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TechTalk Blog: US SEC Invites Entities Regulated by the SEC (Public Companies) to Submit a Voluntary Diversity Assessment Report and Also Disclose to Stakeholders

By David Colgren posted 01-26-2018 04:06 PM


Earlier this week the US Securities and Exchange Commission's Office of Minority and Women Inclusion (OMWI) issued a report aimed at helping SEC-regulated entities assess diversity efforts to the capital markets and other interested stakeholders. The self-assessments are voluntary for US public companies but as a best practice many companies will quickly move forward with voluntary compliance – especially if companies receive an additional alpha from the capital markets for this disclosure from investors.

FROM BNY MELLON: Companies in the top 25% for gender or racial and ethnic diversity are more likely to have financial returns above their national industry medians — 15% higher for gender and 35% for racial and ethnic diversity. For every 10% increase in racial and ethnic diversity on the senior executive team, earnings before interest and taxes (EBIT) rise 0.8%.1

US SEC Press Release

 US SEC Report on Diversity Assessment Report for Entities Regulated by the SEC.

This US SEC voluntary disclosure program for Diversity and Inclusion is a gateway for disclosures of other non-financial reporting frameworks that could be used to meet investor and public interest of the “public” company– these include non financial disclosures related to manufactured capital, intellectual capital, human capital, social and relationship capital, and natural capital more accurate picture of the company’s comprehensive value to the marketplace.


The U.S. Census Bureau projects that by 2044, more than half of all Americans will belong to a minority group4


Know how to evaluate a company's commitment to diversity

For investors looking to be more hands on in their approach, there are resources available that can help them evaluate if companies are cultivating a successful, diverse workplace. For example, Bloomberg has created a Financial Services Gender-Equality Index, which includes 26 public companies in the financial services sector.

Make decisions based on measurable results

Companies should be able to measure results on issues like compensation, development opportunities and the makeup of its workforce and leadership team to show their progress toward diversity.5 Investors should focus on those that can link these strategies to employee satisfaction, performance and the bottom line.

Stay ahead of this growing trend

Demographic trends indicate that the U.S. population will only become more diverse in the future. To remain successful, companies need to reflect these changing demographics in order to better understand the point of view of their consumers and retain top talent among their employees.

Background on the US SEC Report Issued to American Corporations for Disclosure:

Section 342 of the Dodd-Frank Wall Street Reform and Consumer Protection Act mandated the creation of the Office of Minority and Women Inclusion in all agencies covered by the act and requires that each OMWI develop standards for assessing the diversity policies and practices of entities regulated by those agencies.

The National Credit Union Administration was among six federal agencies that published the Final Interagency Policy Statement Establishing Joint Standards for Assessing the Diversity Policies and Practices of Entities Regulated by the Agencies in June 2015. Additionally, the Consumer Financial Protection Bureau published a Diversity and Inclusion Strategic Plan 2016-2020.

These agencies have provided practical advice for compliance with Section 342, which was enacted to address the under-representation of women and minorities in the financial services industry. While programs will vary according to each organization’s characteristics, regulated entities of any size would be well served to heed the agencies’ guidance. This brief overview outlines recommendations for creating a compliant diversity and inclusion program and conducting annual self-assessments in four areas: (1) organizational commitment to D&I, (2) workforce and employment practices, (3) procurement and business practices, and (4) practices to promote transparency of organizational D&I.

While the final standards are “voluntary,” there are compliance, business and social corporate responsibility reasons why entities would be well served to comply with the Final Standards.

First, in a highly regulated industry, entities should always strive to be seen as good corporate citizens in the eyes of their regulators. Second, diversity leads to innovation, expands the reach into multicultural markets and correlates with stronger financial performance.

And finally, it is the right thing to do in a world that is increasingly diverse and global.

From the US SEC Report:

  1. Define Diversity and Inclusion for Your Organization
    The first step in establishing a D&I program is to establish a baseline definition for “diversity.” The Final Standards narrowly define diversity and use the term to include minorities (African Americans, Native Americans, Hispanic Americans, and Asian Americans) and women, though the standards do not preclude using a broader definition. The CFPB Strategic Plan defines diversity more broadly as “the range of differences including backgrounds, identities (including but not limited to, race, ethnicity, age, sexual orientation, disability, gender, gender identity, religion, disability, and sex), perspectives, and working styles that employees and stakeholders bring to the CFPB to better serve consumers.” 

          It is important that your compliance program recognize the difference between diversity and inclusion. Diversity is quantitative (e.g., how many diverse                   vice presidents does an entity have?) and exists on some level in every organization. The standards define inclusion as “a process to create and maintain               a positive environment that values individual similarities and differences, so that all can reach their potential and maximize their contributions to an                         organization.” a Self-Assessment to Identify Existing Practices and Opportunities for Growth

  1. Conducting self-assessments allows businesses to expand initiatives that are already a part of the organization’s culture and to identify opportunities for new programs to drive progress. Nothing in the standards requires an organization to start from square one. In fact, entities are often surprised to learn what various departments within their organization are doing in furtherance of D&I objectives, even in the absence of a formal initiative. Many organizations conclude the self-assessment process with a uniquely tailored strategic plan for launching entirely new initiatives to promote D&I within their organizations.

