[House Hearing, 117 Congress]
[From the U.S. Government Publishing Office]


                     BY THE NUMBERS: HOW DIVERSITY
                     DATA CAN MEASURE COMMITMENT TO
                    DIVERSITY, EQUITY, AND INCLUSION

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

                            VIRTUAL HEARING

                               BEFORE THE

                       SUBCOMMITTEE ON DIVERSITY

                             AND INCLUSION

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                    ONE HUNDRED SEVENTEENTH CONGRESS

                             FIRST SESSION

                               __________

                             MARCH 18, 2021

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 117-11
                           
                           
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

                               __________

                    U.S. GOVERNMENT PUBLISHING OFFICE                    
44-344 PDF                  WASHINGTON : 2020                     
          
----------------------------------------------------------------------------------- 



                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                 MAXINE WATERS, California, Chairwoman

CAROLYN B. MALONEY, New York         PATRICK McHENRY, North Carolina, 
NYDIA M. VELAZQUEZ, New York             Ranking Member
BRAD SHERMAN, California             FRANK D. LUCAS, Oklahoma
GREGORY W. MEEKS, New York           BILL POSEY, Florida
DAVID SCOTT, Georgia                 BLAINE LUETKEMEYER, Missouri
AL GREEN, Texas                      BILL HUIZENGA, Michigan
EMANUEL CLEAVER, Missouri            STEVE STIVERS, Ohio
ED PERLMUTTER, Colorado              ANN WAGNER, Missouri
JIM A. HIMES, Connecticut            ANDY BARR, Kentucky
BILL FOSTER, Illinois                ROGER WILLIAMS, Texas
JOYCE BEATTY, Ohio                   FRENCH HILL, Arkansas
JUAN VARGAS, California              TOM EMMER, Minnesota
JOSH GOTTHEIMER, New Jersey          LEE M. ZELDIN, New York
VICENTE GONZALEZ, Texas              BARRY LOUDERMILK, Georgia
AL LAWSON, Florida                   ALEXANDER X. MOONEY, West Virginia
MICHAEL SAN NICOLAS, Guam            WARREN DAVIDSON, Ohio
CINDY AXNE, Iowa                     TED BUDD, North Carolina
SEAN CASTEN, Illinois                DAVID KUSTOFF, Tennessee
AYANNA PRESSLEY, Massachusetts       TREY HOLLINGSWORTH, Indiana
RITCHIE TORRES, New York             ANTHONY GONZALEZ, Ohio
STEPHEN F. LYNCH, Massachusetts      JOHN ROSE, Tennessee
ALMA ADAMS, North Carolina           BRYAN STEIL, Wisconsin
RASHIDA TLAIB, Michigan              LANCE GOODEN, Texas
MADELEINE DEAN, Pennsylvania         WILLIAM TIMMONS, South Carolina
ALEXANDRIA OCASIO-CORTEZ, New York   VAN TAYLOR, Texas
JESUS ``CHUY'' GARCIA, Illinois
SYLVIA GARCIA, Texas
NIKEMA WILLIAMS, Georgia
JAKE AUCHINCLOSS, Massachusetts

                   Charla Ouertatani, Staff Director
                Subcommittee on Diversity and Inclusion

                     JOYCE BEATTY, Ohio, Chairwoman

AYANNA PRESSLEY, Massachusetts       ANN WAGNER, Missouri, Ranking 
STEPHEN F. LYNCH, Massachusetts          Member
RASHIDA TLAIB, Michigan              FRANK D. LUCAS, Oklahoma
MADELEINE DEAN, Pennsylvania         TED BUDD, North Carolina
SYLVIA GARCIA, Texas                 ANTHONY GONZALEZ, Ohio, Vice 
NIKEMA WILLIAMS, Georgia                 Ranking Member
JAKE AUCHINCLOSS, Massachusetts      JOHN ROSE, Tennessee
                                     LANCE GOODEN, Texas
                                     WILLIAM TIMMONS, South Carolina
                            
                            
                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    March 18, 2021...............................................     1
Appendix:
    March 18, 2021...............................................    35

                               WITNESSES
                        Thursday, March 18, 2021

DiNapoli, Thomas P., Comptroller, New York State, testifying on 
  behalf of the New York State Common Retirement Fund............     4
Garcia-Diaz, Daniel, Managing Director, Financial Markets and 
  Community Investment, U.S. Government Accountability Office 
  (GAO)..........................................................     6
Johnson, Carolyn, Chief Executive Officer, DiversityInc..........     8
Simpson, Anne, Managing Investment Director, Board Governance and 
  Sustainability, California Public Employees' Retirement System 
  (CalPERS)......................................................     9
Wade, Rick, Senior Vice President, Strategic Alliances and 
  Outreach, United States Chamber of Commerce....................    11

                                APPENDIX

Prepared statements:
    DiNapoli, Thomas P...........................................    36
    Garcia-Diaz, Daniel..........................................    47
    Johnson, Carolyn.............................................    62
    Simpson, Anne................................................    65
    Wade, Rick...................................................    75

              Additional Material Submitted for the Record

Beatty, Hon. Joyce:
    Written statement of Aleria..................................    78
    Written statement of The Alliance for Board Diversity........    83
    Written statement of Ariel Investments.......................    86
    Written statement of the Association of Asian American 
      Investment Managers........................................    87
    D&I data request letter......................................    90
    Written statement of Garcia Hamilton & Associates............   103
    Written statement of the Knight Foundation...................   105
    Written statement of the National Business Inclusion 
      Consortium.................................................   158
    Written statement of the New America Alliance................   167
Gonzalez, Hon. Anthony:
    Clarifying statement for the record..........................   169
Green, Hon. Al:
    ```Racial bias runs deep' at America's largest banks, study 
      says''.....................................................   170
Wagner, Hon. Ann:
    When Women Thrive 2020 Global Report.........................   177
Simpson, Anne:
    Written responses to questions from Chairwoman Waters........   257

