Overview and Guidance on Final Joint Standards on Diversity and Inclusion

On June 9, 2015, several federal agencies jointly issued a policy statement on standards that companies could use to assess their diversity policies and practices, particularly for entities regulated by more than one agency. The Federal Reserve Board, Bureau of Consumer Financial Protection, Federal Deposit Insurance Corporation, National Credit Union Administration, Securities and Exchange Commission and Office of the Comptroller of the Currency issued “Final Interagency Policy Statement Establishing Joint Standards for Assessing the Diversity Policies and Practices of Entities Regulated by the Agencies” as directed under section 342 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. Issuance of the Final Joint Standards followed a protracted two-year comment period. The Final Joint Standards, which were modified to some extent based upon the comments received, identify five categories for companies to assess their commitment to diversity and inclusion. The Final Joint Standards are entirely voluntary and do not create new legal compliance obligations—they are merely a “statement of policy.”

The Final Joint Standards define “diversity” as encompassing only racial minorities (specifically, African Americans, Native Americans, Hispanic Americans, and Asian Americans as defined in Dodd-Frank), and women. The Final Joint Standards note, however, that this definition of “diversity” does not preclude a company from using a broader definition of diversity that includes veterans, individuals with disabilities, and lesbian, gay, bisexual, and transgender individuals. Employers may elect to voluntarily comply with the Final Joint Standards as of June 10, 2015 (the effective date); however, a 60-day comment period is currently open under the Paperwork Reduction Act to identify practices that could be used to obtain data to meet the Final Joint Standards and the cost of compliance. The Final Joint Standards prohibit the six agencies from using their examination or supervisory processes in connection with the Final Joint Standards, which further emphasizes the voluntariness of compliance. The six agencies anticipate using the voluntary disclosures to monitor progress and trends in employment and contracting and to identify best practices and successes.

Overview of the Final Joint Standards

The Final Joint Standards include a number of recommendations for setting standards to assess diversity initiatives. These include standards addressing the role and importance of senior leadership in promoting diversity and inclusion and examples of how to promote “the fair inclusion of minorities and women” in a company’s workforce. Below is an outline of the Final Joint Standards’ main points.

1.               Organizational Commitment to Diversity

1. Diversity and inclusion should be considered in employment and contracting as an important part of a company’s strategic plan, specifically focusing on recruiting, hiring, retention, and promotion.
2. Diversity and inclusion policies should be approved and supported by senior leadership, and a senior-level executive should oversee and direct the company’s efforts.
3. Companies should regularly conduct training and provide educational opportunities on equal employment opportunity, as well as diversity and inclusion.

2.               Workforce Profile and Employment Practices

1. Qualitative and quantitative measurements—such as affirmative action program (AAP) data and equal employment opportunity (EEO) reports—should be used in order to assess workforce diversity and inclusion efforts, including
   1. applicant tracking;
   2. hiring;
   3. promotions;
   4. separations (voluntary and involuntary);
   5. career development; and
   6. retention (at all levels).
2. Companies should hold all levels of management accountable for diversity and inclusion efforts.
3. Information generated from AAP data and EEO-1 reports is valuable, but limited; it should be used as a baseline, particularly for a large company with a broader definition of diversity. The Joint Final Standards are fluid and malleable depending on a company’s size.

3.               Procurement and Business Practices—Supplier Diversity

1. Companies should have supplier diversity policies that provide for a fair opportunity for minority- and women-owned businesses to compete for procurement of goods and services.
2. Companies should consider methods to evaluate supplier diversity.
3. Companies should implement practices that promote a diverse supplier pool.
4. It would be inappropriate for the agencies to mandate quantifiable targets for supplier diversity.

4.               Practices to Promote Transparency of Organizational “Diversity and Inclusion”

1. The following should be made available to the public through a company’s website or other appropriate forum:
   1. the company’s policy on commitment to diversity and inclusion and a strategic plan;
   2. the progress made by the company toward achieving diversity and inclusion in its workforce and procurement activities; and
   3. opportunities available within the company that promote diversity.
2. The Joint Final Standards do not mandate disclosures and recognize that not all data can or should be disclosed.

5.               Entities’ Self-Assessment

1. Companies should monitor and evaluate diversity their policies and practices annually and on an ongoing basis by evaluating performance in the four categories identified above.
2. Companies should disclose diversity policies and practices, as well as self-assessments, to the governing agency and the public.

Potential Concerns

While compliance is voluntary and not subject to the agencies’ enforcement or supervisory powers, how the agencies’ Offices of Minority and Women Inclusion (which developed the Final Joint Standards and are charged with implementation) will engage with their covered entities remains to be seen. No guidance from the individual agencies has been issued or is expected to be issued, and how the agencies will “encourage” companies to comply or view non-compliance is still unclear.

While the Final Joint Standards do not present mandatory call to actions, employers may want to consider them in drafting and revising their own policies and practices. There are, however, some concerns with doing so.

1. Organizational Costs of Compliance. The Final Joint Standards repeatedly claim that no new obligations or burdens are imposed on companies. Even though each company likely has much of this data on hand (e.g., in the form of EEO-1 reports or AAP data) and has undertaken policy and compliance efforts, compliance with the Final Joint Standards may be time consuming and onerous.
2. The Consequences of Disclosure of Data. Publishing data to the public may provide opportunities for others to use the data against the company and may open the company up to unwanted discovery. For example, publishing data required by the Office of Federal Contract Compliance Programs (OFCCP) that is not subject to disclosure or EEO-1s may hamper your ability to argue it is confidential and not subject to disclosure.
3. The Risks of Data Compilation. Even if a company elects to voluntarily comply in some fashion with the standards, tracking data on individuals if the company is not already doing so (e.g., data on LGBT individuals) could be risky, and the potential positive and negative outcomes should be carefully weighed.