Mac, Federal Home Loan Banks, and the Federal Home Loan Bank System’s Office of Finance. HERA requires the agency’s regulated entities to develop diversity policies and procedures, staff an OMWI, and report annually to FHFA on their OMWI activities, among other requirements. In addition, FHFA has enforcement authority under HERA and FHFA’s promulgated regulation to ensure its regulated entities have diversity standards in place. According to FHFA OMWI officials, the agency’s response to HERA also satisfies the section 342 requirement.

According to OMWI officials, other agencies reviewed FHFA’s regulation as a possible option for responding to the section 342 requirement; however, the enforcement authority included in FHFA’s regulation is unique to the agency. They said that under the Dodd-Frank Act their agencies do not have enforcement authority to require regulated entities to implement diversity standards and practices. affected agencies also told us their OMWIs collaborated on initial steps to determine how to respond to these requirements by meeting periodically as a group, meeting with members of Congress, and performing outreach to industry participants and advocacy groups.

Pub. L. No. 111-203. § 342(b)(4) (2010). Even though section 342 provides for the development of standards for the assessment of diversity policies and practices of regulated entities, it further provides that nothing in the requirement may be construed to require any specific action based on the findings of the assessment. understand industry views on developing standards for assessing diversity policies and practices. One OMWI reported that industry representatives discussed options for evaluating diversity with respect to a regulated entity’s size, complexity, and market area.

OMWI officials told us responding to the requirement was a challenge for several reasons. Specifically, differences across regulated entities in terms of size, complexity, and market area made it challenging to develop a uniform standard. Determining the process and format for developing standards was also a challenge. OMWI officials also said they want to minimize adding a new regulatory burden to meet this provision. Therefore, the agencies would like to leverage existing information sources—data that regulated entities already provide—in evaluating the diversity activities of regulated entities. For example, to find ways to avoid duplicating existing data-collection efforts, CFPB and NCUA were working with EEOC for access to EEO-1 data for regulated entities. OCC officials said OCC had also considered using EEO-1 data, but some regulated entities had concerns about maintaining proprietary information, given the potential for Freedom of Information Act requests.

Efforts to Report on Measuring Outcomes and Progress Could Be Enhanced

In addition to establishing an OMWI, the act required federal financial agencies and Reserve Banks to report annually on their diversity practices, and nearly all of the agencies and all the Reserve Banks have begun reporting annually on their diversity practices. As discussed earlier, the act required each OMWI to submit to Congress an annual report on the actions taken pursuant to section 342, including information on the percentage of amounts paid to minority-and women-owned contractors and successes and challenges in recruiting and hiring qualified minority and women employees, and other information as the OMWI director determines appropriate. Including more information on the outcomes and progress of their diversity practices could enhance the usefulness of these annual reports. Seven of eight agencies and all Reserve Banks issued annual reports in 2011. CFPB, which was created in July 2010 and assumed responsibility for certain consumer financial protection functions in July 2011, issued an agencywide semiannual report for 2011. Its OMWI planned to issue an annual report for 2012 at the same time as the other agencies, in March 2013.

In their 2011 Annual OMWI Reports to Congress, several agencies and Reserve Banks reported on efforts to measure outcomes and progress of various diversity practices, which provide examples of the types of outcomes and measures of progress that could be helpful for OMWIs to include in their annual reports. Although the act requires information on successes and challenges, it does not specifically require reporting on effectiveness; however, the act provides some leeway to the federal financial agencies and the Reserve Banks to include “any other information, findings, conclusions, and recommendations for legislative or agency action, as the Director determines appropriate.” Measurement of diversity practices is one of the nine leading diversity management practices we previously identified. We have reported that quantitative measures—such as tracking employment demographic statistics—and qualitative measures—such as evaluating employee feedback survey results—could help organizations translate their diversity aspirations into tangible practice.

The Federal Reserve Board reported that it tracks job applicant information to assess the diversity of applicant pools, candidates interviewed, and employees hired as a result of diversity recruiting efforts, and FDIC reported that it monitors participation and attrition rates and diversity characteristics of participants in a development program. SEC reported plans to develop standards for assessing its ongoing diversity and inclusion efforts and include them in a strategic plan. The Reserve Banks of Chicago, Philadelphia, Richmond, and San Francisco reported on the number of internships each bank supported and the ethnic and gender diversity of the interns. The Reserve Bank of Chicago also reported on the number of job offers extended and candidates hired from its internship program, as well as on the number of candidates successfully hired from a diversity career expo. Further, the Reserve Bank of Cleveland identified reporting tools developed to monitor the bank’s inclusion in contracting efforts. In addition to using these measures, some OMWI officials said they used annual employee surveys as a measurement tool to gather information about the progress of their diversity practices, including retention practices. For example, FDIC’s annual employee survey includes specific questions related to diversity, and the agency uses responses to assess the effectiveness of policies and programs and outline action steps for improvement. OCC officials told us the government-wide federal employee viewpoint survey provided information on employee perspectives about diversity, and the agency measured its results against government-wide scores. Further, OMWI officials from the Reserve Bank of Minneapolis said exit surveys and employee declination surveys provided additional information for evaluating their retention and recruiting programs.