 
                     BY THE NUMBERS: HOW DIVERSITY
                      DATA CAN MEASURE COMMITMENT
                         TO DIVERSITY, EQUITY,
                             AND INCLUSION

                              ----------                              


                        Thursday, March 18, 2021

             U.S. House of Representatives,
                          Subcommittee on Diversity
                                     and Inclusion,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to notice, at 10 a.m., via 
Webex, Hon. Joyce Beatty [chairwoman of the subcommittee] 
presiding.
    Members present: Representatives Beatty, Pressley, Lynch, 
Tlaib, Dean, Garcia of Texas, Williams of Georgia, Auchincloss; 
Wagner, Budd, Gonzalez of Ohio, Rose, and Gooden.
    Ex officio present: Representative Waters.
    Also present: Representative Green.
    Chairwoman Beatty. Thank you. The Subcommittee on Diversity 
and Inclusion will now come to order. Without objection, the 
Chair is authorized to declare a recess of the subcommittee at 
any time. Also, without objection, members of the full 
Financial Services Committee who are not members of this 
subcommittee are authorized to participate in today's hearing.
    Members are reminded to keep their video function on at all 
times even when they are not being recognized by the Chair. 
Members are also reminded that they are responsible for muting 
and unmuting themselves and to mute themselves after they are 
finished speaking. The staff has been instructed to only mute 
Members and witnesses as appropriate when not being recognized 
by the Chair to avoid inadvertent background noise. Members are 
reminded that all House rules relating to order and decorum 
apply to this remote hearing.
    Today's hearing is entitled, ``By the Numbers: How 
Diversity Data Can Measure Commitment to Diversity, Equity, and 
Inclusion.''
    I now recognize myself for 4 minutes to give an opening 
statement.
    Good morning, and thank you to all of the Members and 
witnesses for joining us this morning. Diversity & inclusion 
(D&I) is not new. Several Congresses ago, our chairwoman called 
on the Government Accountability Office (GAO) to study this 
issue, and persistently called for leaders in the financial 
services sector to embrace in good faith diversity, equity, and 
inclusion throughout their businesses. During that time, racial 
wealth disparities have increased; home ownership rates for 
minorities have fallen; and women and people of color continue 
to pay higher discretionary fees for leveraging financial 
services.
    In January, we called upon the Biden Administration to take 
immediate steps to embrace diversity and inclusion, and the 
President responded by lifting the Trump ban on diversity and 
inclusion training programs supporting the LGBTQ community and 
promoting racial equity with all 15 of his Federal Cabinet 
members, and throughout the agencies. In fact, the Department 
of the Treasury announced this week that they will conduct a 
racial equity audit to ensure that it is achieving economic 
fairness and meeting the needs of all Americans.
    Today, we are calling on the regulated financial entities 
to fully disclose the diversity there. Only through the 
transparent examination of performance benchmarks will we 
achieve lasting and sustainable opportunities for women and 
people of color in the financial services sector. Good 
diversity and inclusion performance has been proven 
unequivocally to increase innovation and profitability while 
lowering regulatory risks.
    Nevertheless, analysis by the GAO of diversity performance 
trends for senior leadership found that it rose from 2007 to 
2015, that the hiring and promotion of African Americans 
declined, and that the rate for women remained unchanged. To 
address the poor performance and achieve greater 
accountability, Chairwoman Maxine Waters led the enactment of 
Section 342 of the Dodd Frank Act. Congress' intent under 
Section 342 was for the Offices of Minority and Women Inclusion 
(OMWIs) to conduct oversight of the diversity and inclusion 
performance of regulated entities.
    On average, more than 80 percent of regulated entities have 
failed to share any metrics of D&I performance with their 
primary regulators. By any measurement, the voluntary self-
assessment of diversity and inclusion performance by regulated 
entities has failed to meet the spirit and intent of the 
statute. Today, I will introduce the Diversity and Inclusion 
Data Accountability and Transparency Act, which will make the 
sharing of diversity data, pursuant to Section 342, mandatory.
    Last year, the House Financial Services Committee published 
a report analyzing diversity and inclusion performance at the 
nation's 44 largest banks, because many had failed to share 
this data with their OMWIs, and we wanted to make sure that we 
were moving the needle in diversity and inclusion.
    Today, I am announcing that we will be sending diversity 
data surveys to American's 31 largest investment management 
firms, which manage more than $47 trillion in assets. Without 
objection, I would like to submit this letter for the record.
    Without objection, it is so ordered.
    For the benefit of the economy of all, we will not rest. 
What gets measured, gets done.
    The Chair now recognizes the ranking member of the 
subcommittee, my colleague from Missouri, Mrs. Wagner, for 5 
minutes. The floor is yours, Madam Ranking Member.
    Mrs. Wagner. Thank you, Madam Chairwoman, and my friend, 
Joyce Beatty. It is a pleasure as always to be working with you 
