[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]




 
                     DIVERSITY: THE GAO PERSPECTIVE

=======================================================================

                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON
                      OVERSIGHT AND INVESTIGATIONS

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                       ONE HUNDRED NINTH CONGRESS

                             SECOND SESSION

                               __________

                             JULY 12, 2006

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 109-107


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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                    MICHAEL G. OXLEY, Ohio, Chairman

JAMES A. LEACH, Iowa                 BARNEY FRANK, Massachusetts
RICHARD H. BAKER, Louisiana          PAUL E. KANJORSKI, Pennsylvania
DEBORAH PRYCE, Ohio                  MAXINE WATERS, California
SPENCER BACHUS, Alabama              CAROLYN B. MALONEY, New York
MICHAEL N. CASTLE, Delaware          LUIS V. GUTIERREZ, Illinois
EDWARD R. ROYCE, California          NYDIA M. VELAZQUEZ, New York
FRANK D. LUCAS, Oklahoma             MELVIN L. WATT, North Carolina
ROBERT W. NEY, Ohio                  GARY L. ACKERMAN, New York
SUE W. KELLY, New York, Vice Chair   DARLENE HOOLEY, Oregon
RON PAUL, Texas                      JULIA CARSON, Indiana
PAUL E. GILLMOR, Ohio                BRAD SHERMAN, California
JIM RYUN, Kansas                     GREGORY W. MEEKS, New York
STEVEN C. LaTOURETTE, Ohio           BARBARA LEE, California
DONALD A. MANZULLO, Illinois         DENNIS MOORE, Kansas
WALTER B. JONES, Jr., North          MICHAEL E. CAPUANO, Massachusetts
    Carolina                         HAROLD E. FORD, Jr., Tennessee
JUDY BIGGERT, Illinois               RUBEN HINOJOSA, Texas
CHRISTOPHER SHAYS, Connecticut       JOSEPH CROWLEY, New York
VITO FOSSELLA, New York              WM. LACY CLAY, Missouri
GARY G. MILLER, California           STEVE ISRAEL, New York
PATRICK J. TIBERI, Ohio              CAROLYN McCARTHY, New York
MARK R. KENNEDY, Minnesota           JOE BACA, California
TOM FEENEY, Florida                  JIM MATHESON, Utah
JEB HENSARLING, Texas                STEPHEN F. LYNCH, Massachusetts
SCOTT GARRETT, New Jersey            BRAD MILLER, North Carolina
GINNY BROWN-WAITE, Florida           DAVID SCOTT, Georgia
J. GRESHAM BARRETT, South Carolina   ARTUR DAVIS, Alabama
KATHERINE HARRIS, Florida            AL GREEN, Texas
RICK RENZI, Arizona                  EMANUEL CLEAVER, Missouri
JIM GERLACH, Pennsylvania            MELISSA L. BEAN, Illinois
STEVAN PEARCE, New Mexico            DEBBIE WASSERMAN SCHULTZ, Florida
RANDY NEUGEBAUER, Texas              GWEN MOORE, Wisconsin,
TOM PRICE, Georgia                    
MICHAEL G. FITZPATRICK,              BERNARD SANDERS, Vermont
    Pennsylvania
GEOFF DAVIS, Kentucky
PATRICK T. McHENRY, North Carolina
CAMPBELL, JOHN, California

                 Robert U. Foster, III, Staff Director
              Subcommittee on Oversight and Investigations

                     SUE W. KELLY, New York, Chair

RON PAUL, Texas, Vice Chairman       LUIS V. GUTIERREZ, Illinois
EDWARD R. ROYCE, California          DENNIS MOORE, Kansas
STEVEN C. LaTOURETTE, Ohio           CAROLYN B. MALONEY, New York
MARK R. KENNEDY, Minnesota           STEPHEN F. LYNCH, Massachusetts
SCOTT GARRETT, New Jersey            ARTUR DAVIS, Alabama
J. GRESHAM BARRETT, South Carolina   EMANUEL CLEAVER, Missouri
TOM PRICE, Georgia                   DAVID SCOTT, Georgia
MICHAEL G. FITZPATRICK,              DEBBIE WASSERMAN SCHULTZ, Florida
    Pennsylvania                     GWEN MOORE, Wisconsin
GEOFF DAVIS, Kentucky                BARNEY FRANK, Massachusetts
PATRICK T. McHENRY, North Carolina
MICHAEL G. OXLEY, Ohio


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    July 12, 2006................................................     1
Appendix:
    July 12, 2006................................................    27

                               WITNESSES
                        Wednesday, July 12, 2006

Fernandez, Manuel J., National Managing Partner, Campus 
  Recruiting, KPMG, LLP..........................................    11
Lackritz, Marc E., President, Securities Industry Association....     5
Loumiet, Carlos E., co-Chair, Capital Advocacy Committee, New 
  America Alliance...............................................     9
Williams, Orice M., Director, Financial Markets and Community 
  Investment, U.S. Government Accountability Office..............     4
Wilson, Donna Sims, member, Board of Directors and Chair, 
  National Legislative Committee, National Association of 
  Securities Professionals.......................................     7

                                APPENDIX

Prepared statements:
    Baca, Hon. Joe...............................................    28
    Fernandez, Manuel J..........................................    30
    Lackritz, Marc E.............................................    39
    Loumiet, Carlos E............................................    47
    Williams, Orice M............................................    53
    GAO Report on Diversity......................................    72
    Wilson, Donna Sims...........................................   119

              Additional Material Submitted for the Record

    Statement of the Independent Insurance Agents & Brokers of 
      America....................................................   136
Baca, Hon. Joe:
    Responses to questions submitted to GAO......................   141