Federal financial agencies and Reserve Banks have focused their initial OMWI efforts on implementing section 342 of the Dodd-Frank Act. While many OMWIs have implemented or are planning efforts to measure and evaluate the progress of their diversity and inclusion activities, which is consistent with the leading diversity management practices, information on such efforts is not yet reported consistently across the OMWI annual reports. According to OMWI officials as well as industry representatives we interviewed, measuring the progress of diversity recruitment and retention practices is a challenging, long-term process. For example, NCUA officials told us measuring the progress of certain recruiting practices could be a challenge, as access to demographic information about job applicants might be limited. Additionally, FHFA officials told us that while measuring the progress of diversity practices was needed to identify best practices, such measurement needs to be efficient and meaningful. However, without knowledge of OMWI efforts to measure outcomes and the progress of their diversity practices, Congress lacks information that would help hold OMWIs accountable for achieving desired outcomes. In addition, increased attention to evaluation and measurement through annual reporting of these efforts could help the OMWIs improve management of their diversity practices. Reporting such information would provide an opportunity for the agencies and Reserve Banks to learn from others’ efforts to measure their progress and indicate areas for improvement.

Procedures to Meet Dodd-Frank Inclusive Contracting Requirements Are Largely in Place

Section 342 of the Dodd-Frank Act requires federal financial agencies and Reserve Banks to develop procedures to ensure, to the maximum extent possible, the fair inclusion and utilization of women and minorities in contracting. Specifically, the act requires agency and Reserve Bank actions to ensure that its contractors are making efforts to include women and minorities in their workforce. Also, the act has requirements for actions to increase contracting opportunities for minority- and women- owned businesses (MWOB). Most agencies and Reserve Banks have developed and included a provision in contracts for services requiring their contractors to make efforts to ensure the fair inclusion of women and minorities in their workforce and subcontracted workforces. The extent to which these agencies and Reserve Banks have contracted with MWOBs varied widely. These entities reported multiple challenges to increasing contracting opportunities for MWOBs and used various technical assistance practices to address these challenges.

Most Agencies and Reserve Banks Are Implementing Requirements Related to Inclusiveness in Contractor Workforces

To address the act’s requirement to ensure the fair inclusion of women and minorities, to the maximum extent possible, in contracted workforces, agencies either have developed or are in the process of developing fair inclusion provisions in their contracts for services, and all Reserve Banks have done so. In addition, some agencies and all Reserve Banks have developed procedures to assess contractors’ efforts for workforce inclusion of women and minorities.

Five agencies—FDIC, FHFA, NCUA, OCC, and the Federal Reserve Board—and all Reserve Banks have created a fair inclusion provision and are using it in contracts for services. Section 342 of the Dodd-Frank Act requires agencies and Reserve Banks to develop procedures for review and evaluation of contract proposals for services and for hiring service providers that include a written statement that the contractor, and as applicable subcontractors, shall ensure, to the maximum extent possible, the fair inclusion of women and minorities in the workforce of the contractor and, as applicable, subcontractors. The act does not specify the elements to be included in the written statement and provides that each OMWI director prescribe the form and content of the statement.

CFPB, SEC, and Treasury are each in the process of developing a fair inclusion provision. CFPB is developing procurement procedures to address the requirements of the act and required more time because its OMWI office was established in January 2012. SEC is subject to the Federal Acquisition Regulation (FAR) and is currently developing its inclusive contract provision. While CFPB and SEC develop inclusion statements pursuant to the act, both agencies have been using the equal employment opportunity statement contained in the FAR in executed contracts. Treasury has developed its fair inclusion provision to add to future contracts. It has issued a notice of proposed rulemaking in the Federal Register for public comments on this change to its contracting procedures as required under the law. The comment period ended on October 22, 2012. Treasury received eight comments which included, among other things, suggestions to make the fair inclusion provision applicable to all contracts regardless of the dollar amount of the contract and to better specify the documentation required of contractors to demonstrate that they have met the requirements of the fair inclusion provision. Treasury is currently reviewing the public comments and considering changes to the proposed rule.

The fair inclusion provisions we reviewed contained the following:

Equal employment opportunity statement: Fair inclusion provisions include a commitment by the contractor to equal opportunity in employment and contracting and, to the maximum extent possible consistent with applicable law, the fair inclusion of women and minorities in the contractor’s workforce.

Documentation: To enforce the fair inclusion provision, agencies require contractors to provide documentation of their efforts to include women and minorities in the contractor’s workforce, such as a written affirmative action plan; documentation of the number of employees by race, ethnicity, and gender; information on subcontract awards, including whether the subcontractor is an MWOB; and any other actions describing the contractor’s efforts toward the inclusion of women and minorities.