again on this subcommittee, and I hope that we can come 
together to discuss the most successful strategies to foster a 
diverse and inclusive workplace within the financial services 
industry.
    Republicans agree that there is more work to be done to 
improve diversity and inclusion, particularly at the executive 
level. Industry has acknowledged this and has taken great 
initiative to address the challenges related to recruiting and 
retaining minorities and women.
    As this committee considers policies related to diversity 
and inclusion, it is important that we remember to structure 
them in a way that, as our witness, Mr. Wade, has said in his 
testimony, ``is flexible and durable.'' Mr. Wade goes on to say 
that, ``An initiative that might make sense in a highly-
populated metropolitan area might not make such sense in a 
rural one.''
    I support your sentiment, Mr. Wade, and truly believe that 
a one-size-fits-all approach will not allow the financial 
services industry to really reap the benefits of our country's 
diversity. Diversity and inclusion, while related, are separate 
issues that should be addressed. Companies should expand their 
recruitment outreach, but it is equally as important to make 
sure that the environment is inclusive for retention.
    Without an inclusive workplace, diversity efforts will not 
yield the results that a business might be seeking. We know 
that an employee is more likely to stay with a company if it 
is, in fact, inclusive. In this subcommittee, we have discussed 
ways that a business can improve retention and develop a more 
inclusive workplace. Those best practices include transparency 
regarding salaries and promotion opportunities, mentoring and 
sponsorship programs, employee research groups, and flexible 
work hours, especially for our working moms.
    Cultural barriers or attitudes within a workplace cannot be 
removed through regulation or legislation. Results that benefit 
both the employee and the employer will come from within the 
company and require buy-in and active engagement from the top 
down. These results, while slow, are moving in the right 
direction with the help of organizations such as the U.S. 
Chamber of Commerce, through their Equality of Opportunity 
Initiative, and countless others.
    We must remember that diversity data can be an important 
measure in understanding diversity in the financial services 
sector and industry, however, this data may not provide a 
complete picture of the company's commitment to diversity and 
inclusion. In addition to data, we should continue to 
understand the unique obstacles each company faces in 
recruiting and retaining a diverse workforce and learn from 
their creative solutions in overcoming those challenges.
    If this subcommittee is going to consider new policies that 
are data-driven, then we must ensure that the data collected 
allows companies to tell their own stories and highlight key 
areas of concern and success. I want to thank all of our 
witnesses for testifying today, and I look forward to our 
discussion. Thank you, Madam Chairwoman, and I yield back.
    Chairwoman Beatty. Thank you.
    The Chair now recognizes the Chair of the full Financial 
Services Committee, the gentlewoman from California, Chairwoman 
Waters, for one minute.
    Chairwoman Waters. Thank you very much, Chairwoman Beatty, 
for holding this hearing today. Today, we are continuing to 
hold the financial services industry accountable for diversity 
and inclusion. I am pleased to partner with you, Chairwoman 
Beatty, in requesting diversity data and policies from 
America's largest investment firms. In addition to having an 
abysmal record of diversity within their investment firms, they 
have also not made it a priority to do business with diverse-
owned asset managers and other businesses. Their excuses are 
not new and are laden with long-standing, unfounded biases 
against diverse-owned asset managers who perform as well or 
better than their White-owned counterparts.
    Investment firms and others in the industry have also been 
reticent to share this data, but the data are needed to not 
only show the failing record but to document their improvement. 
So, I look forward to discussing solutions to increase 
disclosure of diversity data, which is indeed material to 
investors, and information to which Congress and the public 
should have access.
    I yield back the balance of my time. Thank you, Chairwoman 
Beatty.
    Chairwoman Beatty. Thank you, Madam Chairwoman.
    Today, we welcome the testimony of five witnesses: Thomas 
DiNapoli is the Comptroller of New York State, and is 
testifying on behalf of the New York State Common Retirement 
Fund; Daniel Garcia-Diaz is the Managing Director of Financial 
Markets and Community Investment at the U.S. Government 
Accountability Office; Carolyn Johnson is the chief executive 
officer at DiversityInc; Anne Simpson is the managing 
investment director of board governance and sustainability at 
CalPERS; and Rick Wade is the senior vice president of 
strategic alliances and outreach at the United States Chamber 
of Commerce.
    Witnesses are reminded that your oral testimony will be 
limited to 5 minutes. A chime will go off at the end of your 
time, and I would ask that you respect the members' and other 
witnesses' time by wrapping up your oral testimony. And without 
objection, your written statements will be made a part of the 
record.
    Mr. DiNapoli, you are now recognized for 5 minutes to give 
an oral presentation of your testimony.