                     DIVERSITY: THE GAO PERSPECTIVE

                              ----------                              


                        Wednesday, July 12, 2006

             U.S. House of Representatives,
                          Subcommittee on Oversight
                                and Investigations,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to notice, at 2:30 p.m., in 
room 2128, Rayburn House Office Building, Hon. Sue W. Kelly 
[chairwoman of the subcommittee] presiding.
    Present: Representatives Kelly, Kennedy, Gutierrez, 
Cleaver, Scott, Moore of Kansas, and Frank.
    Also present: Representatives Waters and Meeks.
    Chairwoman Kelly. The Subcommittee on Oversight and 
Investigations will come to order. With unanimous consent, we 
are going to try to truncate the initial process a bit. Because 
we started late, we will try to make up for a little bit of 
that so people who are here who need to make planes can do 
that. So without objection, all of the members' opening 
statements will be made part of the record, and we will 
dispense with the opening statements today. Also, without 
objection, the witnesses' written statements will be made part 
of the record, but we will come back to them for their oral 
testimony.
    Today's hearing is on diversity: the GAO perspective. It 
follows up on a hearing conducted by the subcommittee in 2004 
that looked at the progress women and ethnic minorities were 
making in employment at our largest financial services 
corporations. That hearing exposed the progress that has been 
made in recent years but it also left some questions as to what 
the true metrics of the situation were. At the conclusion of 
that hearing, Chairman Oxley, Mr. Frank, Mr. Gutierrez, Mr. 
Scott, and myself asked the GAO to conduct an empirical study 
of minorities in the financial services industry and the 
progress that they were making. Today, we unveil that report. 
And without objection, with unanimous consent that report will 
become part of the record. So moved.
    Chairwoman Kelly. The findings of the report show that the 
intentions and results in diversity programs are no longer 
tracking each other. There is no question that every company in 
the financial services industry is committed to providing 
opportunity for all employees, and to seeking out and training 
promising diverse candidates at both entry level and mid-career 
stages. The industry is to be commended for its commitment to 
diversity. Unfortunately, the report also showed that the 
overall level of diversity within the industry has barely 
changed. Minority employment at mid- and senior levels has only 
slightly improved and there is no evidence that programs to 
improve diversity, as opposed to demographic changes, are 
responsible for any of this increase. Today's hearing will go 
into these figures in more thorough detail through a discussion 
with the GAO author of the report. We will also hear from 
representatives of the financial services industry to find out 
where programs are working that can help add results to our 
shared commitment to workplace diversity and opportunity for 
all Americans.
    I am now going to yield. You have a 1-minute opening 
statement, Mr. Scott, if you would like to make it. And, Mr. 
Cleaver, you also have 1 minute. We have been called for a vote 
so if you could make your statements and then perhaps we could 
get started quickly before we all have to go to the Floor for a 
vote. It is actually three votes, and so it will be a bit of 
time when we are up on the Floor. Mr. Scott?
    Mr. Scott. Thank you very much, Madam Chairwoman. And I 
want to just thank our participants for coming. This is an 
extraordinarily important issue--diversity in the workplace, 
particularly in our financial services industry. It is very 
critical as we strive to ensure that minorities, African 
Americans and others, have an ample opportunity to be in key 
decisionmaking positions as we look at key issues of building 
wealth, financial literacy, holding on to what we have, and 
making sure that we bring promise to the realization that, in 
fact, our strength in this country is our strength in 
diversity. And so I am looking forward to the testimony, and 
thank you, Madam Chairwoman.
    Chairwoman Kelly. Thank you. Mr. Cleaver?
    Mr. Cleaver. Thank you, Madam Chairwoman. I think many of 
you perhaps saw the Monday edition of The Washington Post where 
they did their annual review of regional salaries of CEO's. And 
they did color photographs to make it even clearer that 
minorities and women are still challenged to break through the 
glass ceiling. In some instances, this is a cement ceiling and 
then steel on top. And so I am very interested in your 
responses to what kind of movement you are able to experience. 
And I regret--I was looking forward to this all week, I don't 
know, maybe I can call some of you at home tonight and pick 
your brain.
    Chairwoman Kelly. Thank you, Mr. Cleaver. I am going to 
introduce this panel. Our first witness is Orice Williams of 
the Government Accountability Office. Ms. Williams has over 15 
years experience at GAO and is currently the Director in GAO's 
Financial Markets and Community Investments Team. Ms. Williams 
received an MBA with a concentration in finance from Virginia 
Tech and a B.S. degree in business and finance from Virginia 
Commonwealth University. And we have Mr. Marc Lackritz, who is 
the president of the Securities Industry Association. He was 
elected in 1992 after serving as executive vice president and 
head of the Washington office since 1990. Mr. Lackritz received 
his law degree from Harvard, a master's degree in economics 
while on a Rhodes Scholarship at Oxford University, and a 
bachelor's degree in public policy from Princeton University. 
We have Donna Sims Wilson, who is an executive vice president 
and head of equities sales and trading at M.R. Beal & Company. 
Ms. Wilson received her bachelor of arts degree in political 
science from Yale University. We also have Mr. Carlos--please 
tell me how to pronounce your name, sir? Please turn the 
microphone on so I can hear that. That is it, push the bottom.
    Mr. Loumiet. Loumiet, Madam Chairwoman.
    Chairwoman Kelly. Loumiet? Thank you, now we all know. Mr. 
Loumiet has been actively involved in domestic and 
international banking fields for more than 28 years. Over that 
period of time, he has witnessed, and been involved in, 
virtually all of the major events which have marked the banking 
industry. And, finally, we have Manuel Fernandez, who serves as 
the national managing partner, Campus Recruiting, for KPMG. He 
holds a bachelor's of science in accounting from Fairleigh 
Dickenson University and is a member of the board of trustees 
of the Colorado Symphony.
    We welcome you all. This hearing is going to be 
interrupted. As you can see from the lights, we have been 
called for a vote. There will be three votes and so I am going 
to start--perhaps we should just do the break right now and 
then come back so we can have all of you speak at once and that 
way we can have continuity. So I am going to recess this 
hearing for approximately--I would think the three votes would 
take at least 20 to 25 minutes before we get back here. Sorry 
to do this but it is a necessity, and I appreciate your 
patience with this. So we are going to recess the hearing, and 
we will meet back here in a few minutes. Thank you.
    [Brief recess]
    Chairwoman Kelly. This committee will resume. We will have 
an opening statement from the ranking member.
    Mr. Gutierrez. Thank you. I am really looking forward to 
this hearing. From my perspective, minority hiring in financial 
services is not just a matter of diversity in the workplace. If 
we expect to compete and thrive in the global economy, we have 
to utilize the valuable resource of talented minority financial 
professionals we have in America. The recently released GAO 
report on this topic demonstrates that the minority community 
remains an untapped asset for the financial sector. On our 
second panel today, we will hear from some very talented 
minority financial services professionals. These professionals 
are role models in their community. And there really is no 
substitute for role models. When I was growing up, I didn't 
know any Latino accountants, stockbrokers, or investment 
bankers. Now, I am married to one. We have come a long way but 
we have a lot further to go. One of our witnesses today, in his 
written testimony, made the comment that we don't want to look 
back 12 years from now and find ourselves in the same 
situation. I agree. That is why I am issuing a challenge today 
to the witnesses on our second panel. You represent some of the 
most powerful companies and organizations in the financial 
services industry. I want to challenge you to get together and 
draft a pledge to be signed by representatives of all the 
sectors of the financial services industry that over the next 
decade you will work to double the percentages of minority-
holding management level positions in the industry. This 
committee can request studies and Congress can pass bill after 
bill, but the government does not have all of the answers. This 
is an issue of untapped potential and the industry needs to 
wake up and realize this before it affects our ability to 
compete in the very diverse global market. If you can do this, 
if you can get your industry together to sign such a pledge, I 
know the members of this committee will give you all our 
support.
    Thank you, once again, for all of your hard work.
    Madam Chairwoman, I ask unanimous consent--on this side we 
have several members of the Full Committee who are not members 
of this subcommittee, but would like to participate. Therefore, 
I ask unanimous consent that Representatives Waters, Meeks, 
Lee, and Baca be allowed to give opening statements and ask 
questions in today's hearings. In addition, we have a former 
member of the Financial Services Committee, who has been active 
on this issue, and would like to participate in today's 
proceed. I ask unanimous consent that Congressman Gonzalez be 
permitted to ask questions of our witnesses. Finally, the 
Independent Insurance Agents and Brokers of America have 
submitted a written statement. I ask unanimous consent that the 
statement be admitted into the record.
    Chairwoman Kelly. So moved. The panel having already been 
introduced, let's begin with you, Ms. Williams.

STATEMENT OF ORICE M. WILLIAMS, DIRECTOR, FINANCIAL MARKETS AND 
  COMMUNITY INVESTMENT, U.S. GOVERNMENT ACCOUNTABILITY OFFICE

    Ms. Williams. Madam Chairwoman, Ranking Member Gutierrez, 
and members of the subcommittee, I am pleased to be here this 
afternoon to discuss GAO's report on diversity in the financial 
services industry. In particular, I would like to focus on two 
areas: First, trends in management level diversity and 
diversity initiatives; and, second, the ability of minority- 
and women-owned businesses to gain access to capital. In 
summary, our analysis of EEOC's data on workforce demographics 
reveal that between 1993 and 2004, overall management level 
representation by minorities and women in the financial 
services industry has not changed substantially. However, the 
change has varied somewhat by racial and ethnic group.
    Briefly, let me draw your attention to the color graphic 
provided with my written statement. The blue line represents 
overall minorities at the management level, which increased 
from about 11 percent in 1993 to 15.5 percent in 2004. The four 
color coded lines below show the changes for the four racial 
and ethnic groups we studied: African Americans, Asian 
Americans, Hispanic Americans, and American Indians. The gray 
line--which has remained relatively constant at slightly more 
than one third over this period--represents white women. We 
also found that certain sectors, such as depository 
institutions and insurance within this industry, are more 
diverse at the management level than others.
    In addition to analyzing the trends, we also collected 
information about diversity initiatives and programs from 
dozens of firms and trade associations. We found that many had 
programs or initiatives to increase workforce diversity and 
that they faced a variety of challenges. We heard from several 
firms that diversity initiatives cannot be treated as programs. 
Instead, they have to be viewed as long-term commitments that 
may start at the top but must permeate the entire organization. 
We found that many firms had programs that focus on attracting, 
recruiting, and retaining a diverse workforce. This included 
offering scholarships and internships to students to attract 
them to the financial services industry, recruiting from a 
diverse pipeline, and fostering a working environment of 
inclusion that allows all employees to thrive. We found that 
some firms are trying to develop performance measures to gauge 
the effectiveness of their diversity efforts, which can be 
challenging. Some common measures identified were tracking 
employee satisfaction survey results and representation of 
women and minorities in key positions. These measures become 
more important as some companies are beginning to hold senior 
managers accountable for fostering a more diverse workforce, 
including linking managers' compensation to their performance 
with promoting diversity.
    However, we found that financial institutions face a 
variety of challenges that may provide insights into the 
statistics I mentioned earlier. In particular, we heard that 
maintaining the critical mass of minority employees needed to 
establish a visible presence, effective networks, and mentors 
for minority and women candidates has been an ongoing 
challenge.
    Another involved building a pipeline of diverse talent. 
Specifically, the financial services industry requires that 
many senior officials possess certain skills and credentials 
and the possible pool of candidates may be constrained by this 
requirement. For example, of accredited business schools, less 
than 25 percent of MBA students and about 16 percent of 
graduates, one potential talent pool for the industry, are 
minorities. In the accounting arena, about 8 percent of CPA's 
are minorities.
    Now, I would briefly like to turn my attention to the 
ability of minority and women business owners to gain access to 
capital. Research reports and our discussions with financial 
services firms and relevant trade groups suggest that minority- 
and women-owned businesses appear to have difficulty obtaining 
access to capital for several reasons. The reasons cited 
include a concentration in service-oriented businesses, lack of 
assets to pledge as collateral, or because of a lack of a 
proven track record of creditworthiness. However, other studies 
suggest that discrimination may be a factor but such analysis 
is complicated by limited data availability. We did find some 
commercial banks have developed strategies to market existing 
products to this rapidly growing segment of the market. 
However, opportunities to access equity capital are generally 
limited.
    This concludes my oral statement, and I would be happy to 
answer any questions at this time. Thank you.
    [The prepared statement of Ms. Williams can be found on 
page 53 of the appendix.]
    Chairwoman Kelly. Thank you, Ms. Williams.
    Mr. Marc Lackritz.