Contract amount threshold: Agencies apply the fair inclusion provision to contracts exceeding a certain dollar amount. For two agencies subject to the act, this threshold is any amount over $150,000. For three agencies subject to the act, this threshold is any amount over $100,000. The Reserve Bank fair inclusion provisions we reviewed did not generally include a dollar-amount threshold.

None of the officials from five agencies that have implemented a fair inclusion provision required by the act described to us receiving an adverse reaction from contractors, but officials from a majority of the Reserve Banks we spoke with described resistance or concerns from some contractors. OCC stated that smaller businesses had expressed confusion about the requirement because the businesses are too small to report workforce demographics to EEOC. Eight Reserve Banks described contractors expressing some disagreement or concern at the inclusion of the language in contracts. According to some Reserve Bank officials, contractors were concerned that accepting the fair inclusion provision would trigger other federal requirements for their businesses, or subject the contractor to meeting hiring or subcontracting targets. Some Reserve Banks described explaining the limited scope of the provision to concerned contractors. Other Reserve Banks described modifying the language in the fair inclusion provision, for example, in one case, changing a phrase regarding the contractor’s efforts to include women and minorities from “to the maximum extent possible” to read “to the maximum extent required by law.” Other Reserve Banks described occurrences where, in response to a contractor’s concern, they excluded the fair inclusion language from contracts for a procurement with a small dollar amount or because the vendor provided a service critical to the Reserve Bank and alternate vendors were not available. Finally, one Reserve Bank described declining a contract and seeking an alternate vendor that accepted the provision.

Some agencies and all Reserve Banks have developed procedures to assess contractors’ efforts toward workforce inclusion of women and minorities. Section 342 of the Dodd-Frank Act requires the 8 federal financial agencies in the act and 12 Reserve Banks to develop procedures to determine whether a contractor and, as applicable, a subcontractor, has failed to make a good faith effort to include minorities and women in their workforces. Good faith efforts include any actions intended to identify and remove barriers to employment or to expand employment opportunities for minorities and women in the workplace, according to the policies some agencies have developed. For example, recruiting minorities and women or providing these groups job training may be considered good faith efforts for diversity inclusion. Contractors must certify that they have made a good faith effort to include women and minorities in their workforces, according to most policies we reviewed. At the same time, contractors may provide documentation of their inclusion efforts such as workforce demographics, subcontract recipients, and the contractor’s plan to ensure that women and minorities have opportunities to enter and advance within its workforce. Agencies and Reserve Banks plan to conduct a review of each contractor’s certifications and documentation annually, once in a 2-year period, or at other times deemed necessary, such as when contracts are executed or renewed, to make a determination of whether the contractor made a good faith effort to include women and minorities in its workforce. Failure to make a good faith effort may result in termination of the contract, referral to the Office of Federal Contract Compliance Programs, or other appropriate action.Four agencies and all Reserve Banks have established good faith effort determination procedures, and four agencies have yet to implement such procedures.

Levels of Contracting with Minority- and Women- Owned Businesses Varied by Agency and Reserve Bank

In 2011, the proportion of a federal financial agency’s contracting dollars awarded to businesses owned by minorities or women varied, ranging between 12 percent and 38 percent according to the OMWI reports of the Seven federal financial agencies awarded a total agencies (see fig. 14).of about $2.4 billion for contracting for external goods and services in fiscal year 2011, with FDIC awarding about $1.4 billion of this amount.

Similarly, according to Reserve Bank OMWI reports, Reserve Bank contracting dollars paid to businesses owned by minorities or women ranged between 3 percent and 24 percent in 2011 (see fig. 15). Reserve Banks paid about $897 million in fiscal year 2011 in contracting.

Among federal financial agencies, OCC awarded the largest proportional amount of contracting dollars to MWOBs—about 38 percent (almost $67 million). OCC officials told us that its contract needs tend to be for services for which there is often a pool of MWOB suppliers and most of OCC’s 2011 contract dollars were spent on computer related services. The Federal Reserve Board awarded the smallest proportion of its contracting dollars to MWOBs, with about 12 percent going to such businesses. According to the Federal Reserve Board, a significant amount of its procurement is for economic data, which are generally not available from MWOBs. Although federal agencies are not generally required to report on MWOBs, most are required to report on certain small business contracting goals, including goals for women and small disadvantaged businesses (which include minority-owned businesses). In a 2012 report, we found that 35 percent of funds all federal agencies obligated to small businesses in 2011 were obligated to minority-owned small businesses and 17 percent were obligated to women-owned businesses.