 STATEMENT OF THOMAS P. DINAPOLI, COMPTROLLER, NEW YORK STATE, 
     ON BEHALF OF THE NEW YORK STATE COMMON RETIREMENT FUND

    Mr. DiNapoli. Good morning, Chairwoman Beatty, Ranking 
Member Wagner, Chairwoman Waters, Ranking Member McHenry, and 
distinguished members of the subcommittee. Thank you for the 
opportunity to testify today. I commend the members of this 
committee for your collective focus on diversity, equity, and 
inclusion in corporate America.
    Following last spring's murder of George Floyd, which 
spurred an overdue national reckoning on systemic generational 
racial injustice, many publicly-traded corporations made 
commitments to address racial inequities. Those inequities are 
certainly stark. The boards of the 3,000 largest publicly-
traded companies remain overwhelmingly White. According to 
Institutional Shareholder Services, underrepresented minority 
groups make up 40 percent of the U.S. population, but just 12.5 
percent of board directors. Black directors represent just 4 
percent, and Black women, just 1.5 percent.
    Now, finally, we need more than talk. We need tangible 
actions in the form of increased numbers of Black and Brown 
directors on corporate boards and throughout workforces to more 
accurately reflect what America looks like. Research has shown 
that companies face risks when their policies, practices, 
products, or services are or are perceived to be 
discriminatory. By contrast, companies that foster diversity 
and develop a culture of inclusion, equity, and belonging are 
better-positioned to drive long-term value for shareholders.
    More than ever before, it is imperative for investors to 
encourage their portfolio companies to address diversity, 
equity, and inclusion (DEI) issues. To do so, investors must 
have timely access to accurate DEI information, disclosed in a 
standardized manner to enhance the consistency and 
comparability of the information for investors to use.
    Here at the State Comptroller's office, our DEI policies, 
practices, and strategies start in-house. They are reflected at 
every level, including the senior level. As trustee of the 
State's pension fund, I have hired 3 women to serve as chief 
investment officers, including 2 Black women over the past 14 
years. We also have set a high standard in investing in 
minority- and women-owned business enterprises (MWBEs) and 
emerging managers. We are very proud of the fact that we have 
more than $6.7 billion managed by emerging managers, 
approximately $20 billion in total MWBE investments and 
commitments representing a quarter of our externally-managed 
capital,
    As long-term shareholders, we invest across the entire 
economy. Our fund works to promote environmental, social, and 
governance (ESG) practices that are sound at our portfolio 
companies. From board and workforce diversity to pay equity, 
the fund has been advocating for better corporate policies, 
disclosure, and reporting that can lead to sustainable long-
term value for shareholders. Recently, the fund has prioritized 
questioning companies on how they are addressing potential and 
actual inequalities, including racial equity.
    An example is a shareholder proposal that the fund filed at 
Amazon asking for an independent audit to assess the company's 
policies and practices on civil rights, equity, diversity, and 
inclusion, and how they affect the company's business. 
Encouraging board diversity has also been an important part of 
our engagement. During the 2021 proxy season, the fund will 
vote against all incumbent directors at S&P 500 companies with 
zero directors identifying as an underrepresented minority on 
their boards.
    I believe investors currently lack standardized disclosure 
around DEI, and in particular board diversity, due to an action 
by critical market participants, including the SEC. The SEC's 
inaction has led to some companies taking the position that 
diversity information is not material, resulting in data often 
being nonexistent, inconsistent, or unusable by investors. As a 
result, investors, including our fund, must rely on third-party 
research and data, or directly engage with individual companies 
to gather information.
    It is time for the SEC to mandate the disclosure of DEI 
information. More broadly, the subcommittee and the SEC should 
consider requirements for public disclosure and discussion of 
DEI issues such as disclosure of workforce diversity, 
disclosure of internal pay equity, and disclosure of policies, 
plans, and strategies to promote inclusion and diversity. 
Additionally, I support the Improving Corporate Governance 
Through Diversity Act of 2019, sponsored by my fellow New 
Yorker, Congressman Meeks.
    As State Comptroller, we are certainly focused on these 
issues. We look forward to working with this committee to 
provide more opportunities for underrepresented, particularly 
Black and Brown asset managers and firms, to manage fund 
assets. I believe that these efforts will have a positive 
impact for the fund's returns across the economy, leading to 
wealth creation, new investments, jobs, and opportunities in 
minority communities. Thank you very much.
    [The prepared statement of Mr. DiNapoli can be found on 
page 36 of the appendix.]
    Chairwoman Beatty. Thank you, Mr. DiNapoli.
    Mr. Garcia-Diaz, you are now recognized for 5 minutes to 
give an oral presentation of your testimony.

 STATEMENT OF DANIEL GARCIA-DIAZ, MANAGING DIRECTOR, FINANCIAL 
       MARKETS AND COMMUNITY INVESTMENT, U.S. GOVERNMENT 
                  ACCOUNTABILITY OFFICE (GAO)

    Mr. Garcia-Diaz. Thank you. Chairwoman Beatty, Ranking 
Member Wagner, and members of the subcommittee, thank you for 
the opportunity to discuss GAO's work on diversity in the 
financial services industry. We have long reported that 
financial firms have struggled to increase the diversity of 
their senior leadership. After over a decade of limited growth 
and representation, Federal data for 2018 shows that women 
accounted for only 31 percent of senior and executive 
positions, and minorities accounted for 14 percent.
    My remarks today are drawn from multiple GAO reports 
examining diversity practices in the financial services 
industry, as well as in the government-sponsored housing 
finance institutions: the Federal Home Loan Banks; and the two 
Government-Sponsored Enterprises, Fannie Mae and Freddie Mac. 
Specifically, I will focus on how financial services firms, 
including the Federal Home Loan Banks and the Enterprises, use 
data to assess workforce diversity, and how the Federal Housing 
Finance Agency (FHFA) oversees diversity efforts of the Federal 
Home Loan Banks and the Enterprises.
    Our prior work has found general agreement among financial 
services representatives and other stakeholders on the 
importance of collecting and analyzing employee data to assess 
diversity and inclusion efforts. Representatives from large 
banks have noted that analyzing workforce data can help 
identify leaks in their internal pipeline and help them better 
understand why women and minorities are leaving before 
progressing into management positions. Other stakeholders 
recognize that knowing your employee demographics is helpful 
because a firm's workforce should reflect and relate to its 
customers. One investment firm noted that more than half of the 
firm's customers were women, and thus its workforce should 
understand and relate to its client base.
    In addition, we have highlighted that qualitative data, 
such as information from surveys of employee viewpoints, can 
provide important perspectives on the status of these efforts. 
In response to requests from this committee, we conducted 
targeted reviews of the Federal Home Loan Banks and the 
Enterprises in 2019 and 2020.
    Our reviews of these institutions provide additional 
insights into how diversity data can be used. For example, 
Federal Home Loan Banks and Enterprises track workforce 
composition data to compare to benchmarks such as prior year 
metrics or peer institutions. They monitor recruitment and 
hiring data to set targets, assess progress, and prioritize 
outreach and engagement efforts. They set diversity goals for 
management and leadership as part of their incentive and 
compensation goals or performance competencies. These 
institutions also use qualitative data to assess achievement of 
diversity goals.
    Nine Federal Home Loan Banks conducted employee surveys, 
for example, to obtain feedback. Similarly, the Enterprises use 
employee surveys to monitor engagement among women and minority 
employees.
    We also reported on FHFA's oversight of workforce diversity 
of the Federal Home Loan Banks and of the Enterprises. FHFA 
reviewed quarterly and annual diversity data and developed 
forums and instructions for its regulated institutions on 
periodic and consistent diversity reporting.
    More notably, in 2017 FHFA began conducting annual 
examinations of diversity and inclusion efforts of its 
regulated institutions. FHFA reviewed strategic planning goals 
and organizational structures of programs and workforce and 
supplier demographics. In addition, FHFA has examined Federal 
Home Loan Banks' processes for selecting board members and 
related data reporting. It analyzed information on the Banks' 
outreach efforts and added two reporting requirements for 
gender and race ethnicity data for board directors.
    While the additional requirements to report on board 
director race are useful, our 2019 report found that race 
information was not available for about 8 percent of the board 
directors. Further, we noted that individual banks used varying 
collection methods to obtain required information. As a result, 
we could not determine whether directors intentionally chose 
not to self-report their race and ethnicity or inadvertently 
did not respond due to data collection issues. So for this 
reason, we recommended that FHFA review data collection 
processes for board demographics to help ensure more complete 
reporting.
    We also recommended that FHFA communicate effective 
practices with the individual banks. FHFA implemented this 
recommendation this past year.
    In closing, our work points to the importance of collecting 
and analyzing employee data, and data analysis allows firms to 
better understand their workforce so that they can tailor their 
diversity and inclusion efforts to better serve their 
employees, and ultimately, their clients. This concludes my 
opening remarks. Thank you again for the opportunity to speak.
    [The prepared statement of Mr. Garcia-Diaz can be found on 
page 47 of the appendix.]
    Chairwoman Beatty. Thank you so much, Mr. Garcia-Diaz.
    Ms. Johnson, you are now recognized for 5 minutes to give 
an oral presentation of your testimony.