          A word of caution about self-assessments: While federal agencies have stated they will not use their examination or supervisory processes in connection               with the Final Standards, that does not mean that an entity’s submission of a self-assessment will remain confidential. Organizations should anticipate                     that agencies could produce self-assessments in response to Freedom of Information Act requests.

  1. Tailor Your D&I Program to Fit the Needs of Your Organization
    Section 342 programs are not “one size fits all.” The standards allow each entity to tailor its approach to compliance, taking into account its size, total assets, number of employees, governance structure, revenue, number of members and/or customers, contract volume, geographic location and community characteristics. While the Final Standards focus primarily on entities with more than 100 domestic employees, smaller entities are encouraged to comply to the extent applicable.
  2. Demonstrate the Organization’s Commitment to D&I
    We recommend that entities develop a strategic plan approved and supported by senior leadership, focusing on supplier diversity and employment practices (hiring, recruiting, retention and promotion). In drafting the strategic plan, entities should set real but attainable goals and regularly measure progress toward achieving them. The entity also should identify a senior D&I official to oversee and direct these efforts. Senior-level management should not only be involved in approving D&I hiring and procurement decisions but should be engaged in policy decisions affecting D&I. The executive team should also should evaluate its own demographics to ensure that diverse points of view are present at that level and look for opportunities to integrate D&I into organizational culture and core values. 
  3. Emphasize the Importance of Tracking D&I-Related Initiatives
    Metrics are an invaluable component to the success of any D&I program, as they help to illustrate successes and challenges. In our experience, quantitative data can provide a clearer picture than anecdotal information alone with respect to where organizations should focus their efforts.                      
  4. Make D&I Part of Your Workforce Profile and Employment Practices A compliant Section 342 program includes proactive employment practices focused on raising the organization’s D&I profile. An entity should take steps to ensure diverse candidate pools by recruiting at diverse events, partnering with diverse organizations and conducing community-specific outreach. Once diverse candidates are hired, efforts to retain them must also be made, such as instituting talent and leadership development programs, fostering mentorship and sponsorship programs and establishing employee affinity groups. 
  5. Establish a Supplier Diversity Program with Procurement Goals
    Entities should develop a supplier diversity policy to ensure that the goal of engaging diverse-owned businesses is achieved, including minority-owned business enterprises and women-owned business enterprises. Entities should consider including requests for D&I information in requests for proposal from suppliers and create and publish a supplier guide notifying suppliers of the company’s commitment to supplier diversity and the factors the company considers when awarding supplier contracts.  
  6. Celebrate Organizational D&I Initiatives Through Promotion and Transparency
    Entities should publicize their commitment to D&I by publishing a public D&I report and statements from top executives explaining the importance of D&I initiatives, for example. D&I reports should include metrics to demonstrate progress toward short- and long-term goals.
  7. Make Community Engagement Part of Your D&I Initiatives
    While not articulated in the standards, entities might also consider their community investment initiatives that benefit minority-led and minority-serving charitable organizations. In working with regulated entities, we have found that many organizations already engage in community partnership activities with a diversity focus, including board service, sponsorships, cash support and in-kind contributions. 
  8. Start Now, But Take a Long-Term Approach
    Because D&I should touch all facets of an organization, a successful Section 342 program will not be developed overnight. Its creation takes thoughtful planning, molding the entity’s unique characteristics into a workable design to further meaningful D&I on an enterprise-wide basis.

 Source: Above

EDITORIAL Now that financial data for public companies is tagged as required by the US SEC  -- can XBRL be extended to tag data that will be disclosed in non-financial information disclosed by companies under the watch of the US SEC and then made available on the US SEC EDGAR SYSTEM to the investing public?

By comparing financial tagged data in XBRL with non financial data tagged by XBRL issued by public companies -- we can move toward "integrated reporting" that allows for the financial performance to be linked via technology to non financial disclosure for more effective capital market usage since data will be in a machine readable format for instant analysis. 

A great video from Deloitte was created on this very topic worth watching on this topic.

Benefits of making disclosed data in XBRL machine-readable

The Deloitte video above shows the power of using technology to link these data sets as we move toward the disclosure of additional non financial information data sets.

Its great the US SEC has created (under the Dodd Frank Act) an Office of Minority and Women Inclusion (OMWI). It would be great if the agency would create an office of Sustainable, Responsible and Impact Investing (SRI) is an investment discipline that considers environmental, social and corporate governance (ESG) criteria to generate long-term competitive financial returns and positive societal impact.
This US SEC office can look at CSR reporting that could also be disclosed by companies to address investor demand in this area -- considering that 1 in 5 dollars coming from the investment community is directed to Sustainable, Responsible and Impact Investing (SRI). 

Stay tuned. Important first step in the US toward additional non financial reporting disclosures.