 STATEMENT OF MARC E. LACKRITZ, PRESIDENT, SECURITIES INDUSTRY 
                          ASSOCIATION

    Mr. Lackritz. Thank you, Madam Chairwoman, and members of 
the subcommittee. I am Marc Lackritz, president of the 
Securities Industry Association, and I appreciate the 
opportunity to testify on SIA's and our member firms' 
commitment to diversity and inclusion within the securities 
industry and the U.S. capital markets. We commend the 
subcommittee for requesting that the GAO study this important 
issue, and we are pleased to report that several of our members 
cooperated with GAO in preparing the report. By willingly 
sharing their diversity best practices and programs, our firms 
provided an important perspective on the breadth and depth of 
diversity activities in the securities industry. We believe 
this topic is critical to the future of our economy, our 
markets, our industry, and our investors.
    Over a decade ago, our association formed a board level 
diversity committee, comprised of senior level executives to 
increase industry understanding and development of the strong 
business case for building programs to develop multi-cultural 
workforces and client bases. Indeed, I am pleased to be on this 
panel with Donna Sims Wilson of M.R. Beal & Company because the 
founder of her firm, Bernard Beal, did an outstanding job as 
our first co-chair of our diversity committee in 1996 and 1997.
    Beginning almost 3 years ago, SIA's chairman increased our 
emphasis on diversity by making the expansion of our industry's 
efforts a top strategic priority for our association. Our 
aspiration is to ensure that the securities industry looks like 
America and is an inclusive, multi-cultural place to work. I am 
proud of the progress our firms have made to develop diversity 
initiatives in the workplace and improve their marketing and 
outreach to diverse customers. Our efforts are beginning to pay 
off as the number and variety of diversity programs in place 
among our member firms has risen dramatically. I am confident 
we will soon begin to see even more positive results reflected 
in statistics.
    As you may remember from our testimony before the 
subcommittee 2 years ago, we conduct an annual--or semi-
annual--excuse me, bi-annual industry-wide survey and study to 
help our firms meet the challenges and maximize the 
opportunities of an increasingly diverse workplace and customer 
base. One of the important things we have learned is that 
instead of emphasizing an end goal, the focus should be on the 
trend lines of progress and rates of change toward that goal. 
While we have achieved some encouraging results, we also know 
that we must make further inroads and improvements. Some of the 
positive trends include an increase of women in our workforce, 
a steady increase in the representation of people of color 
employed in the industry, and a growing percentage of retail 
brokers being women and people of color. Nearly one-fourth of 
senior level positions and over one-third of all middle level 
positions, plus analysts and associates, are held by people of 
color. These data are a positive sign of more inclusive 
advancement and promotion policies. An upward trend of nearly 
half the firms surveyed offering firm-wide career development 
focused mentoring programs targeted toward women, people of 
color, and other diverse populations.
    And, finally, nearly all respondents have flexible work 
policies and programs in place. And this is a positive sign 
that employers throughout our industry are utilizing 
flexibility to retain valued employees and enhance their 
performance.
    Our diversity committee began offering an annual leadership 
award in 2002 to encourage and recognize innovation in the 
policies and programs firms use to attract and retain minority 
employees. This award honors our member firms' commitment to 
building strong diversity initiatives and is a showcase for the 
depth and variety of diversity programs within the securities 
industry.
    In our reviews of member firms' diversity programs, we have 
found several common elements that contribute to a firm's 
success. Active engagement from senior management, for example, 
is a crucial element to the success of a firm's efforts. Other 
critical components are training, mentoring, networking, 
diversity councils, and tracking programs. Our diversity 
committee continues to make significant progress on the 
educational front, with our first annual diversity/human 
resources conference, a comprehensive Web site, 
teleconferences, roundtables, and inclusion of diversity in the 
core curriculum of our professional education programs.
    SIA and our member firms are committed to creating a 
diverse and inclusive workplace where all employees can succeed 
on their merits. We understand the importance of hiring, 
training, and retaining a diverse workforce to best meet our 
clients' needs. Although we have made significant progress, we 
know we must do more in the years ahead.
    We welcome your subcommittee's input on how we may further 
improve our diversity programs, and we look forward, Madam 
Chairwoman, to working with you and the subcommittee to achieve 
that important goal.
    [The prepared statement of Mr. Lackritz can be found on 
page 39 of the appendix.]
    Chairwoman Kelly. Thank you, Mr. Lackritz.
    Ms. Wilson.

STATEMENT OF DONNA SIMS WILSON, MEMBER, BOARD OF DIRECTORS AND 
CHAIR, NATIONAL LEGISLATIVE COMMITTEE, NATIONAL ASSOCIATION OF 
                    SECURITIES PROFESSIONALS

    Ms. Wilson. Good afternoon, Chairwoman Kelly, Ranking 
Member Gutierrez, and members of the subcommittee. I would also 
like to thank Chairman Oxley, Ranking Member Frank, and 
subcommittee member Scott, who signed the letter that made 
these hearings possible and who requested the GAO report.
    I am Donna Sims Wilson, chair of the legislative committee 
of the National Association of Securities Professionals or 
NASP. I am also an executive vice president and head of 
equities sales and trading at M.R. Beal & Company, a minority-
owned investment banking firm. I appreciate the opportunity to 
testify on behalf of NASP and our members. We commend the 
subcommittee for recognizing how important this topic is to the 
future of our economy, our markets, and our industry.
    Over the past 21 years, NASP has put in place model 
diversity initiatives to advance diversity within financial 
services industry. I will cite two examples. The Wall Street 
Finance and Scholastic Training Program, or Fast Track, was 
launched in 1996 and identifies high school students with an 
interest in our industry. In 10 years, Fast Track has become a 
national model and has had more than 800 graduates. Our annual 
mentor luncheon encourages minority and women undergraduate and 
MBA students to pursue careers in our industry. In addition, we 
maintain a career center on our Web site, which serves as a 
clearinghouse and job bank. This Web site is free to the public 
and can be assessed at our Web address.
    The GAO report findings regarding diversity at the 
management level are not surprising. While there have been some 
positive changes, the industry overall is still viewed as 
severely lacking and imbalanced when it comes to diversity. We 
believe that the best way to impact the diversity metrics is to 
do business with minorities and women wherever they are found, 
either within majority-owned firms or minority-owned firms. 
There must be both external and internal economic incentives to 
positively impact workforce diversity.
    The path to senior management and corporate board 
membership in majority firm institutions is job success. 
Minorities and women must have clients from whom they generate 
significant revenue. In minority- and women-owned firms, the 
same concept applies; the growth and viability of these 
institutions is dependent upon clients with whom they can do 
business.
    The Federal Government is a significant client within our 
industry and needs to lead by example by being diverse with its 
own resources. For example, there are substantial Federal pools 
of retirement money, such as the Federal Retirement Thrift, the 
PBGC, and the National Railroad Trust, among others. To date, 
no minority-owned firms manage assets for any of these agencies 
nor do minority-owned broker-dealers execute their trades. The 
evaluation process to hire service providers should include a 
diversity component with weight. All things being equal, like 
performance and fees, this additional evaluation mechanism 
could incentivize firms to improve their diversity profile.
    In the municipal finance arena, the Department of Defense 
is encouraging public/private partnerships to improve the 
quality of military housing. The Federal Government should 
evaluate all underwriters and other financial services 
providers with the same weighted diversity component. Three 
examples of government programs that have been successful 
include the former RTC, Fannie Mae's Access Program, and 
Freddie Mac's Golden Opportunities Program.
    The GAO report found that while many firms have initiated 
programs to increase workforce diversity, NASP also believes 
these businesses still face challenges. One, preconceived 
notions and prejudices about the effectiveness of minority and 
women professionals; two, the tendency to mentor and promote 
individuals from the same ethnic background regardless of 
merit; and, three, most emphasis on recruitment, not as much on 
retention and promotion of minority managers.
    Some of our recommendations to improve diversity include:
    Linking diversity components at the mid- and senior 
management levels to compensation;
    Targeting recruiting efforts for mid-level and senior-level 
management with well known organizations that support women and 
minorities, such as New America Alliance to my left; and
    Supporting the passage of the resolution and then 
legislation introduced by Congressman Meeks and co-sponsored by 
81 members to increase the diversity of our industry.
    As it relates to improving access to capital, we recommend 
allowing the SBA to make loans to small investment banking 
firms. We suggest that Congress assemble a national commission 
to study collectively practical solutions to access to capital 
for minority- and women-owned firms. Much of the groundwork to 
support such a recommendation has been completed and can be 
found in my written testimony.
    In conclusion, NASP is grateful for the opportunity to add 
our voice to the discussion. We stand ready to partner with the 
committee, other trade associations and firms to further our 
stated goal of ensuring that people of color and women are 
included in all aspects and at all levels of our industry. We 
believe that significant progress can be made on these crucial 
issues but only when there are clear, defined external and 
internal economic incentives, direct accountability, and 
enforcement.
    [The prepared statement of Ms. Wilson can be found on page 
119 of the appendix.]
    Chairwoman Kelly. Thank you very much.
    Mr. Loumiet.