Among Reserve Banks, the Reserve Bank of Minneapolis paid the largest proportion of its contracting dollars to MWOBs with about 24 percent going to such businesses (18.5 percent to minority-owned businesses and about 5 percent to women-owned businesses). According to the Reserve Bank of Minneapolis, almost half of its MWOB contract dollars were paid for software and related technology integration services from minority-owned firms. All other Reserve Banks paid under 13 percent of contracting dollars to MWOBs, with the Reserve Bank of New York awarding the smallest percentage of its contracting dollars to such businesses (3 percent). The Reserve Bank of New York described its commitment to increasing diversity in its pool of potential contractors through its outreach efforts to us and in its 2011 OMWI report. For example, the Reserve Bank of New York held an event with its primary contractors and small firms to identify potential partnerships and an event that provided small firms consultation on business plans and credit applications to increase the capacity of the small firms.

Agencies and Reserve Banks Report Challenges to Increasing Contracting Opportunities and Have Offered Technical Assistance to Minority- and Women-Owned Businesses

Seven federal financial agencies included in this report and all 12 Reserve Banks identified challenges in increasing contracting opportunities for MWOBs. Section 342 of the Dodd-Frank Act requires federal financial agencies and Reserve Banks to include in their annual OMWI report a description of the challenges they may face in contracting with qualified MWOBs. As a new agency, CFPB has not been required to complete an annual OMWI report and did not identify any contracting challenges to us. In interviews with us and in the 2011 OMWI reports to Congress, the remaining agencies and all Reserve Banks discussed a number of common challenges to increasing contracting with MWOBs, including the following:

Limited capacity of MWOBs: Some agencies and Reserve Banks stated that reporting or other requirements under federal contracts were often too great a burden for MWOBs or that MWOBs needed to build capacity to meet federal contracting requirements. Some agencies and Reserve Banks also stated that at times the need for goods or services is not scaled to the capacity of MWOBs. For example, some agencies and Reserve Banks faced challenges identifying MWOBs that can meet procurement needs on a national scale.

Developing staff or procedures to meet contracting requirements of the act: According to some agencies, new OMWIs require additional staff or staff development, or procedures to meet the requirements of the act, including providing technical assistance to increase opportunities for MWOBs, identifying qualified MWOBs in the marketplace, and incorporating the use of a fair inclusion provision in contracts and good faith effort determination processes, which we discussed earlier, into established procurement processes.

MWOB classification challenges: Multiple agencies and Reserve Banks described difficulty identifying and classifying suppliers as diverse entities. Some Reserve Banks noted that no central agency is responsible for certifying MWOBs. Some agencies and Reserve Banks also discussed a need for new procedures or information systems to identify and classify diverse ownership of businesses.

Availability: Some agencies and Reserve Banks noted that specialized services are often only available from a limited pool of suppliers that may not include MWOBs.

Centralized procurement: Reserve Banks may use the National Procurement Office (NPO), the centralized procurement office for the 12 Reserve Banks, to contract for some goods and services. When a Reserve Bank procures through the NPO, access to MWOBs may be limited because the NPO procures for volume discounts with larger contractors. However, the Reserve Bank of Richmond, in its 2011 OMWI report, described efforts to work with existing large contractors to increase subcontracting with smaller, diverse firms.

No MWOB bids: In some cases, agencies and Reserve Banks found that potentially eligible MWOB applicants decided not to bid without explanation.

Other challenges were described on a limited basis by one agency or Reserve Bank. For example, NCUA explained that MWOBs are not familiar with the agency. According to NCUA, to address this issue it increased its outreach budget and attendance to MWOB events and published an online guide on doing business with the agency. According to FDIC, in some cases MWOBs do not have relationships with large federal contractors for subcontracting opportunities. To address this problem, FDIC emphasizes to larger firms the importance of subcontracting with MWOBs and has negotiated increases in MWOB subcontracting participation with large contractors. FDIC participated in procurement events where small and large contractors could meet and match capabilities. The Reserve Bank of Chicago stated that MWOBs have a hard time standing out in highly competitive industries, such as staff augmentation services. Finally, according to the Reserve Bank of Richmond, MWOBs may have incorrect perceptions that Reserve Banks are subject to federal procurement rules that they cannot meet.

To counter challenges MWOBs may face in accessing federal contracting opportunities, all agencies and Reserve Banks described providing various specific forms of technical assistance to MWOBs, which they described in discussions with us and in 2011 OMWI reports to Congress.

No agency or Reserve Bank stood out as coordinating technical assistance better than others, although some agencies pointed to longstanding efforts at FDIC to provide technical assistance to MWOBs as model practices. Section 342 of the Dodd-Frank Act requires federal financial agencies and Reserve Banks to develop standards for coordinating technical assistance to MWOBs. These activities included developing and distributing literature, such as manuals and brochures describing contracting procedures and resources to prospective contractors. Most agencies also established websites that function as informational portals on doing business with agencies and act as an agency entry point to prospective contractors. Agencies and Reserve Banks described outreach activities to MWOBs, including conducting expert panels, hosting meetings and workshops, and exhibiting at trade shows and procurement events. Some of these outreach activities have been coordinated with SBA. For example, FDIC has partnered with SBA to develop a technical assistance program for small businesses, including MWOBs, on money management. OCC worked with SBA to create a technical assistance workshop that they conducted in 2012 with women- owned small businesses. Some agencies have included SBA representatives in supplier diversity events they sponsor. Even prior to the passage of the Dodd-Frank Act, the Federal Reserve Board had participated in SBA procurement fairs and used SBA information and events to market its procurement opportunities among diverse suppliers. Treasury has participated in SBA outreach events and created a mentor- protégé program to assist small businesses with contracting opportunities.

