Sometimes a Speech is Just a Speech: A Board Diversity Update
Based on Acting Comptroller Hsu’s recent speech at a Women on Housing and Finance Public Policy luncheon, AABD believed that he was about to unilaterally alter the Interagency Statement on Diversity by suggesting that the OCC might require quotas to achieve racial, ethnic, and gender diversity on bank boards and senior management, and that lack of sufficient diversity may constitute an unsafe or unsound banking practice.
We were wrong. In a letter dated January 11, 2022, the OCC confirmed that the OCC still adheres to the Interagency Statement. That letter was in response to AABD’s December 3, 2021 letter.
The Interagency Statement did not call for quotas. It did not require banks to disclose the racial, ethnic, or gender makeup of their boards and management. It did not suggest that insufficient diversity might be an unsafe or unsafe banking practice, serving as grounds to take enforcement action. It did not urge banks to discriminate based on race, ethnicity, or gender to achieve diversity.
It did emphasize that diversity cannot be achieved by unlawful discrimination. It stated clearly that diversity is not the subject of bank examinations or bank regulation and does not create requirements to meet certain diversity goals.
AABD believes that its long-standing advice to bank boards of directors on diversity remains valid and consistent with law and regulation.
That advice is:
• Never impose quotas based in whole or in part on race, ethnicity, or gender
• Never discriminate based on race, ethnicity, or gender
• Never disclose the race, ethnicity, or gender of board members or management in any public filings
• In nominating board members, seek the best qualified candidates regardless of race, ethnicity, or gender, and cast a wide net in your community to assure inclusion of candidates regardless of race, ethnicity, or gender.
For some banks, recent government action may make it more difficult to adhere to our advice.
NASDAQ Rule and Lawsuit
Nasdaq adopted a rule in 2021 that requires the boards of directors of companies listed on NASDAQ to elect persons to two board seats (one for a female and one based on race, ethnicity, or sexual orientation) or else disclose in proxy statements why they have not.
The rule takes effect at different times depending on the listing on NASDAQ and other factors.
The SEC, which approved the rule, was sued on August 18, 2021 for compelling listed companies to illegally discriminate on the basis of race, gender, and sexual orientation. At least 17 states have supported the lawsuit.
NYS Superintendent of Financial Services Actions and Inactions
In July 2021, the predecessor to the Acting Superintendent ordered banks under her jurisdiction to disclose the gender, racial, and ethnic makeup of their boards and strongly encouraged them to adopt a quota system. AABD wrote to the current Superintendent for guidance on December 3, 2021 (addendum here) but has not received a response.
California adopted laws that require publicly held companies with their principal executive offices in California (regardless of where they are incorporated) to include minimum numbers of persons self-identifying as women and those from underrepresented communities to serve on those boards.
Washington state law requires public companies incorporated in the state to have at least 25 percent of their boards consist of those who self-identify as women or disclose to shareholders how they consider diversity and measures taken to address a lack of diversity.