Feds Demand Diversity on Wall Street

A little-noticed section of the Wall Street reform law grants the federal government broad new powers to compel financial firms to hire more women and minorities–an effort at promoting diversity that’s drawing fire from Republicans who say it could lead to de facto hiring quotas.

Deep inside the massive overhaul bill, Congress gives the federal government authority to terminate contracts with any financial firm that fails to ensure the “fair inclusion” of women and minorities, forcing every kind of company from a Wall Street giant to a mom-and-pop law office to account for the composition of its work force.

Employment law experts say the language goes further than any previous attempt by the U.S. government to promote diversity in the financial sector–putting muscle behind federal efforts to help minority- and women-owned firms gain access to billions in federal contracts.

For advocates of the measure, it is a past-due shove to an elite industry that is heavily male and white–one in which Government Accountability Office studies show women and minorities have made only minimal gains in the past 15 years.

But to opponents, the provision signifies a brazen government intrusion into corporate practices, with language written so vaguely that some believe it could lead to an unofficial quota system.

“This expands exponentially the reach of the federal government in terms of auditing,” said Peter Kirsanow, an attorney and Republican appointee to the U.S. Commission on Civil Rights. “This is an expansion of racial engineering that we haven’t seen in a long time.”

The law sets no quotas, not even ratios or goals for hiring. And the government has options other than termination at its disposal for contractors who fail to meet the “fair inclusion” standard, including referring the matter to the Labor Department.

But the law tiptoes up to the line of quotas, say critics–a group that includes Sen. Susan Collins (R-Maine); four Republican-leaning members of the U.S. Commission on Civil Rights who wrote a letter of opposition; and some in the conservative blogosphere, where a debate has raged for weeks outside the view of the mainstream media.

“It is very sweeping, from my review of the legislation,” said Collins, who voted for the bill. “It talks not just about federal offices and agencies. It also talks about contractors and subcontractors, and so the implications are very unclear and can be read to require quotas, and that’s an entirely different and controversial debate and does not belong in the financial bill.”

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“It is arguably the best part of the bill,” said Gary Acosta, co-founder of the National Association of Hispanic Real Estate Professionals, which lobbied for the section.

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The 1,261-word section authored by Rep. Maxine Waters (D-Calif.) barely registered during the legislative debate. And even weeks after the legislation moved through the House and Senate, Washington groups tasked with protecting business interests on Wall Street and beyond say they have yet to study that part of the bill.

At its core, the section establishes at least 20 new Offices of Minority and Women Inclusion across the Treasury Department, Federal Reserve, Securities and Exchange Commission and other finance-related agencies. It orders the directors of these offices to develop standards that “ensure, to the maximum extent possible, the fair inclusion and utilization of minorities, women, and minority-owned and women-owned businesses in all business and activities of the agency at all levels, including in procurement, insurance, and all types of contracts.”

This applies to “services of any kind,” including investment firms, mortgage banking firms, asset management firms, brokers, dealers, underwriters, accountants, consultants and law firms, the legislation states. Every contractor and subcontractor must now certify that their workforces reflect a “fair inclusion” of women and minorities.

The government still must write the rules for the new diversity standards before deciding which contractors meet the bar and which fall short.

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Diana Furchtgott-Roth, senior fellow at the Hudson Institute and chief economist at the Labor Department under President George W. Bush, nudged the issue into the mainstream last month with a column posted on RealClearMarkets.com.

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“Your workforce doesn’t have to be exact, but you have to try to make an effort,” said Pamela Bethel, a partner at O’Riordan Bethel law firm who testified before Waters’ committee on behalf of the National Association of Minority and Women-Owned Law Firms. “Nobody is suggesting you hire someone who isn’t qualified, but if you look just a little harder outside your country club, you might find someone who is qualified.”

Also of concern to some on the right is that the law creates another layer of bureaucracy that small businesses will need to navigate.

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[Editor’s Note: AR News readers were first alerted to this aspect of the finance “reform” bill on June 24, when we reprinted excerpts from an Investor’s Business Daily editorial dealing with it. That article can be read here. Politico apparently wants us to believe that “Washington groups tasked with protecting business interests on Wall Street” are unfamiliar with IBD. AR News also excerpted the article by Diana Furchtgott-Roth. It can be read here.]