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Affirmative Action Rules hidden in Financial Reform Bill

August 23, 2010

Surprise! Wall Street Reform Bill Contains Massive New Affirmative Action Requirements
Written by Wayne D. Landsverk
Miller Nash LLP,
Oregon and Washington Law Firm

With all the media attention given to the Dodd-Frank Wall Street Reform and Consumer Protection Act, there was almost no mention of a far-reaching provision (Section 342) that imposes new diversity requirements on businesses in or connected to the financial industry.
Section 342 requires that within six months of July 21, 2010, each of the following federal agencies establish its own Office of Minority and Women Inclusion (“OMWI”):

• Board of Governors of the Federal Reserve
• Comptroller of the Currency
• Consumer Financial Protection Bureau
• Department of the Treasury
• Federal Deposit Insurance Corporation
• Federal Housing Finance Agency
• Federal Reserve Regional Banks (12 separate banks)
• National Credit Union Administration
• Securities and Exchange Commission

The director of each OMWI is required by Section 342 to develop and implement his or her own standards and procedures “to 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.”  (Emphasis added.)  Contractors, in turn, will be required to provide a written statement that they—and their subcontractors—have fairly included women and minorities in their workforces.  Each OMWI will also develop its own standards and procedures to determine “whether an agency contractor, and, as applicable, a subcontractor has failed to make a good faith effort to include minorities and women in its workforce.”  And if the OMWI decides there has been such a failure, the director will have the ability to recommend that the agency terminate the contract; make a referral to the Office of Federal Contract Compliance Programs (“OFCCP”); or take other appropriate action.

To whom will these new provisions apply?  Again, the language is breathtakingly broad:

“This section shall apply to all contracts of an agency for services of any kind, including the services of 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.  The contracts referred to in this subsection include all contracts for all business and activities of an agency, at all levels, including contracts for the issuance or guarantee of any debt, equity, or security, the sale of assets, the management of the assets of the agency, the making of equity investments by the agency, and the implementation by the agency of programs to address economic recovery.”

The bottom line is that all contractors, subcontractors, and providers of any kind of service to the financial agencies listed above, regardless of size, will be subject to scrutiny of their “fair inclusion” practices by each of these agencies under its own particular rules and standards.  For providers, contractors, and subcontractors covered by other affirmative action requirements, such as the OFCCP, the new oversight by the OMWIs will be an additional and potentially troublesome layer of rules and regulations.

During the six-month period before the OMWIs become operational and develop their own rules, businesses should review their existing contracts and subcontracts to determine whether they fall within the “fair inclusion” requirements of Section 342 and, if they do, consider what outreach and other diversity strategies they may wish to explore in preparation for the coming scrutiny.

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Discuss this article

WM August 24, 2010

Misleading title. This may be far-reaching, but it is hardly an onerous requirement. Companies providing contractors to these listed federal agencies must put something on paper that describes how their company enforces fair practices when it comes to hiring. This is a non story. The author is trying to make a mountain out of a molehill

JH August 25, 2010

What it seeks to do is worthy, especially knowing that our economy is tanking and that many will suffer mightily. Forging ahead with anti-discrimination laws and regulations helps ensure that the economic pain will be dealt out more equitably on the basis of race and gender. Since even liberals now agree that involuntary unemployment cannot, nor should not, be abolished, there will always be some level of economic pain being doled out in the economy. In the past, that pain was doled out according to race, ethnicity or gender. Clearly, we have progressed. Now all creeds get to feel that pain.

In spite of its worthy intentions, it won’t accomplish much – if anything. It has almost no teeth and what little teeth it has need not be used by the next administration. Yet, it will create numerous bureaucratic positions within government and will force all affected businesses to spend time and talent learning of the new rules and showing compliance.

True, it is a molehill, but it is in the context of a mountain of molehills. What’s one more? Not much really. But it remains a good example of what people of all political stripes should consider bad form in governance. It will not accomplish much, if anything, and yet will be paraded as having done much. Meanwhile, there is no concern for whether the ‘small’ amount of time and talent being spent on it (valued at mere millions of dollars) would not have been spent better elsewhere, such as on education, infrastructure or even cleaner energy sources.

Then again, I suppose there need not be any concern about directing resources responsibly once money is freed from any relevant connection to the resources it is supposed to represent.

All the same, employing “it won’t cost much” as sole justification for supporting more regulation will never result in the kind of government that anyone truly wants, other than those who hope that our government is crushed under the weight of its own avarice.

Marvin McConoughey August 26, 2010

It is an onerous (burdensome, oppressive, troublesome)imposition of an efficiency-degrading measure that further restricts American economic competitiveness. What is put on paper costs money. Once on paper, it will be subjected to costly government inspection, oversight, and possible federal lawsuits. Larger overhead staffs will be required, and new bureaucracies established. Private lawsuits will be likely, and legal exoneration is an empty victory after millions have been spent on years-long legal wars. The least-cost strategy will be to hire otherwise-unqualified workers. The social outcome will be unhelpful to the reputational status of whatever categories, racial or gender, are given preference. The truth is, all racial groups and both genders have large numbers of qualified workers already being employed. Their success is a better inducement than this petty-minded, inefficient, and rather insulting intrusion.

Marvin McConoughey August 26, 2010

Maximization of almost any good tends to become extremely expensive. The new law mandates affected federal agencies, and the businesses over which they oversee “to 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…” Am I correct in guessing that no estimate was ever developed, or permitted, on the cost of the maximizing that is being demanded? In real life, most of us, including businesses, value many competing worthy objectives and reach a reasonable balance of quality in all without a neurotic obsession on any single factor.

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