Agencies and Reserve Banks also provide one-on-one technical assistance, which is intended to meet the specific needs of a prospective MWOB contractor. According to Treasury, they coordinate with SBA to leverage SBA’s knowledge of one-on-one technical assistance practices with MWOBs. FHFA and SEC have created dedicated e-mail addresses and telephone lines for MWOBs to reach their OMWIs, and SEC has established monthly vendor outreach days when MWOBs can speak one- on-one with SEC’s supplier diversity officer and small-business specialist. Some Reserve Banks described conducting one-on-one meetings with prospective contractors in 2011, some of which were held during procurement events. Finally, FDIC offered its database of MWOBs to the OMWIs and some agencies described using or planning to use it to identify potential contractors for outreach regarding procurement opportunities. According to FDIC, it sends an updated version of the database to the agencies each quarter.

Conclusion

Across financial services firms, federal financial agencies, and Reserve Banks, available data showed the representation of minorities and women varied, and there was little overall change in workforce diversity from 2007 through 2011. Our findings suggest the overall diversity of the financial services industry has generally remained steady following the financial crisis. Since 2011, federal financial agencies and Reserve Banks have taken initial steps to respond to the Dodd-Frank Act’s requirements to promote workforce diversity, and OMWIs have begun reporting on both planned and existing diversity practices, in addition to reporting on workforce demographic statistics according to EEOC requirements. While many OMWIs have implemented or are planning efforts to measure and evaluate the progress of their diversity and inclusion activities, a leading diversity management practice, information on these efforts is not reported consistently across the OMWI annual reports. Although the act requires information on successes and challenges, it does not specifically require reporting on measurement; however, the act provides that the federal financial agencies and the Reserve Banks can include additional information determined appropriate by the OMWI director. Measurement of diversity practices is one of the nine leading diversity management practices we have previously identified. Reporting on these efforts as part of annual OMWI reporting would provide Congress, other OMWIs, and the financial services industry with potentially useful information on the ongoing implementation of diversity practices. Such information could be helpful industrywide, as management-level diversity at federal financial agencies, Reserve Banks, and the broader financial services industry continues to be largely unchanged. Without information on OMWI efforts to report outcomes and the progress of diversity and inclusion practices, Congress lacks information that would help hold agencies accountable for achieving desired outcomes or whether OMWI efforts are having any impact.

Recommendations for Executive Action

To enhance the availability of information on the progress and impact of agency and Reserve Bank diversity practices, we are recommending to CFPB, FDIC, the Federal Reserve Board, FHFA, NCUA, OCC, SEC, Treasury, and the Reserve Banks that each OMWI report on efforts to measure the progress of its employment diversity and inclusion practices, including measurement outcomes as appropriate, to indicate areas for improvement as part of their annual reports to Congress.

Agency Comments and Our Evaluation

We provided drafts of this report to CFPB, the Federal Reserve Board, FDIC, FHFA, NCUA, OCC, SEC, Treasury, and each of the Federal Reserve Banks for review and comment. We received written comments from each of the agencies and a consolidated letter from all of the Reserve Banks. Their comment letters are reproduced in appendixes V through XIII. The agencies and Reserve Banks generally agreed with our recommendation. CFPB, Federal Reserve Banks, FDIC, FHFA, NCUA, OCC, and SEC provided technical comments, which we incorporated as appropriate. We also provided a draft of the report to EEOC for comment. EEOC is not subject to the requirements of section 342 of the act but did provide technical comments, which we incorporated as appropriate.

With respect to our recommendation that each OMWI report on efforts to measure the progress of its employment diversity and inclusion practices, including measurement outcomes as appropriate, to indicate areas for improvement as part of their annual reports to Congress, all the federal financial agencies and Reserve Banks indicated that they plan to implement the recommendation: the OMWI Director of CFPB explained that its OMWI was the newest of such offices because the agency was created with the enactment of the Dodd-Frank Act and that it planned to include measurement information in future reports; the OMWI Director of the Federal Reserve Board stated that the recommendation was consistent with its ongoing practices and that it would look for additional ways to report on diversity practices;

FDIC’s OMWI Director agreed with the recommendation and stated that it will include efforts to measure the progress of its diversity practices in its annual reports to Congress; the Acting Associate Director of FHFA’s OMWI stated that it would include measurement information in its 2013 OMWI report to Congress; the Executive Director of NCUA said the agency will work toward reporting on its efforts to measure the progress of workforce diversity and practices; the Comptroller of the Currency stated that OCC had a well- developed diversity and inclusion program through which the agency measures its progress and that OCC has included additional metrics in its 2013 OMWI report to Congress;

SEC’s OMWI Director noted that the agency plans to incorporate measurement information on its diversity and inclusion practices in its future OMWI reports to Congress;

Treasury’s OMWI Director agreed with our recommendation and stated that it was consistent with the agency’s efforts to use more than demographic representation to measure the progress of diversity and inclusion efforts; and the Federal Reserve Banks’ OMWI directors noted that the banks currently include some measurement information in annual reports and said that they will consider additional ways to measure and report on Reserve Banks’ diversity practices.