    STATEMENT OF CAROLYN JOHNSON, CHIEF EXECUTIVE OFFICER, 
                          DIVERSITYINC

    Ms. Johnson. Thank you. Chairwoman Waters, Ranking Member 
McHenry, Chairwoman Beatty, Ranking Member Wagner, and members 
of the subcommittee, thank you for the opportunity to 
participate in today's hearing. It is an honor to testify 
before you on the importance of making workforce data 
disclosures mandatory. This topic is my life's work. I am the 
chief executive officer of DiversityInc, a business publication 
dedicated to transparency and the business benefits of 
diversity, and a warehouse of workforce data for major 
employers.
    We have built this data warehouse over 20 years as part of 
the annual DiversityInc Top 50 Competition. This effort is an 
editorial, empirically data-driven ranking, which focuses on 
U.S. operations for employers with at least 750 employees. The 
survey consists of 276 questions that yield more than 1,400 
data points and measures human capital diversity metrics, 
leadership accountability, talent development, workplace 
practices, supplier diversity, and philanthropy.
    As a Black woman, the wife of a civil servant, the daughter 
of a veteran who proudly served to protect all of us, and the 
mother of 2 children under the age of 10, I am uniquely 
positioned for such a time as this. As this committee is now 
considering legislation that would close some of the gaps in 
how regulated entities disclose their workforce data, let us 
focus on three crucial areas.
    First, let us look at the lack of data on diversity, 
equity, and inclusion. Ironically, one year and one day ago, on 
March 19, 2020, the U.S. Securities and Exchange Commission's 
Office of Minority and Women Inclusion hosted a webinar that 
included an overview of the 2018 Diversity Assessment Report. 
The self-assessment, sent to 1,300 registrants, investment 
advisors, broker-dealers, municipal advisors, and self-
regulatory organizations, received only 38 responses, covering 
only 5 percent of firms asked to submit a company self-
assessment report.
    Second, and this is the good news, other industries have 
been openly talking about and disclosing their efforts and 
showing how they are necessary to achieve ethical corporate 
governance, profitability, and return on equity. Examples of 
these companies that completed the DiversityInc survey and that 
rank highly are Johnson & Johnson, AT&T, Kaiser Permanente 
Novartis Pharmaceuticals Corporation, Marriot International, 
Hilton, Eli Lilly and Company, EDP, Accenture, TD Bank, Capital 
One, Moody's Corporation, and more. All other ranked companies 
can be seen by visiting Diversity.com.
    Third, is the proof we already have of the benefits of how 
diversity data can exact change. Let us take a closer look at 
affirmative action. Here is the history and the facts. In 1961, 
President John F. Kennedy's Executive Order 10925 used 
affirmative action for the first time by instructing Federal 
contractors to, ``take affirmative action to ensure that 
applicants are treated equally without regard to race, color, 
religion, sex, or national origin.''
    However, it was not until October 1967, following pressure 
from the surging Women's Movement, that President Lyndon B. 
Johnson amended the order to include gender provisions. That 
gender provision, the collection and required disclosure of 
gender diversity data, made all the difference. The numbers, 
the presence of women in management named as CEOs and directors 
of boards of publicly-traded companies prove it. After 2 
decades of affirmative action and the data being collected and 
analyzed without bias, it was White women who held the majority 
of managerial jobs compared to African-American, Latino, and 
Asian-American women, the supposed beneficiaries of these 
policies, according to a 1995 report by the California Senate 
Governmental Organization Committee.
    Today, women are more educated, and are thriving in the 
workforce more than ever before, and according to a Washington 
Post article from 2019, for the first time earn more Bachelor's 
and Master's degrees and Ph.D.s than men, yet we would not know 
that without the data. Thank you again for the opportunity to 
appear before you today.
    [The prepared statement of Ms. Johnson can be found on page 
62 of the appendix.]
    Chairwoman Beatty. Thank you, Ms. Johnson.
    Ms. Simpson, you are now recognized for 5 minutes to give 
an oral presentation of your testimony.

