If Wall Street firms don’t immediately start ramping up diversity initiatives to come into compliance with a little-known section of Dodd Frank by next year, they stand to lose billions in contracts with the federal government. As Wall Street grapples how best to comply with Dodd-Frank financial reform, there is an additional piece of broad reform tucked away in Section 342 of the new law: diversity.
The provision is buried within some 850 pages of legislative text designed to strengthen the financial sector, promote economic recovery and job growth, protect consumers and permanently end taxpayer bailouts of private institutions. But then, Senator Maxine Waters saw an opportunity to do more. Speaking in terms Wall Street understands, she crafted language that ties compliance to billions of dollars of revenues: either smash the glass ceiling once and for all or you will pay.
Section 342 embeds 20 Offices of Minority and Women Inclusion at virtually every major financial regulatory agency of the federal government: Treasury, the Securities and Exchange Commission, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the 12 Federal Reserve banks and the newly created Consumer Financial Protection Bureau. The offices will serve as watch dogs, monitoring diversity of the agencies and the government contractors and subcontractors with which they do business, including virtually all of Wall street. The list includes “financial institutions, investment banking firms, mortgage banking firms, asset management firms, brokers, dealers, financial services entities, underwriters, accountants, investment consultants and providers of legal services.”
Wall Street does billions of dollars in business with the federal government for services that include debt issuances, sales of government assets, as well as more general advisory services. That business now hinges on their ability to correct racial and gender imbalances. According to Dodd-Frank language, if an agency’s compliance director concludes that a contractor has not made “a good faith effort to include minorities and women in its work force,” the agency head is authorized to cancel the contract.
Wall Street’s issues with women date back to Smith Barney’s Garden City, N.Y., basement party room (the so-called “Boom-Boom Room”), where lap dances took place in the 1990s. But industry-wide, women have share similar tales about how they were sexually harassed with vulgar talk; excluded from business lunches, meetings and golf outings; and how their careers were hindered or damaged. While consciousness has been raised and while the numbers of female and minority executives have improved, Wall Street firms still lack diversity in the upper ranks. Now, apparently, with Dodd-Frank, that’s about to change.