As agreed with your office, unless you publicly announce the contents of this report earlier, we plan no further distribution of this report until 30 days from the report date. At that time, we will send copies of this report to the appropriate congressional committees; the Chairman, Board of Governors of the Federal Reserve; Director, Bureau of Consumer Financial Protection, commonly known as the Consumer Financial Protection Bureau; Chair, Equal Employment Opportunity Commission; Chairman, Federal Deposit Insurance Corporation; Acting Director, Federal Housing Finance Agency; Chairman, National Credit Union Association; Comptroller, Office of the Comptroller of the Currency; Chairman, Securities and Exchange Commission; Secretary, Department of the Treasury; and to the Directors of the Offices of Minority and Women’s Inclusion for the Federal Reserve Banks; and other interested parties. We will make copies available to others upon request. The report will also be available at no charge on our website at http://www.gao.gov.

If you or your staffs have any questions about this report, please contact me at (202) 512-8678 or garciadiazd@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs are listed on the last page of this report. GAO staff who made major contributions to this report are listed in appendix XIV.

Appendix I: Objectives, Scope, and Methodology

The objectives for this report were to examine (1) what available data show about how the diversity of the financial services industry workforce and how diversity practices taken by the industry have changed from 2007 through 2011; (2) what available data show about how diversity in the workforces of the federal financial agencies and the Federal Reserve Banks (Reserve Banks) has changed from 2007 through 2011; (3) how these federal financial agencies and Reserve Banks are implementing workforce diversity practices under section 342 of the Dodd-Frank Act, including the extent to which their workforce diversity practices have changed since the financial crisis; and (4) the status of federal financial agencies’ and Reserve Banks’ implementation of the contracting provisions of the Dodd-Frank Act related to the inclusion of women and minorities.

To describe how diversity in the financial services industry has changed since the beginning of the 2007-2009 financial crisis, we analyzed 2007- 2011 workforce data from the Equal Employment Opportunity Commission’s (EEOC) Employer Information Report (EEO-1). EEO-1 is data annually submitted to EEOC generally by private-sector firms with more than 100 employees. We obtained EEO-1 data on October 2012, from the finance and insurance industry categorized under the North American Industry Classification System (NAICS) code 52 for these industries from 2007 through 2011. EEO-1 data were specifically obtained from the EEOC’s “officials and managers” category by gender, race/ethnicity, firm size, and industry sectors. The EEO-1 “officials and managers” category was further divided into two management-level categories of first- and mid-level managers and senior-level managers and then analyzed by gender, race/ethnicity, and firm size.understand the potential internal candidate pools available for management positions in the financial industry, we obtained EEO-1 data under NAICS code 52 for all positions, including nonmanagement positions, by gender and race/ethnicity. To determine the reliability of the EEO-1 data that we received from EEOC, we interviewed knowledgeable EEOC officials and reviewed relevant documents provided by agency officials and obtained on its website. We also conducted electronic testing of the data. We determined that the EEO-1 data were sufficiently reliable for our purposes.

We used monthly averages over 3 months—July, August, and September—from the Basic Monthly CPS for each year and then calculated the estimated percentages, as EEOC’s EEO-1 reports are collected over this period of time every year. obtained from a publicly accessible federal statistical database, we gathered and reviewed relevant documentation from the Bureau of the Census website, conducted electronic testing, and determined the standard errors of the CPS estimates. We determined that the CPS data were sufficiently reliable for our purposes.

To gather information on a potential external pipeline of diverse candidates for management positions in the financial industry, we obtained demographic data on minority and female students enrolled in undergraduate, Master of Business Administration (MBA), and doctoral degree programs from 2007 through 2011 from the Association to Advance Collegiate Schools of Business (AACSB). We focused on MBA programs as a source of potential future managers and senior executives. Financial services firms compete for minorities in this pool with one another and with firms from other industries. We combined this information with undergraduate and doctoral degree programs to provide information on the overall diversity of the university system. AACSB conducts an annual voluntary survey called “Business School Questionnaire” of all its member schools. In 2011, AACSB updated its survey to include two additional race/ethnicity categories to include “two or more races” and “Native Hawaiian or Other Pacific Islander.” For consistency purposes, we combined these two additional categories along with the representation of Native Americans into an “other” category. To determine the reliability of the AACSB data, we interviewed a knowledgeable AACSB official and reviewed relevant documents provided by the official and obtained on its website. We determined that the data from AACSB were sufficiently reliable for our purposes.