STATEMENT OF ANNE SIMPSON, MANAGING INVESTMENT DIRECTOR, BOARD 
  GOVERNANCE AND SUSTAINABILTY, CALIFORNIA PUBLIC EMPLOYEES' 
                  RETIREMENT SYSTEM (CALPERS)

    Ms. Simpson. Thank you. Committee Chairwoman Waters and 
Ranking Member McHenry, and Subcommittee Chairwoman Beatty and 
Ranking Member Wagner, and members of the subcommittee, thank 
you for the opportunity to testify at today's important 
hearing. My name is Anne Simpson, and I serve as CalPERS 
managing investment director for board governance and 
sustainability.
    CalPERS has a long-standing concern with diversity, equity, 
and inclusion. As a fiduciary investor, guided by our duties of 
loyalty, prudence, and care, we reference this in our 
investment beliefs, our principles, and our sustainable 
investment strategy, backed by extensive research through our 
multi-year sustainable investment research initiative. Just 
yesterday, our board adopted a new diversity, equity, and 
inclusion framework to strengthen our approach across the 
organization.
    CalPERS is the largest defined benefit pension fund in the 
United States, with approximately $450 billion in global assets 
invested across public and private markets. Delivering 
investment returns for our beneficiaries over the long term is 
vital not just to our 2 million members, but also to their 
employers in the community. For every dollar that we pay in 
benefits, 55 cents comes from investment returns. That is why 
these issues about performance are so important.
    CalPERS' investment beliefs state that long-term value 
creation comes from the effective management of three forms of 
capital: financial; physical; and human. We regard diversity, 
equity, and inclusion as an integral part of human capital 
management. And as with all corporate reporting, be it on 
financial or human capital management, investors need data 
which is material, reliable, timely, and integrated. Without 
that data, we simply do not have the full information set for 
capital allocation, price discovery, litigation, or stewardship 
through engagement and proxy voting.
    And on the latter, I would note that we have engaged over 
800 companies since 2017, and over 500 of those companies have 
appointed diverse board members partly drawn from our 
initiative, the Diverse Director Data Source (3D), which is a 
database of diverse candidates housed by our Equilar.
    Information is the lifeblood of the capital markets, and 
when the data set is incomplete, investors are missing vital 
signals on risk and return. This reminds us to go back to the 
requirement for material information to be disclosed in full. 
Incoming SEC Chair Gensler made reference to this vital issue 
of materiality during a recent hearing of the Senate Committee 
on Banking, Housing, and Urban Affairs. He commented that 
fundamental securities law requires that material information 
be provided for investors and in the public interest. And he 
commented, referencing the relevant Supreme Court cases that, 
``Materiality is defined as what reasonable investors are 
seeking to have in order to make their decisions either to 
invest or not to invest, or to vote yes or vote no.''
    As a fiduciary focused on long-term sustainable value 
creation for our members, CalPERS believes, and a growing body 
of research increasingly demonstrates, that diversity, equity, 
and inclusion impact both risk and return. Our principles state 
that diversity should be viewed as multifaceted and, alongside 
independence and competence, offer the hallmark of a high 
quality board of directors.
    And as has been said earlier, companies with a diverse 
board inclusive of gender and race ethnicity are better-
positioned to execute good governance, effective risk 
management, and optimal decision-making, as well as enhanced 
customer alignment, employee engagement, and transparency.
    Voluntary disclosures quite simply are not enough. Many 
companies choose not to disclose, and others comment that, ``I 
am really not too clear what it is that investors are looking 
for.'' For that reason, CalPERS has worked as a founder of the 
Human Capital Management Coalition, and with the SEC's Investor 
Advisory Committee, to help build a disclosure framework, which 
would begin to fill the gap and provide companies with a cost-
effective format for offering this material information to 
their share owners. The framework covers issues such as 
employment status, health and safety, workforce pay and 
benefits, diversity on both race and gender, and more, all 
backed by research demonstrating the relevance to corporate 
performance. Of course, one simple, immediate step would be for 
companies to be required to disclose their EEO-1 reports, which 
will bring one missing element.
    In conclusion, CalPERS recognizes that investors, 
companies, policymakers, and civil society all play a role in 
moving towards diversity, equity, and inclusion. For investors, 
however, this is not just a moral imperative; it is an economic 
necessity.
    We look forward to working with the committee and the 
subcommittee to further these important issues, which are so 
important to the public interest and for investors. Thank you.
    [The prepared statement of Ms. Simpson can be found on page 
65 of the appendix.]
    Chairwoman Beatty. Thank you, Ms. Simpson.
    And Mr. Wade, you are now recognized for 5 minutes to give 
an oral presentation of your testimony.