  STATEMENT OF CARLOS E. LOUMIET, CO-CHAIR, CAPITAL ADVOCACY 
                COMMITTEE, NEW AMERICA ALLIANCE

    Mr. Loumiet. Madam Chairwoman, Ranking Minority Member 
Gutierrez, and members of the subcommittee, on behalf of the 
New America Alliance, an organization of American Latino 
business leaders focused on the advancement of the American 
Latino community for the benefit of the United States as a 
whole, I wish to thank you for the opportunity to appear before 
you today.
    Two years ago this spring, the New America Alliance 
suggested that this subcommittee, which has oversight 
jurisdiction over most of the entities comprising the U.S. 
financial services sector, hold hearings on the issue of 
diversity in the financial services industry. To your credit, 
and demonstrating that the members of this subcommittee on both 
sides of the aisle really believe in the fundamental American 
concept of equal opportunity for all, the hearing took place in 
July 2004. The New America Alliance's then-Chair, Ana Marie 
Fernandez Haar, was honored by being allowed to testify at that 
hearing. Following the hearing, we requested that this 
subcommittee approach the GAO to see what information that 
agency could collect on the status of diversity in the 
financial services industry. The GAO has now completed its 
report entitled, ``Financial Services Industry: Overall Trends 
in Management Level Diversity and Diversity Initiatives 1993 to 
2004.''
    We wish to again commend this subcommittee and the GAO for 
this very important first effort in the form of the GAO report. 
It is impossible based solely on anecdotal evidence to 
determine to what extent progress has been achieved and to what 
extent it remains to be achieved in an industry as extensive 
and as vital to all of us as Americans as the financial 
services industry. That industry not only holds, invests, and 
manages must of the savings of all of our people, it is also a 
source of virtually all consumer and commercial credit in our 
country.
    Given the importance of the financial services industry to 
the economic advancement of all persons in our country, we 
believe it is particularly important that this industry 
reflect, to the extent possible, the very diverse human 
community that we are privileged to have in this country. We 
believe that over time this will largely happen anyway, both as 
a matter of demographics and through market forces. The issue 
before us today--are there non-coercive ways available to this 
subcommittee to accelerate this process so that the time 
involved and the human lives measured will be shortened?
    We also believe in what the late President Theodore 
Roosevelt used to call the ``bully pulpit,'' as well as that 
our national leaders must periodically mount that pulpit and 
lead. In this regard, we believe that the hearings held by this 
subcommittee in July 2004 and now, as well as the GAO report, 
send a powerful first message to the financial services 
industry that the honorable members of this subcommittee do 
care whether there is equality of opportunity for all in this 
industry.
    There are, of course, many ways for this committee to 
continue to manifest its interest in this issue. Some can be 
extremely informal. Imagine, for example, that the honorable 
members of the House Financial Services Committee, acting 
individually, decided to systematically take advantage of their 
frequent meetings with constituents or their representatives to 
ask about the status of diversity in each constituent's 
business, and perhaps even request a brief written update on 
the constituent's efforts, programs, and results in this 
regard. Were this to become a common approach among many 
members of the committee, a very powerful message would quickly 
be sent to the entire industry.
    In terms of more formal Congressional action, we would very 
much like to see various follow-up inquiries on the GAO report. 
For example, we would like the GAO to survey leading entities 
in various sectors of the industry to see what the status is of 
diversity among these firms, what programs they are utilizing 
to improve diversity, and with what success. We realize that 
neither this subcommittee nor the GAO has the power to compel 
private sector responses to such surveys, but we believe it 
highly unlikely that the firms approached in this regard by 
this subcommittee would decline to respond. It would be a great 
honor for us in the New America Alliance to work with this 
subcommittee and the GAO in this effort.
    Similarly, we would like to see the GAO inquire of the 
Federal regulatory agencies responsible for our Nation's 
financial services industry, the OCC, the Federal Reserve, the 
FDIC, the OTS, and the SEC, what the status of diversity is 
within their own agencies, what programs they have in place to 
promote diversity, and what the results of those programs have 
been. While we believe that we have adequate legislation in 
place, we also believe that as a practical matter it is 
difficult for regulators responsible for the implementation of 
that legislation to lead the way if their own agencies are not 
themselves achieving diversity.
    The New America Alliance commends and thanks in particular 
Representatives Oxley, Frank, Gutierrez, Scott, and you, Madam 
Chairwoman, for requesting that the GAO provide the overview on 
the status of diversity in the financial services industry. As 
you can see, in all of the instances what we are essentially 
asking the subcommittee to do is to continue to shine a 
powerful spotlight on this issue, allowing the innate sense of 
fairness that is strong in the American people, together with a 
market, the press, and organizations like ours and the other 
ones appearing before you today to take the matter further.
    Thank you very much.
    [The prepared statement of Mr. Loumiet can be found on page 
47 of the appendix.]
    Chairwoman Kelly. Thank you very much.
    Mr. Fernandez?

