Diversity and Corporate Governance

Federal regulators and policymakers want to increase the level of diversity at financial institutions, including their boards.

Beginning in 2010, Section 342 of the Dodd Frank Act created the Office of Minority and Women Inclusion (OMWI). One of the goals of OMWI was to assess the diversity policies and practices of entities regulated by the various federal agencies.

In 2015, federal bank regulators and the Securities and Exchange Commission issued a final rule establishing standards for regulated entities to create and strengthen their diversity policies and practices — including their organizational commitment to diversity, workforce and employment practices, procurement and business practices, and practices to promote transparency of organizational diversity and inclusion within the entities' U.S. operations.

NCUA as part of this final rule issued a voluntary self-assessment checklist that provides credit unions with best practices for assessing their diversity policies and practices.

However, my experience is that voluntary best practices tend to become what is expected by examiners.

In a June 2016 speech, Securities and Exchange Commission (SEC) Chairman Mary Jo White stated that "the low level of board diversity in the United States is unacceptable." She believes increasing board diversity is the right thing to do.

To address the issue of board diversity, Chairman White stated that the agency staff are working on a proposed rule that would require public companies to include in their proxy statement “meaningful disclosures” of the race, sex and ethnicity of their board members and board nominees. Chairman White commented that the disclosures would be based on voluntary self-reporting by directors.

While SEC regulations do not apply to credit unions, I suspect that it is only a matter of time before credit unions, as well as other non-publicly traded financial institutions, would be subject to such disclosure about board members and nominees, as it would be viewed as good corporate governance.

While greater board diversity is a positive, having the federal government mandate it is not.