   STATEMENT OF RICK WADE, SENIOR VICE PRESIDENT, STRATEGIC 
   ALLIANCES AND OUTREACH, UNITED STATES CHAMBER OF COMMERCE

    Mr. Wade. Chairwoman Beatty, Chairwoman Waters, Ranking 
Member Wagner, and members of the House Financial Services 
Subcommittee on Diversity and Inclusion, thank you for the 
opportunity to testify. I grew up in a very small town in South 
Carolina where the textile industry was once the mainstay of 
our local economy. And connected to that economy was a vibrant 
district of Black business owners that we affectionately 
called, ``The Hill.'' It was our version of Black Wall Street 
over in Tulsa, Oklahoma, or Harlem, or perhaps in New York 
City. It was where one could find doctors and lawyers, retail 
stores and restaurants, fresh food, seafood markets, and other 
services. These businesses were key anchors in our community 
and the owners were our role models.
    The Hill doesn't exist today. I have seen firsthand how 
entrepreneurship plays an important role in building wealth in 
families, communities, and economies, but the opportunity to 
start and grow a business is not equal for White and Black 
Americans. Black Americans represent only 9.4 percent of our 
country's business owners. Black-owned businesses have lower 
revenues, fewer employees, and are less than half as likely to 
get financing as White-owned firms. More concerning is the 
study from the National Bureau of Economic Research which 
reports that 41 percent of Black-owned businesses have already 
closed as a result of the pandemic and the downturned economy.
    Last year, the United States Chamber of Commerce launched 
an historic Equality of Opportunity Initiative to help close 
race-based opportunity gaps in education, employment, 
entrepreneurship, criminal justice, health, and wealth. Driven 
by data and informed by conversations with businesses, 
governments, academics, and civic leaders, the equality of 
opportunity agenda is about advancing private-sector solutions 
and sound public policies that address inequalities in America.
    We are proud of our progress thus far. We have hosted over 
100 events and meetings with companies and business 
organizations, endorsed 14 bills on Capitol Hill, released 
important research and data to help inform our work, and stood 
up nearly a dozen Chamber-wide partnerships and programs. In 
addition, over 500 State and local Chambers of Commerce and 
other groups have signed on to this initiative and are engaging 
in equality work across their communities. I am particularly 
proud of our efforts to help save and grow Black-owned 
businesses, to enhance the flow of capital, and to connect them 
to corporate supply chains.
    Our Chamber foundation has distributed 600 grants to Black-
owned businesses disproportionately impacted by the pandemic in 
partnership with our coalition to back Black businesses. The 
coalition will provide $13 million in grants, mentorship 
opportunities, and resources to these businesses over the next 
3 years.
    Through our alliances with skysthelimit.org and 
Historically Black Colleges and Universities (HBCUs), we are 
also inspiring and developing the next generation of diverse 
entrepreneurs and business leaders. The Chambers' data-driven 
approach is foundational to this equality-of-opportunity 
agenda. We believe in data. We support efforts by the Consumer 
Financial Protection Bureau (CFPB) to implement Section 1071, 
which amends the Equal Credit Opportunity Act (ECOA) to require 
the financial institutions to collect and report information 
concerning credit applications made by women, or minority-owned 
businesses, and small businesses.
    We repeatedly support the efforts by Representatives Meeks 
and Maloney to champion corporate board diversity and have 
already endorsed H.R. 1277, the Improving Corporate Governance 
Through Diversity Act. Diverse reputation representation, 
especially Black representation in board rooms, is still 
distressingly low, and the Chamber is helping to address this 
disparity. Through a partnership with the National Association 
of Corporate Directors, we have committed to help identify, 
prepare, and connect at least 250 Black executives to private 
and public boards by the end of 2022.
    We need to address diversity urgently and through 
intentional action, but policymakers should be careful to 
structure diversity policies in a flexible and durable way. An 
initiative that may make sense in a highly-populated 
metropolitan area may not work in a rural one. Policies that 
incorporate flexibility, such as comply or explain model, can 
shed light on why an internal diversity goal has not been 
achieved and can help a company think through their 
shortcomings and plot a new course that can take hold long 
term.
    Last year, many companies pledged to address diversity 
within their organizations and many are following up with 
immediate action. However, we do need data to truly identify 
where the system is broken so that we can analyze, diagnose, 
and fix it. The Chamber was pleased to see the commitment of 34 
major firms to voluntarily disclosing government workforce data 
and publicly sharing their diversity reports by this year. This 
issue is not just a moral issue. It is about our economic 
competitiveness. But the reality is that the economic impact 
and full potential of Black ingenuity and talent has yet to be 
fully realized in America.
    The U.S. Chamber looks forward to what we can do to fight 
the good fight to ensure that all Americans have a fair chance 
to earn their success and to live out their own American Dream. 
Thank you.
    [The prepared statement of Mr. Wade can be found on page 75 
of the appendix.]
    Chairwoman Beatty. Thank you, Mr. Wade. I now recognize 
myself for 5 minutes for questions. And please bear with me; I 
am going to try to get a question in to everyone.
    Ms. Johnson, am I correct that hundreds of companies 
voluntarily share their diversity data with your firm seeking 
recognition in DiversityInc's Top 50?
    Ms. Johnson. Yes, that is correct.
    Chairwoman Beatty. Do you believe that the firms who share 
their diversity data with DiversityInc each year face increased 
litigation, or reputation, or risk by doing so?
    Ms. Johnson. I do not.
    Chairwoman Beatty. One might think that there is hypocrisy 
in financial services firms who are sharing their data in 
pursuit of recognition or awards, but not wanting to or 
refusing to share their data with investors, stakeholders, 
Congress, or regulators. What do you make of this?
    Ms. Johnson. I believe that the firms that are sharing 
their data have found an understanding that this is not about 
public relations or marketing, but this is about profitability. 
This is about return on equity. And they understand that they 
are losing because they don't understand the challenges of 
their workforce, they are losing people because they are not 
collecting, analyzing, and studying the right data. So, they 
have found a way to understand how this is profitable, and not 
just about the right thing to do or morals only.
    Chairwoman Beatty. Thank you.
    The next question is for Mr. DiNapoli. The New York State 
Common Retirement Fund recently launched an initiative to hold 
publicly-traded corporations and their top executives 
accountable for their diversity, equity, and inclusion policies 
and practices. Why is diversity, equity, and inclusion 
performance so critical to the interests of New York employees 
and retirees?
    Mr. DiNapoli. Thank you, Madam Chairwoman, for that 
question. We really look at the bottom line, and we believe 
