Ethics and compliance professionals looking for guidance about how to develop diversity efforts might want to visit the Consumer Financial Protection Bureau. The CFPB just published a report reviewing diversity efforts at financial firms and how the agency will assess those efforts in the future.
Financial regulators are obligated to assess the diversity policies and practices of the businesses they oversee, per Section 342 of the Dodd-Frank Act. The CFPB report, released on Wednesday, is interesting because the agency describes how it will evaluate diversity and inclusion efforts, including specific criteria that even non-financial companies could follow to strengthen their own diversity and inclusion (D&I) programs.
So how did the CFPB approach things? It developed 20 criteria for rating a firm’s D&I program, such as whether the firm publishes an annual diversity report and whether it expressly encourages contracting with minority-owned businesses. Overall, those criteria (a list of all 20 is included in the report) gave the CFPB a better sense of:
- The presence of clear statements affirming a company’s commitment to diversity and inclusion;
- The workforce diversity metrics an entity publishes;
- Public information regarding internal practices such as recruitment strategies, D&I trainings, or employee resource groups; and
- Supplier diversity programs.
The CFPB also rated companies based on how much of that D&I information was shared with the public. For example, a financial firm that published information on any six of those 20 criteria was rated a “high information” firm, while those that published only one to three of the criteria were rated as “low information.”
Let’s pause right here, because that point is worth unpacking: part of a company’s commitment to diversity and inclusion is how much D&I information it shares with the public.
Why is such disclosure important? Because when a company discloses D&I metrics, that enhance the ability of others to hold the company accountable to its D&I goals. It demonstrates a commitment to diversity — “We’re not afraid to show people how we’re doing, even if we need to do more” — that employees, business partners, and customers can see.
So if you’re in the middle of developing a D&I program, or talking with senior leaders about how to make that program effective, one important question will be: “How much of this will we share with the public?”
Tailoring Your Diversity Program
The CFPB examined the D&I efforts at 270 financial firms, from large banks and mortgage originators down to payday lenders, debt collectors, and money-transfer businesses. Results were all over the place, but generally speaking, banks and large firms had more sophisticated D&I programs than smaller, less visible firms. The chart below gives a sense of how many firms disclosed various D&I efforts.
So how should diversity programs at smaller or mid-sized companies tailor their efforts to fit their smaller scale? What specific actions can a company with fewer resources undertake? The CFPB offered a few suggestions.
Smaller firms can make statements, so that they at least have their commitment to D&I on the record for the public to see. This can include an expanded values statement, to include language that indicates your support for D&I; a leadership statement about D&I signed by the CEO and other top executives; a “career statement” making a commitment to diversity on, say, the company’s recruitment page; and a “supplier statement” offering tips about how minority-owned business can work with your firm.
Mid-sized firms can undertake more specific actions, and disclose more specific details. For example, they can recruit at historically black colleges and universities, or participate in professional associations and networking events geared for women or people of color. They can also disclose demographics about their workforce, to show minorities that they wouldn’t necessarily be alone if they became an employee. Mid-sized firms are also usually large enough (several thousand employees) that they can consider training and mentoring programs for minority employees.
Large firms typically are already making a good faith D&I effort. Still, the CFPB said, large firms can take steps such as designating a full-time diversity leader, who can be accountable for D&I objectives the company has. They can publish detailed metrics for diversity among senior executives, vice presidents, and other levels of management, as well as among the overall workforce. They can also publish reports on diversity among their suppliers.
Why Does This Matter?
This matters because more and more groups are paying attention to what companies really do about diversity and inclusion programs, and that includes regulators such as the CFPB. You might as well get a sense of how the CFPB assesses D&I programs, so that you can structure yours to pass muster.
Granted, the CFPB oversees financial firms — but other regulators are paying attention to diversity efforts too. For example, the Securities and Exchange Commission already requires all publicly traded firms to disclose their “human capital metrics” in annual reports. Right now the rules for those disclosures are vague, and consequently, the disclosures that companies made last year (the first year of compliance) tended to be pretty vague too. But the SEC is developing plans for enhanced disclosure of ESG data, and that could well include more specific disclosure of D&I efforts.
Most companies also need to file Form EEO-1 with the Equal Employment Opportunity Commission, detailing the racial and gender demographics of your workforce. Even that could be a starting point for disclosures you make to the public — like, just post the whole form on your website. A smattering of large companies already do this. There’s no reason why other companies making a good-faith effort at diversity couldn’t do the same.
I would note, however, that posting your EEO data only takes a company so far. That data shows who is in your workforce, which is not the same as the effort management puts into the development of diversity. We can also say the same about posting required EEO disclosures on your website and calling that a “career statement.” EEO disclosures are the bare minimum. They don’t demonstrate how much an organization values diversity & inclusion programs. So what else might you do or say, above and beyond that?