 STATEMENT OF MANUEL J. FERNANDEZ, NATIONAL MANAGING PARTNER, 
                  CAMPUS RECRUITING, KPMG, LLP

    Mr. Fernandez. Good afternoon, Chairwoman Kelly, Ranking 
Member Gutierrez, and members of the subcommittee. My name is 
Manny Fernandez, and I am KPMG's national managing partner for 
campus recruiting. KPMG is a Big Four accounting firm that 
provides audit, tax, and advisory services to a global 
clientele. Beyond my responsibilities for the firm's recruiting 
strategy and execution, I continue to have client 
responsibilities serving a Fortune 300 client. Beyond my role 
at KPMG, I also sit on the board of the KPMG Foundation. The 
mission of the Foundation is to enhance business higher 
education, and community involvement.
    By way of background, I came to the United States from Cuba 
when I was 8 years old. After college, I took a job with KPMG 
where I have worked for 22 years, including the last 10 as a 
partner. I have experienced firsthand KPMG's powerful 
commitment to a diverse workforce. Being bilingual has 
contributed greatly to my success at KPMG and it has been very 
valuable to the firm as well. For example, in 1994, I took a 3-
year assignment in Mexico City, serving our large multi-
national clients with substantial Latin American operations.
    KPMG is committed to increasing the diversity of employees 
and partners nationwide. Currently, 25 percent of our 
professionals and 6 percent of our partners are minorities. 
While we are proud of the progress we have made, we are by no 
means satisfied. We can and will do better.
    Along with our competitors, KPMG aggressively seeks to 
attract and retain qualified minority accountants. But as the 
GAO report notes, ``One reason for the lack of diversity in key 
positions in the industry is that relatively few racial, ethnic 
minorities tape the CPA exam and thus relatively few minorities 
are CPAs.''
    KPMG and the KPMG Foundation are advancing systemic 
solutions to the problems of supply and quality of minority 
accounting students. We have programs to grow the pool of 
qualified business graduates of our universities and colleges, 
including Historically Black Colleges and Universities. Twelve 
years ago, the Foundation introduced the following three 
programs: the Ph.D. Project, the Minority Doctoral Scholarship 
Program, and the HBCU Accreditation Grant Program. One barrier 
we identified to attracting minorities to business graduate 
programs was the lack of minority faculty to serve as role 
models and mentors. The Ph.D. Project's mission is to increase 
the number of minority faculty in business schools. Twelve 
years ago, out of 26,000 business school professors, we could 
identify only 294 that were either African-American, Latino, or 
Native American. Today, through the work of the Ph.D. Project 
and initiatives by others, there are 812 minority faculty with 
346 minority doctoral students in the pipeline.
    The investment in the Ph.D. Project to date exceeds $17.5 
million, with the Foundation having provided nearly $8.5 
million of that, as well as all administrative costs since 1994 
on a pro bono basis. The Foundation has also given $8.2 million 
in direct doctoral scholarships and grants to minority 
students. Over 25 percent of the minority accounting faculty 
added in the last 12 years have received scholarships from the 
Foundation.
    Lastly, we have the HBCU Accreditation Grant Program. While 
putting in place the Ph.D. Project, we recognized that over 35 
percent of African Americans earning business degrees were from 
Historically Black Colleges and Universities. To assist those 
institutions in gaining accreditation from the premier 
accreditation organization for business schools, the 
Association of Advanced Collegiate Schools of Business 
International, the AACSB, we offered grants to cover the 
accreditation candidacy process. Currently, there are 82 HBCU's 
that grant undergraduate business degrees. When we started this 
program, only five HBCU's had AACSB accreditation. Today, there 
are 16 and another eight in the pipeline. The Foundation has 
established endowments and annual scholarships at a number of 
HBCU's.
    In conclusion, KPMG is committed to increasing the 
diversity of our professionals, and in particular our partners, 
and the graduate student populations to assist in bringing more 
minorities into the accounting field. We are proud of the steps 
we have taken to recruit, retain, and promote minority 
accountants. We are equally proud of our Foundation's programs 
that are creating a new generation of minority accountants 
throughout the accounting profession. Diversity is critical to 
KPMG's future and helps us deliver on our promise of 
professionalism, to ourselves, to our clients, and to our 
capital markets that we serve.
    Thank you for this opportunity to share my views.
    [The prepared statement of Mr. Fernandez can be found on 
page 30 of the appendix.]
    Chairwoman Kelly. Thank you very much, Mr. Fernandez. Ms. 
Williams, your testimony is very clear that the financial 
services industry is committed to diverse employment. 
Unfortunately, it doesn't seem to be working. One of the things 
that seems to be of difficulty is putting metrics on things 
like the informal structures and networks, friendship circles, 
common experiences, the things that help people determine 
hiring and promotion. And many employees, according to your 
testimony, say that these are barriers to their promotion. From 
what I have seen, there is a strong corporate commitment to try 
to have equal opportunity. I am wondering if part of the 
problem is the fact that starting from such a small base of 
diverse employees at senior levels, that some of these 
perceived barriers to promotion are going to exist long after 
the actual barriers are gone. And I wonder if you could talk 
about that a bit?
    Ms. Williams. I can share with you some of the things we 
have heard. We have heard that some companies were surprised 
when they had staff identify this as a challenge, for example, 
that they felt the lack of diversity at senior levels really 
impacted their ability to ascend in an organization. And the 
metrics issue is a challenge. And also coming up with a 
critical mass is a huge piece of this, that usually at the 5- 
to 7-year mark we heard is kind of the critical period for a 
lot of women and minorities to decide whether or not they are 
going to stay with a particular firm, and one of the things we 
heard from companies is that at that point they look around the 
organization and they ask themselves if they see people who 
look like them and if they don't, then they may make a decision 
to go to another organization. So we did hear that firms are 
beginning to focus on this issue and they realize that critical 
mass is a challenge and getting that critical mass is a huge 
challenge that they have to deal with and that they are trying 
to deal with in a variety of ways in building networks and 
mentoring programs.
    Chairwoman Kelly. Thank you. Mr. Fernandez, I congratulate 
you on the efforts that you have made at KPMG but part of 
moving past the status quo and increasing opportunities for 
existing employees is really important. I would be interested 
in what you have done at KPMG to have that happen?
    Mr. Fernandez. Well, one of the things that we have 
implemented is a program where every one of our employees, 
whether right out of college or direct hires, we encourage them 
to pass the CPA exam. So we have a program where we reimburse 
their Becker CPA review courses, it is one of the larger 
companies that offers that and their sitting fees and any 
ethical courses they are required to take by State rules. So 
that is one of the things that we have done in terms of 
allowing our employees, including minorities, to get their 
accreditation to be CPAs.
    Chairwoman Kelly. Thank you. I think my time is up so I 
will turn to Mr. Gutierrez.
    Mr. Gutierrez. I want to thank all of the witnesses. I want 
to start with Ms. Sims. Most believe the key to increasing 
diversity in financial services is greater recruitment but you 
raise a good point that too much emphasis on recruitment can be 
a bad thing, with many professionals never fully assimilating 
into the corporate culture and leaving the industry before 
making it to the executive level. What can be done to shift 
away from this trend?
    Ms. Sims. One of the things that I cited in my testimony is 
that in order for someone to become a senior managing director 
or to become an executive on the board of directors of their 
firm, it is imperative to them to have success in whatever it 
is that they are doing so they have to generate revenue. And so 
if there is a way that particular person could be mentored such 
that they could take over large accounts and be responsible for 
significant amounts of revenue coming into the firm, that would 
certainly help their ascension. And what could happen is that 
on the outside, external forces, like the Federal Government as 
a client as well as the CEO of the company from the top stating 
that individual managers need to have diverse people on their 
teams can also benefit.
    Mr. Gutierrez. Let me follow-up with Mr. Fernandez. Thank 
you for all you do. Why don't you follow-up where Ms. Wilson 
left, what about your firm, what she said, too much emphasis on 
recruitment, what do you think about that? What is the key 
thing that we have to do?
    Mr. Fernandez. In terms of recruitment?
    Mr. Gutierrez. Well, because if we spend too much time--as 
Ms. Wilson said--too much time on recruitment and not enough 
time, as she suggested, on mentoring and what we do internally, 
how do you see it?
    Mr. Fernandez. We really look at it from a three-prong 
approach: recruitment, retention and development, and then 
promotion. As an example, we have approximately 1,000 Latinos 
and African Americans combined in our staff ranks, who have 1- 
to 5 years of experience. We have approximately 300 out of our 
total population of 20,000 employees in the manager ranks, who 
are 1- to 5 years away from partnership or the potential to be 
partner. So the key is to bring in more--our initiatives are to 
bring in more, retain more, develop more, mentor more, and 
promote more.
    Mr. Gutierrez. I want to follow-up on that. So you have a 
plan?
    Mr. Fernandez. Yes.
    Mr. Gutierrez. As a partner? You sit down with the other 
partners, you review the plan, are people judged on how they 
meet the--
    Mr. Fernandez. Absolutely.
    Mr. Gutierrez.--recruitment, retention, promotion?
    Mr. Fernandez. Well, I run the recruiting organization.
    Mr. Gutierrez. Right.
    Mr. Fernandez. In fact for the last 3 months, so I am 
fairly new in the job. One of our key initiatives is diversity; 
one of our guiding objectives is diversity.
    Mr. Gutierrez. So let me ask you--I issued a challenge 
earlier that we not have the same dismal situation 10 years 
from now. So as we look back, you and I are a little older and 
we come back--
    Mr. Fernandez. A little older, yes.
    Mr. Gutierrez. Right, just a little bit older, 10 years 
from now, that we not have the same situation. So I said why 
don't we issue ourselves, what is your goal, do you have such a 
goal within--do you have any goals? What are those goals? How 
do you look into the future, how does your firm look into the 
future, this is what we want to accomplish?
    Mr. Fernandez. Yes, our goal has been to add more in the 
population. In order to add more in the population, we need 
more students to enter colleges and universities that are 
accredited. So it goes to the accreditation focus of HBCU's, so 
forth and so on. So we really need more of a pipeline into the 
universities and colleges, both at the traditional universities 
and the Historically Black Universities or minority-based 
universities, we need to get more of those. We have strategies 
to do that through the KPMG Foundation and the accreditation. 
We need more of those 82 HBCU's to get accredited for one 
thing. So we really need more students from the high school 
levels to enter college, choose business as a profession, and 
choose accounting as a profession, so that we can then have a 
bigger pool of the population to attract from. We need that to 
happen. Then it becomes our job to recruit them, bring them in, 