To determine how diversity practices in the financial services industry have changed since the beginning of the financial crisis, we conducted a literature review of relevant studies that discussed diversity best practices within the financial services industry from 2007 through 2011. In addition, we interviewed 10 selected industry representatives to determine whether the nine leading diversity practices we previously identified are relevant today and how diversity practices changed since 2007. We also reviewed documents produced by these industry representatives. These representatives were selected based on their participation in our previous work, suggestions from federal agencies we interviewed for this report, as well as the type of industry representative—such as an industry association or private firm.

To describe diversity in the workforces of the federal financial agencies and Reserve Banks, we analyzed data we received from agencies and banks. To review changes in the representation of minorities and women in the workforces of federal financial agencies, we obtained from the agencies annual Equal Employment Opportunity Program Status Reports from 2007 through 2011, required under U.S. EEOC Management Directive 715 and known as MD-715 reports.seven of the eight federal agencies required to meet the workforce diversity provisions in section 342 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). These included the Departmental Offices of the Department of the Treasury, the Federal Deposit Insurance Corporation, the Federal Housing Finance Agency (FHFA), the Board of Governors of the Federal Reserve System, the National Credit Union Administration, the Office of the Comptroller of the Currency, and the Securities and Exchange Commission. The Bureau of We obtained data from Consumer Financial Protection, commonly known as the Consumer Financial Protection Bureau (CFPB), was created in July 2010 and assumed responsibility for certain consumer financial protection functions in 2011; workforce diversity data for the agency to show trends from 2007 through 2011 were unavailable. Additionally, our trend analysis excluded FHFA, as the agency was created in 2008 and did not report on diversity employment statistics for 2007, 2008, or 2009. Further, our senior management-level trend analysis excluded SEC, as the agency revised how it reported officials and managers during the 5-year period. To review changes in the representation of minorities and women in the workforces of Reserve Banks, we obtained from banks their annual EEO-1 reports from 2007 through 2011. For agencies and Reserve Banks, we reviewed workplace employment data by occupational categories, distributed by race/ethnicity and gender. In our analyses, we considered all categories other than white as race/ethnic minorities and analyzed trends in diversity at both the senior management-level and agency- and bankwide.analyzed senior management-level and overall diversity trends across all agencies and all Reserve Banks, as well as diversity trends for each agency when trend information was available.

To assess the reliability of MD-715 and EEO-1 data we received from agencies and Reserve Banks, we interviewed EEOC officials on both types of data as well as agency officials on MD-715 data and Reserve Bank officials on EEO-1 data about how the data are collected and verified as well as to identify potential data limitations. We found that while agencies and banks rely on employees to provide their race and ethnicity information, agencies and banks had measures in place to verify and correct missing or erroneous data prior to reporting them and officials with whom we spoke generally agreed these data were generally accurate. Based on our analysis, we concluded that the MD-715 and EEO-1 data were sufficiently reliable for our purposes.

To assess how federal financial agencies and Reserve Banks are implementing workforce diversity practices under section 342 of the Dodd-Frank Act, we reviewed agency and bank documentation of efforts to respond to the act’s requirements. Sources included annual Office of Minority and Women Inclusion (OMWI) reports to Congress by agencies and banks, annual agency MD-715 reports, and other documentation provided to us by agency and bank OMWI officials. Additionally, we gathered testimonial information from agency and Reserve Bank OMWI officials on changes in the inclusion of women and minorities in their workforces and any changes in the practices used to further workforce diversity goals. Through our review of agency and Reserve Bank documentation and interviews with OMWI officials, we assessed agency and Reserve Bank efforts to measure and report on the progress of their diversity practices, as measurement was one of the nine leading diversity practices we previously identified.

To determine the extent to which agencies and Reserve Banks are implementing the requirements of the Dodd-Frank Act regarding the inclusion of women and minorities in contracting, we reviewed 2011 OMWI reports submitted to Congress and interviewed officials on their efforts in this area. We also reviewed OMWI reports to determine the dollar amount and percentage of total contracts federal financial agencies reported awarding to minority- and women-owned businesses (MWOB), and the dollar amount and percentage of total contracts Reserve Banks reporting paying MWOBs in 2011. We verified these figures and our presentation of the information with each agency and Reserve Bank, and we determined that these data were sufficiently reliable for our purposes. We interviewed agency officials on their efforts to coordinate with the Small Business Administration and other federal agencies to provide technical assistance to minority- and women-owned businesses. We collected and reviewed agency documentation of procedures developed to address the act’s requirements, such as policy manuals, process workflows, and technical assistance materials. We also collected and reviewed examples of fair inclusion provisions used in agency and Reserve Bank contracts as required in section 342 of the Dodd-Frank Act.

We conducted this performance audit from January 2012 to March 2013 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives.