and then they become part of a mentoring process and so forth. 
Six months ago, we started a National Diversity Network that I 
co-chair for the Hispanic/Latino side, and we have two partners 
on the African American side. And we actually held part of the 
NABA conference 2 months ago. And upcoming in the ALFA 
Conference in Dallas, Texas, we are bringing all of our 
managers who are Latino/Hispanic to Dallas, all for the purpose 
of creating networks, creating mentoring relationships, and 
hopefully getting those managers to build their skill sets and 
competencies to be able to be in position to make partner 
because that is really my end goal, to have more people like me 
be partners at KPMG.
    Mr. Gutierrez. Thank you so much, Carlos, number one for 
your organizational effort for requesting the GAO report 
initially. What is the one single thing we can do? What is the 
one single thing we can do?
    Mr. Fernandez. The one thing you can do is to shine a 
beacon on this issue and continue to do so. We all get busy, we 
all have to prioritize in life. There is no question that the 
industry, if you look at it now as opposed to 20 years ago, 
there is no question that the industry has come a long way in 
terms of creating programs to foster diversity. There is also 
no question that there is a long way to go and that the only 
way that we are going to achieve that remaining distance in the 
time I think you and we would like to see is if this becomes a 
top priority for the industry.
    Mr. Gutierrez. I would like to say that I think we probably 
need to have a conversation between the Asian Pacific and the 
African American Caucus so that we can challenge the 
institutions that are out there, as you suggest, as many of you 
have suggested, continuing to challenge them and to challenge 
them on what the reality is and bring them forward. The GAO 
report is giving us the information and that information is 
power and how we utilize that information and power, and 
obviously the Alliance and what you are doing, I want to thank 
you. And the other thing is I want to make sure that when we do 
these GAO reports--my daughter took a sociology class and the 
professor began by defining Latino. And he was a nice Spaniard 
from Madrid. He started with a definition, ``like me.'' My 
daughter said, ``Well, I don't think so, kind of from Latin 
America, we had our wars of independence. Lots of people lost 
their lives to be different from you, but we have resolved all 
of those things.'' Well, she came home and I told her, ``I 
think you said the right thing.'' So let's make sure we are 
defining the population as it should be because we do have 
people who come from Latin America even and from a culture, 
which they don't need a lot of help, given the socio-economic 
background that they come from. It is a lot different coming 
from a well-established family in Venezuela or Argentina than 
the ``un-well-established'' families from Chicago and LA and 
New York and Miami. It is very, very different so I want to 
make sure that we are also focusing on that.
    Thank you all so very, very much for all of your testimony.
    Chairwoman Kelly. Mr. Scott?
    Mr. Scott. Thank you very much, Chairwoman Kelly. Again, I 
want to commend this committee for following up and you, 
Chairwoman, and Mr. Gutierrez, for your leadership on this 
important issue. We brought this up and it is great to see us 
moving forward.
    I have been so concerned about this issue. In my own 
experience as a Congressman, I represent perhaps the fastest 
growing minority business owned area in the Nation, certainly 
one of them, and that is the Atlanta Metro Area where I 
represent many, many middle-class African Americans, those who 
are opening up businesses, going into business. It is a very, 
very growing sector so access to capital and having African 
Americans in key decision-making decisions in the financial 
service industry to understand the sensitivities that other 
African Americans are going through are very critical. It is 
also important that we understand the Jackie Robinson Syndrome 
here and that is you have to have role models. You have to have 
successful African Americans that you spotlight, that you 
promote, that you get on an accelerated track. We should shy 
away from this notion of feeling that we should be denied this 
effort to push out very quickly to make up for the ground that 
we have lost due to past racial discrimination and prejudice in 
the financial services area. We are in this shape where we have 
so few, where retention is weak, where you don't have it at the 
high school level of those being trained and wanting to go into 
accounting, there is a reason why we don't have the African 
Americans as we should that are attracted to accounting and 
financial analyst work, banking, auditing, and those areas.
    I come from a little bit of experience, and I just want to 
take a moment to share this because this issue is so very 
important to me. It is one that I have been devoting so much of 
my life. I happen to have been the third African American to 
graduate from the Wharton School of Finance with an MBA. I 
understand diversity, understand the meaning of it. One of my 
first jobs, I might add, was with KPMG. So I understand that 
and what we need to do. We started a firm called Recruiting 
Management Consultants where we went all over this country to 
deal with it. There is nothing more important that this 
committee can be involved in at this time than correcting some 
of the past errors that we have made due to discrimination, 
prejudice, and denying and keeping African Americans out of 
what we are doing.
    Now that I have gotten that out of the way, I want to talk 
about three very important issues. First of all, how can we get 
senior management and middle management in the financial 
services industry to completely buy into the program? I would 
think from what you all have said here that you have three 
basic areas: recruitment, retention, and the other thing you 
said is promotion. And the promotion, I think, is the one that 
is key to the recruitment and the retention. So I would like 
for each of you to just give me your comments on--before my 
time runs out here--on the recruitment, the retention, and 
promotion, and what each of you are doing. And also if you 
could address that important issue of whether top management is 
genuinely buying into this program or--I don't want to put you 
on the spot--or, as in so many cases, we are getting just lip 
service? Ms. Wilson, would you mind starting that off because 
your comments kind of sparked my question?
    Ms. Wilson. Congressman Scott, thank you. I have been an 
investment banker for 23 years and you can see from my bio I 
have worked for some of the largest investment banking firms in 
the country. So with my practical knowledge, if you look 
around, there are precious few minorities and women who are 
partners and who are, if they are public companies, on the 
boards of directors of major investment banking firms. I could 
also speak for asset management firms; it is the same thing. So 
there are, as my colleague Mr. Fernandez said, there is a large 
pool of people on the front end, the people from 1- to 5 years, 
3,000 people, I forget exactly what number he said. But how do 
we get people from mid-management to become partners? How do 
you mentor them into the highest levels of the organization? 
And I have said in my testimony the way to do that is you have 
to economically incentivize people to do that. You become a 
partner because, for example, if you are in the M&A department 
at say Goldman Sachs, you become a partner because you were 
riding the point on a huge merger. You become a partner at 
another firm if you were handling the General Motors account. 
So people have to be mentored into the highest levels and the 
most visible and the most profitable areas of a firm for them 
to generate the revenue, because Wall Street is a 
``meritocracy'' mostly, to become a partner and an owner and at 
the highest level of that firm.
    And I think that the Federal Government, through the 
business that it controls as huge client in financial services 
across so many areas, I have mentioned Federal pensions, there 
are various departments, Transportation, etc., etc., those 
agencies in the past have focused more on hiring janitorial 
services and other types of contracting and not as much on 
financial services. But if the Federal Government insisted that 
there be a diversity component in their evaluation of their 
service providers in the financial services industry, that 
would be the external stimulus that would help these major 
firms to mentor people into the highest levels, generate the 
revenue, and have the business success so that they could 
become a partner on the merits.
    Mr. Scott. One of the things that we are trying to do in 
the Congressional Black Caucus, I know Mr. Meeks, Mr. Wynn, I 
know Ms. Waters and all of us are very much concerned about is 
to figure out how we can increase wealth, how we can increase 
economic and financial empowerment. Would you recommend that a 
part of what we may do as government officials and policy 
setters is to as a condition, as a requirement, as one of those 
things we look at prior to giving government contracts, that we 
take a look at that individual's diversity program and that 
that diversity program be considered as a part of the criteria 
to determine whether they get that contract?
    Ms. Wilson. Yes, Mr. Scott, in my written full testimony, I 
state--and I will give the example that I used--let's say for 
example the Pension Benefit Guarantee Corporation, that agency 
or the Federal Retirement Thrift, which manages hundreds of 
billions--hundreds of billions of assets for the annuitants who 
are government workers, if the Federal Government, when they 
are deciding what service providers to hire to handle those 
assets, look at not only their individual diversity profile, 
how many partners do you have, senior level managers, mid-level 
managers, EEOC data, but as well if you were to also look at 
supplier diversity, how much business have you major service 
provider managing the assets of the Pension Benefit Guarantee 
Corporation, how much business are you doing with minority- and 
women-owned firms. And have that be part of the evaluation 
component, just a part. Three firms have similar fees, three 
firms have similar performance, one firm stands out in terms of 
the diversity initiatives, which is a new goal of the Federal 
Government, then that firm could win the business.
    Mr. Scott. Okay. Thank you.
    Chairwoman Kelly. Thank you, Mr. Scott. Mr. Meeks, do you 
have any questions?
    Mr. Meeks. Thank you, Chairwoman Kelly and Ranking Member 
Gutierrez. I want to thank you for allowing me to participate 
in this hearing even though I am not on the subcommittee, for 
indeed this is a subject matter that has been very near and 
dear to me. And I want to also thank all of the panelists for 
your testimony today.
    It is funny coming from New York, the financial capital of 
the world, and as I go visit many of the different financial 
institutions, it would be funny if it wasn't so serious when I 
see how the CEO's when they know that I am coming, kind of find 
somebody of color to meet with me when I am there. And, 
oftentimes, they go to such a degree that you know that they 
really have no responsibility, they just have them sitting 
there to eat lunch with me or to talk at the meeting just so I 
might get the impression that somebody of color is working with 
the firm. But then I ask the appropriate question as to--and I 
do it right in front of them--what are their responsibilities 
and what track are they are on, then you see the red faces 
coming up because clearly they just had them there because they 
were trying to pacify me. And so to watch those faces, if it 
wasn't so serious, I would crack up laughing because of their 
nervousness and the lack of inclusion in a city like New York 
where the majority of the population in fact is African 
American and Latino. But, yet, when you look at the makeup of 
those companies, and even the outreach into some of the 
communities so that people know that opportunities are there 
for them to have, it is just not there.
    Like Congressman Scott had indicated, I am also--and I hear 
the difference between getting someone in on the bottom level 
but putting them in mid-management so they can promote on to 
partner, but some of that has to do with the whole climate. If 
you are walking into a climate where you know that you don't 
feel welcome, and I think that is what Ms. Wilson is talking 
about the mentoring, if you are in a climate, they know when 
that fifth year is coming what to do to get you out of there so 
that you are never on a partnership track. And so I appreciate 
the testimony about what we can do in government to try to make 
sure that there is a difference.
    But I also want to know what we could do to help build 
minority firms. And maybe I will ask this question to Mr. 
Lackritz in this sense, there seems to be a substantial 
decrease recently in the opportunities for minority investment 
banking firms to participate in IPO's because the private 
equity firms are picking up a greater percentage of the market. 
So the firms that I am talking about, the few that I see in New 
York, they are no longer--they are saying, hey, we are 
basically going out of business. I am wondering what incentives 
can we create in majority firms, majority businesses to seek 
out minority firms to be partners or joint ventures in various 
activities because that has become--that is how a firm, you can 
pick up the level of minority firms in a city like New York or 
all over this country, any ideas there?
    Mr. Lackritz. Well, I think it is a very good question, and 
I think your description of what is happening in the market, I 
don't know enough about the specifics of what you are 
describing, but it doesn't sound like it is too far fetched. 
Clearly, there has been a great growth in the area of private 
equity recently and the market has been shifting a lot, 
particularly on the institutional capital market side. But it 
seems to me that the key here is to outline and make clear and 
educate everyone about the business case that is here and 
important for firms to succeed in the future. And from this 
perspective, demographics I think are destiny. And as you have 
described the situation in New York, similarly for our country, 
broadly speaking, by the middle of the century, the country is 
going to be majority/minority. We are going to have a majority 
of minority groups in the United States. And as the economics 
of that develop, for firms to succeed, they are going to have 
to look like the country and look like the economy to be able 
to be successful in attracting that kind of business. So I 
think the important thing first is education. The second thing 
I think is important in terms of recruitment, and I know a 
number of our firms are engaging in a lot of activities to 
build retention. They build retention through training, through 
mentoring, through career development councils, through 
affinity networks, through identifying high potential women and 
minorities, and I think all of that is part of it. What we are 
trying to do at SIA is to drive this in every different part 
that we can, whether it is in our professional education 
program where we have a mandated diversity part of our core 
curriculum that every attendee has to attend for 3 consecutive 
years, whether it is our leadership awards at our annual 
conference, whether it is our programming, whether it is our 
teleconferences of our diversity committee. All of these are 
sharing of best practices. All of these efforts, it seems to 
me, have to be focused and it requires a commitment from the 
top.
    And I want to tell you also, just in response to Mr. 
Scott's question earlier, the CEO's in the securities industry 
really get it. Our top 20 firms, every single one of them is 
committed to increasing and improving diversity and have 
programs in place to do that. The overwhelming majority of our 
mid-size firms also have those kinds of programs. I think we 
are getting it and it is a process. And, believe me, I am not 
here to say we are there yet because we are not, we have a lot 
further to go, but I think we have made a good start, we are 
making progress, and we have more work to do.
    Mr. Meeks. I know my time has expired but here is my other 
concern, sometimes it seems to me, and I always look to see 
what we can do as a government, and I would just like to know 
what your experiences have been also because oftentimes the 
farm system, if you will, for individuals to come and get high 
placed office right off the bat is when they come out of 
government, if they have worked for the SEC or if they have 
worked for some large government agency and had a high-level 
position there, they can springboard across. What do you see 
that we can do or are we missing something here, as Members of 
Congress and as part of the government, to make sure that those 
large agencies, having individuals of color there who can 
easily move forward and jump into partnership ranks straight 
from a government position because I read the papers everyday, 
and I see how these folks leaving government, they are making 
these huge salaries straight out of here, and some of them are 
very young. And I want to make sure that everybody has an 
opportunity to do that and be successful like that.
    Chairwoman Kelly. Thank you, Mr. Meeks. Ms. Waters?
    Ms. Waters. Thank you very much, Chairwoman Kelly, for 
holding this hearing. Deja vu. It seems as if I have been 
involved in this kind of discussion for all of my career. I 
come from the State of California where we opened up 
opportunities for minorities and women through special 
legislation that I developed, AB-1933; I will never forget it, 
where we were able to have an emerging fund that was dedicated 
to minorities and women with PERS, the Public Employees 
Retirement System, and with STRS. We really did move some 
minority firms into significant positions for doing business 
and creating wealth some time ago. Unfortunately, it appears 
that the recommendation that is being made by Ms. Donna Sims 
Wilson, someone whom I have known for about 20 years now, is a 
recommendation that we really need to take seriously, since I 
don't see these kinds of initiatives, and we don't reach into 
those departments and agencies from our committees in ways that 
we should.
    I must say to Ms. Wilson that she really did do this work 
working with me when we opened up some opportunities in Fannie 
Mae for some asset management some years ago, but we have not 
moved much beyond that point because most of us really won't be 
able to do it unless we have the kind of assistance that we had 
when we opened up those opportunities with Fannie Mae. And, 
obviously, you are a member of a board that was organized 
because of this problem that we have with getting minorities 
and women not only involved in these firms but basically 
involved with government business, etc., etc.
    So I want to thank you all for being here today. I think 
that the recommendations that you have made, if you work with 
us, can be put into legislation. This will show our agencies 
how they can create the means by which we can evaluate their 
performance, so that we can make some determination about 
whether or not they truly have diversity programs. Legislation 
could also be used to help them decide with whom they are going 
to do business. I think that makes a lot of sense.
    Let me just ask you a very difficult question and anybody 
can answer this. There is something that is not being said, 
there is something that is not being talked about. It sounds 
very good to talk about recruitment, retention, and promotion, 
and I have heard this before. I know of African Americans who 
have been on Wall Street, and I know an African American woman 
whom I am thinking about in particular, and I think Ms. Donna 
Sims Wilson will know who I am talking about, who was doing 
very well on Wall Street and she was absolutely superb in her 
ability to deliver for the firm and she had huge success. She 
had to end up suing that company, and I am sure that you 
remember this case. There are other cases that I have heard 
about, because there was discrimination related to 
compensation, and they were absolutely paying white males in a 
different way than they were compensating women and minority 
women in particular. Are we not talking about something here 
that needs to be talked about, needs to be put on the table in 
terms of what is encountered by women and minorities once they 
get in these firms? What is it, and it has nothing to do with 
whether or not they are competent, they don't get there unless 
they are competent. It has nothing to do with whether or not 
they are qualified to do the job. What is going on inside these 
firms that prevents upward mobility? What are the little things 
that happen? What about things that are occurring? Can you help 
me with this phenomenon, and I will start with Donna Sims 
Wilson because she has always told me the truth.
    Ms. Wilson. Thank you, Congresswoman Waters, I think. Well, 
I am an African American woman and I have been on Wall Street 
for 23 years and how do I put this elegantly? It is a zero sum 
game. It is a very intense industry with highly articulate, 
intelligent, energetic people who are striving to become 
partner and earn a lot of money. It is capitalism at its most 
raw form. And so because of that, there are a lot of sharp 
elbows as everyone is climbing to get to the top of the 
pyramid. And so I think only the hardy need apply at the 
beginning and there are casualties along the way. That is just 
fact. I don't know what Congress can do about that. I believe 
it was Congressman Meeks when he talked about the viability of 
minority-owned firms and how can he help minority-owned firms, 
again in other syndicates where minority-owned firms, such as 
mine, are competing against all the other firms to get as much 
stock as possible to distribute to our clients, the stock that 
I get is the stock that somebody else doesn't get. And 
everybody is being compensated based on what they produce. 
Again, capitalism at its rawest form and that is why it is so 
important for mentorship to occur so that people can be 
mentored into the highest levels of the organization working 
with the most profitable accounts so that they can generate the 
most money and so that they can move up. That is just a first 
stab at the question.
    Ms. Waters. And that is a good stab because what you have 
done is basically describe the way the world works on Wall 
Street in the most general and simplistic way. But I guess I am 
asking questions beyond that. What I am asking you as a 
successful minority firm, and you are a brilliant, competent, 
capable young African American woman, could you use the same 
talent to be a partner in one of the other white major firms on 
Wall Street, would it work the same way for you?
    Ms. Wilson. I would hope so, Congresswoman Waters.
    Ms. Waters. Have you been in that situation where you tried 
in the beginning of your career, at some point in your career 
in a major white firm?
    Ms. Wilson. I have worked for major firms in the past in my 
career. I have been a vice president at a firm. I started my 
career as an associate in corporate finance at another major 
firm. And I worked hard and I believe I had some success in 
those institutions. And I gained a lot of experience that has 
helped me throughout my career.
    Chairwoman Kelly. Thank you very much, Ms. Waters. Ms. 
Moore?
    Ms. Moore. Thank you, Madam Chairwoman. Can I yield 3 
minutes of my time to Ms. Waters? Is it possible to yield her 3 
minutes of my time?
    Chairwoman Kelly. Yes, that is fine. If you want to yield 
your time to Ms. Waters, just go ahead.
    Ms. Moore. I will yield you 3 minutes of my time.
    Ms. Waters. Oh, thank you very much, Ms. Moore. I guess you 
would like me to continue that line of questioning. I would 
like to get back to the point where I was asking about that 
which is difficult to talk about, that which is very difficult 
to discuss; whether or not the opportunities for minorities on 
Wall Street are not seen in terms of minorities' ability to be 
recruited. We understand that and we understand recruitment 
must take place. And when you talk about those educational 
institutions that are certified to educate people so that they 