Appendix II: Additional Analysis of the Financial Services Industry

This appendix provides additional detailed analysis of EEOC data on the financial services industry by workforce position and industry sector from 2007 through 2011.

Analysis by Workforce Positions

The representation of minorities by gender was below 45 percent across all the positions throughout the same 5-year period (see fig. 16). For example, in sales positions, the representation of minorities was higher among women (about 31 percent) than among men (about 17 percent). Similarly, at the professional level, the representation of minority women was about 27 percent, compared to about 23 percent for minority men.

Diversity remained about the same across all industry sectors in terms of both the representation of women and minorities. From 2007 through 2011, the representation of women decreased slightly in most industry sectors and remained below 50 percent in all sectors (see fig. 17). The “insurance carriers and related activities” sector was the only sector that showed an increase in the representation of women, from 47.7 percent to 48.2 percent. In contrast, the representation of minorities increased across all sectors. Specifically, from 2007 through 2011 the representation of minorities in the “monetary authorities-central bank” sector increased from 17 percent to 19.8 percent, and the “funds, trusts, and other financial vehicle” sector increased from 16 percent to 18.5 percent.

Appendix III: Additional Analysis of Overall Workforce Diversity at Agencies and Reserve Banks

This appendix provides information accompanying our review of changes in overall workforce diversity at federal financial agencies and the 12 Reserve Banks from 2007 through 2011.appendix IV provide data supporting the figures in this appendix.

Tables 11 through 14 in According to MD-715 data, the representation of minorities in the overall workforce of the agencies, in aggregate, changed little from 2007 through 2011. Percentage point changes in the representation of minorities at FDIC, the Federal Reserve Board, NCUA, OCC, SEC, and Treasury varied from a 5 percentage point decrease at Treasury to a 3 percentage point increase at NCUA. In 2011, the representation of minorities in the overall workforce of the agencies and FHFA ranged from 25 percent at NCUA to 44 percent at the Federal Reserve Board.

Similarly, we found that the representation of women in the overall workforce of the agencies did not change significantly from 2007 through 2011. Percentage point changes in the representation of women at the agencies from 2007 through 2011 varied from a 2 percentage point decrease at FDIC, the Federal Reserve Board, and Treasury to no percentage point change at NCUA and SEC. In 2011, the representation of minorities in the overall workforce of the agencies and FHFA ranged from 42 percent at FDIC to 48 percent at SEC and Treasury.

According to EEO-1 data provided by the Reserve Banks, the representation of minorities in the overall workforce of the Reserve Banks decreased somewhat from 2007 through 2011. The banks showed changes in the representation of minorities from 2007 through 2011, from an 8 percentage point decrease at the Reserve Bank of Philadelphia, to a 2 percentage point increase at the Reserve Banks of Minneapolis and New York. The Reserve Bank of Boston showed no percentage point change from 2007 through 2011. In 2011, the representation of minorities in the overall workforce of the Reserve Banks ranged from 16 percent at the Reserve Bank of Kansas City to 53 percent at the Reserve Bank of San Francisco.

In addition, we found that from 2007 through 2011, the representation of women in the overall workforce of the Reserve Banks also declined slightly according to EEO-1 data provided by the Reserve Banks. The Reserve Banks showed decreases in the representation of women in the overall workforce from 1 percentage point at the Reserve Bank of New York to 7 percentage points at the Reserve Bank of Cleveland. The representation of women in the overall workforce in 2011 ranged from 40 percent at the Reserve Banks of Philadelphia and Richmond to 53 percent at the Reserve Bank of Minneapolis.

Appendix IV: Representation of Minorities and Women at Federal Financial Agencies and Reserve Banks

We reviewed agency and Reserve Bank reports and found that since the financial crisis, senior management-level minority and gender diversity at the agencies and Reserve Banks has varied across individual entities. We also found the representation of minorities and women in the overall workforce of the agencies changed little from 2007 through 2011, while the representation of minorities and women in the overall workforce of the Reserve Banks declined slightly. The following tables provide data supporting the senior management-level and total workforce figures in this report.

Appendix V: Comments from the Consumer Financial Protection Bureau

Appendix VI: Comments from the Federal Reserve Banks

Appendix VII: Comments from the Federal Reserve Board

Appendix IX: Comments from the Federal Housing Finance Agency

Appendix X: Comments from the National Credit Union Administration

Appendix XI: Comments from the Comptroller of the Currency

Appendix XII: Comments from the Securities and Exchange Commission

Appendix XIII: Comments from the Treasury Department

Appendix XIV: GAO Contact and Staff Acknowledgments

GAO Contact

Staff Acknowledgments

In addition to the individual named above, Kay Kuhlman, Assistant Director; Heather Chartier; Brendan Kretzschmar; Alma Laris; Ruben Montes de Oca; Cheryl Peterson; Jennifer Schwartz; Jena Sinkfield; Andrew Stavisky; and Julie Trinder made major contributions to this report.