are competent for the market, are you talking about major black 
colleges and universities not having programs to train and 
develop young African Americans? For example, what happens at 
Morehouse in Atlanta, are they training for the financial 
services industries that we are talking about today?
    Ms. Wilson. I can tell you about a program called Sponsors 
for Educational Opportunity, Congresswoman Waters. The SEO 
program, of which I am an alumna, started, I believe, in 1980 
and initially had 10 students from Harvard, Yale, Princeton, 
and Dartmouth. That was the first class. I was in the second 
class that had 12 students, and I was placed at Salomon 
Brothers. And I believe that this program, and I don't have the 
exact numbers, but this program is responsible for in many ways 
the ``colorization'' of Wall Street. And many of the alumna and 
alumni of this particular SEO program have come from over the 
years--it started with 10 people I believe, this summer class 
has something like 357 people. In my class in 1981, and so now 
I have dated myself, okay, I did it, in 1981, people were 
placed at Salomon Brothers, Goldman Sachs, and Lehman Brothers.
    Ms. Waters. May I interrupt you for a moment?
    Ms. Wilson. Yes.
    Ms. Waters. I specifically mentioned Morehouse, I could 
mention some other black colleges and universities. Am I to 
understand that they do not have programs in those colleges and 
universities that train and develop their students for the 
securities industry and investment banking programs? Am I to 
understand that is non-existent or what?
    Ms. Wilson. Yes, they do. And what I am saying is that this 
SEO program started out recruiting only at Ivy League schools 
20-plus years ago but now it recruits all over the United 
States, including many HBCU's such as Morehouse. And many 
people on Wall Street are quite familiar with the SEO program 
and it is heavily supported by the major firms because they 
view it as a wonderful way to recruit talented individuals into 
their organizations. And many of the alumna of this program are 
managing directors and other senior people on Wall Street.
    Ms. Waters. So recruitment is no real problem?
    Ms. Wilson. I don't believe that recruitment is the 
problem, no, Congresswoman Waters.
    Ms. Wilson. Okay, so recruitment is not the problem, the 
people are there, the interest is there, the educational 
institutions are there, and even though I am talking about 
Morehouse and black colleges and universities, whether it is 
Cornell or others, there are African Americans who are 
interested and who are graduating and who want to go into the 
industry. So recruitment is not really the problem. Retention, 
why is it people don't stay? And you don't have to answer this 
all by yourself. Why don't we get some help from some of the 
other panelists.
    Mr. Fernandez. I wanted to just mention your question about 
the HBCU's, I mentioned earlier, and maybe you weren't in the 
room at the time, but there are 16 accredited business schools 
of HBCU's out of 82. I think it is not so much recruitment 
because if there are talented students who are graduating from 
universities with the talent and the grades and the curriculum 
that supports that, I think you will see Wall Street hire more. 
I think what you need is a bigger pipeline of students at those 
universities, graduating with good business degrees that would 
give them the talent and the skill sets to compete in that 
market that she is talking about.
    Ms. Waters. Okay, I am going to yield back my time because 
Congresswoman Moore was just generous in allowing me to have 
this time. But let me just say that I want to make sure that 
the recruiters are at the doors of the HBCU's because I believe 
that qualified students are there. I believe that they are 
there, and that they are interested. As a matter of fact, I am 
almost a little bit concerned that too many of our young people 
want to get rich fast and want to get to Wall Street. So I just 
don't think recruitment is a problem. And I yield back the 
balance of my time.
    Chairwoman Kelly. Ms. Moore, you are recognized for 2 
minutes.
    Ms. Moore. Well, thank you so much, Madam Chairwoman, and 
thank you all, I thank this distinguished panel for being here.
    Chairwoman Kelly. Ms. Moore, I am going to interrupt you 
and not charge you for this time but, Mr. Fernandez, you said 
you needed to leave to catch a plane. If you need to leave now, 
you may be excused.
    Mr. Fernandez. That would be very much appreciated, so that 
I don't get home at 2:00 a.m. Thank you. I have enjoyed being 
here with all of you.
    Chairwoman Kelly. Thank you very much for being here and 
for your testimony.
    Mr. Gutierrez. Please leave and catch the plane. Thank you 
so much, seriously please. Thank you for all you do, too.
    Chairwoman Kelly. Now, we turn to you, Ms. Moore, for your 
full 2 minutes.
    Ms. Moore. Thank you so much, Madam Chairwoman, and ranking 
member and others. I was very interested in Ms. Waters' line of 
questioning because she has really made a very important point, 
that it is not for the lack of trying it seems on the part of 
the industry to recruit people, to train people, to give them 
experiences, but the real thing might be--the truth might be 
found in the testimony of you, Ms. Wilson, when you said the 
path to senior management and corporate board membership in 
majority firm institutions is job success. And so while 
mentoring is important, people have to have job success.
    I worked for many years as a State legislator as a board 
member of the Wisconsin Housing and Economic Development 
Authority Board. They would have minority firms doing co-
management, and I was never sure the extent to which they were 
really part of the deal. And you don't really expect investors 
to have confidence in people who are not proven, they don't 
have job success. And so I guess what I am asking of this panel 
is to what extent do we go beyond recruiting, training, 
mentoring, having people in our classes, going into high 
schools, but really trying to make sure that people are 
substantial parts of the deals that are successful?
    I remember Reggie Lewis, the Michael Jordan of finance, 
being my hero and reading the Wall Street Journal reports every 
day about him. Who wouldn't? Black, white, how else do you 
break those color barriers other than job success so that 
anybody who wants to make money would abandon any fears of 
racism or so on to get a Reggie Lewis to do their deal? To what 
extent do these companies try to put minorities and women at 
the table for the biggest deals?
    Mr. Lackritz. Well, if I can just answer first, 
Congresswoman Moore, I think that we are making a lot of 
progress in this area. And I think that not only if you look 
across the board at some of the progress, if you look at the 
way the deals are being done now, one of the things that has 
happened in the marketplace is that the entire syndicate 
business has changed dramatically. And instead of having 20 or 
30 or 40 firms involved in a deal, there are fewer firms 
because of the economics of it. It is much more efficient. And 
for the issuer, for the company owner or for the school 
authority or for the public officials, it is a much better deal 
if they get an efficient deal. So they have fewer participants 
in the syndicates, that means it is challenging to increase the 
number of other firms that are going to be participants, just 
as a matter of the economics before you even get to the 
specific issue that we are dealing with. I think the key here 
for us as an industry, and the key for our firms, is not only 
commitment from the top but also beginning early.
    One of the things that I am very proud of that we do, we 
have a foundation for investor education. It has in schools, 
middle schools and high schools, across the country our stock 
market game educational program, which teaches kids of all 
ages, of all income levels in the public schools and in the 
private schools, over 500,000 kids a year from grades 7 through 
12 learn about the difference between consumption and saving, 
about compound interest, about the difference between equity 
and debt, about asset allocation and portfolios, and our firms 
are providing internships for high school kids to get them 
interested in finance earlier rather than later. This is a 
process, I think. I don't think we solve this sort of with a 
quick fix. I remember, I guess it was President Johnson who 
talked about whether you give somebody a fish or you teach them 
how to fish. I think what we are committed to doing is teaching 
people how to fish. And then in the long run, that is going to 
be much more important in terms of increasing participation and 
broadening and expanding the circle than by any kind of quick 
fix that we might come up with in terms of specifics here.
    Ms. Moore. Well, I appreciate those comments. I am just 
saying that I hope that Wall Street would make itself more 
responsible for helping develop the relationships because I 
have already assumed that by the time you get to be Ms. Wilson 
there, that you know the difference between equity and debt. I 
don't think I do personally. But in all seriousness, 
relationships and really being part of the bigger deals I think 
is where I would like to see the firms take an extra step. 
Thank you, Ms. Kelly.
    Chairwoman Kelly. Thank you very much, Ms. Moore. I really 
appreciate the fact that the panel was very patient with us 
today because we had to start and then go to a vote and all of 
that. You have been very good and we thank you so much. I would 
like to point out just one or two things. We are talking here 
about diversity. Only 13 percent of this body has women. One of 
the interesting things also that ought to be noted I believe is 
that in Wales they just had a vote. The new Welsh parliament is 
the first women-dominated elected parliament in the western 
world. So we have a little ways to go here in the Congress as 
well.
    The Chair notes that some members may have additional 
questions for this panel. They may wish to submit those 
questions in writing. So without objection, the hearing record 
will remain open. Oh, I am sorry. Mr. Scott?
    Mr. Scott. Can I get clarification, please?
    Chairwoman Kelly. Sure, of course.
    Mr. Scott. Because I was a little bit confused with the 
last line of questioning and I want to get it clear. Do we have 
a recruitment problem or don't we have a recruitment problem? 
From the written testimony, and from your earlier 
conversations, you said recruitment is a problem. In response 
to Ms. Waters' question, she said, ``So recruitment is not the 
problem.'' You said, ``No, recruitment is not the problem.'' 
What are we here, which way is it? On the other hand, someone 
said, well, we don't have enough kids graduating with degrees 
and business degrees and accounting and so forth. Do we have a 
recruitment problem or don't we have a recruitment problem?
    Chairwoman Kelly. Why don't we take one quick answer from 
every member of the panel, just starting with you, Ms. 
Williams, and let's move on down. What is your perception and 
then move to Mr. Lackritz, Ms. Wilson, and Mr. Loumiet.
    Ms. Williams. Based on our conversations with firms, 
recruitment is an issue as well as retention.
    Mr. Scott. Okay.
    Mr. Lackritz. I think that recruitment, training, 
retention, all of it is a challenge and an opportunity for our 
industry to improve on the progress that we made so far.
    Ms. Wilson. I would agree that recruitment is just one 
component of the issue. It is recruitment, retention, 
advancement, and promotion to the top. It is one continuum. And 
there certainly are more people at the bottom than there are at 
the top.
    Mr. Loumiet. I would say that recruitment is not the 
biggest problem. But the problem arises along the way, as Ms. 
Wilson has suggested.
    Chairwoman Kelly. Thank you very much. Without objection, 
the hearing record will remain open for 30 days for members to 
submit written questions to the witnesses and place those 
responses in the record.
    This hearing is adjourned.
    [Whereupon, at 4:50 p.m., the subcommittee was adjourned.]


                            A P P E N D I X



                             July 12, 2006


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