strongly that the research, that the evidence shows that 
companies that have success with the DEI metric are more likely 
to present a sustainable, profitable investment opportunity for 
us. So, this is very much tied to the bottom line for us.
    Chairwoman Beatty. Thank you.
    Mr. Wade, I have here the U.S. Chamber of Commerce's June 
of 2019 letter endorsing legislation that would mandate 
disclosure of board diversity data of public companies to the 
SEC. The Chamber supports mandatory disclosure of board 
diversity data but does not support mandatory disclosure of 
workforce data. Is that true? Can you address that for me, 
please?
    Mr. Wade. Yes, Madam Chairwoman. What we are supporting and 
what we have endorsed is the idea of having the flexibility to 
allow companies, and organizations, and financial institutions 
to develop the plans and policies, because there is not one 
size that fits all. And we see tremendous progress even in the 
area of board diversity.
    Chairwoman Beatty. But don't you think data is data? If you 
are collecting it, and I recognize, because in our letter, we 
also allowed them to share other things that might be helpful. 
So, I recognize that, but as we have heard from some of our 
other experts, it is important to have the information or the 
data. And in keeping with your statement that it may be 
different for a rural area, I agree with that, but you still 
have to report what you have, wouldn't you agree with that?
    Mr. Wade. I think you are right. I think that there are 
companies that are voluntarily reporting this data, and giving 
them the flexibility to put plans in place to execute their 
diversity plans is extremely important. And we are seeing great 
successes across the continuum of diversity companies that are 
at a different level. And I think it is important that we have 
plans and give them the flexibility to be able to develop plans 
that meet them where they are.
    Chairwoman Beatty. But at the end of the day, we need the 
data. Would you agree that it is important to have it, based on 
your statement about the value of it? And that would be a yes 
or no, so I could move on, please.
    Mr. Wade. Yes, ma'am. Data is important in all decision-
making, even in our equality of opportunities. Data is 
important.
    Chairwoman Beatty. Thank you so much.
    The next question is for Ms. Simpson. CalPERS has called 
for publicly-traded companies to conduct racial equity audits. 
What are the goals of these audits, and what do they tell us 
about a company's vows?
    Ms. Simpson. Thank you, Chairwoman Beatty, for the 
question. The importance of a racial equity audit is the 
ability to actually understand simply where racism shows up in 
your portfolio as an investor. And right now, if we are asked 
that question, we can't answer it. We can't answer the question 
of where our capital is deployed, how to exercise stewardship 
effectively, so we are really just fumbling in the dark. So the 
purpose of calling for not just the data, but also the 
standards, this is how we [inaudible] the SEC, we need to get 
that information.
    Chairwoman Beatty. Thank you.
    Sorry, I am out of time. We will get you the next time, Mr. 
Garcia-Diaz.
    The Chair now recognizes the distinguished ranking member 
of the subcommittee, Mrs. Wagner, for 5 minutes.
    Mrs. Wagner. Thank you, Madam Chairwoman, and I ask those 
to mute, please, who are not muted, even our witnesses. Thank 
you.
    Mr. Wade, it is really great to see you again, sir. What 
are some practical challenges that your members have faced 
while trying to increase their diversity recruitment and 
retention efforts?
    Mr. Wade. One of the biggest challenges which we are 
seeking to solve for--thank you, Ranking Member Wagner--is 
creating the types of pipelines and partnerships and the 
relationships that companies need. And we have to look at this, 
we believe, and that is why we have advanced this Equality of 
Opportunity agenda, the totality of our society, we have to 
invest in education. We have to deal with the issues of 
science, technology, engineering, and mathematics (STEM) 
curriculum, and skills training and retraining, and creating an 
expansive pipeline of talent. And I think that is the area 
where we are finding that we are adding real value in working 
with companies across America to be able to identify and share 
and develop best practices that can be shared with the--
    Chairwoman Beatty. Would the gentleman yield? Could we 
please mute? We are getting a lot of feedback from someone or 
something. Thank you. Could we add time back to Ranking Member 
Wagner?
    You may proceed.
    Mrs. Wagner. I guess that is me who is proceeding. Thank 
you, Madam Chairwoman.
    And Mr. Wade, thank you. As I have stated before, and I 
firmly believe, sir, the cultural barriers and attitudes within 
a workplace cannot be removed through legislation or 
regulations. You have to get these results for employees and 
employers with buy-in and active engagement, from, I think, the 
top down. And while diversity data can be a very important 
measure, this data may not provide a complete picture of the 
company's commitment.
    So can you tell me, Mr. Wade, are financial services firms 
able to tell the full story of their successes and failures 
just with the reporting of workplace data? And if not, how can 
they supplement the data to better inform the community of the 
work that they do?
    Mr. Wade. Yes, I think data is just one component. You are 
right. There are qualitative and quantitative factors that 
depict and paint the complete picture of a diverse and 
inclusive environment. We talked earlier about the importance 
of board diversity, workers, and management level position. Is 
there a culture of inclusion? Has there been sufficient bias 
training? Is it a welcoming environment?
    And I measure and think about diversity not just in terms 
of numbers of employees, but diversity in terms of your impact 
in the community, diversity in terms of your connectivity to 
minority and Black businesses. So there is a totality, I 
believe, as we think about diversion inclusion that we have to 
consider, both quantitative and qualitative.
    Mrs. Wagner. Thank you. Does success in diversity and 
inclusion have the same meaning in all regions of the United 
States? We have touched on this, and knowing that, how can a 
one-size-fits-all approach to disclosing data allow a company 
to fully tell their story and show the strides that they are 
actually making? Give us some of the regional issues and the 
one-size-fits-all answer here. Thank you.
    Mr. Wade. You are right. There is not a one-size-fits-all, 
and I think we have to take that into consideration when it 
comes to geography and demographics across our country. Again, 
I grew up in rural South Carolina, and the challenges there are 
vastly different than those in New York City. I took a 
delegation of our Historically Black College students to 
Silicon Valley to meet with tech executives, and I was struck 
that some did not want to live in that part of the world. And 
we have to conclude this in the totality of our conversation as 
we think about diversity and inclusion.
    I am really thrilled about the consciousness now around 
diversity, equity, and inclusion, and that companies are 
responding. Again, private-sector strategies that have been led 
by business and industry can yield longer-term results and 
certainly--and the flexibility of policies coming from 
government are extremely important in giving them that 
flexibility so we can sustain this work for the long haul.
    Mrs. Wagner. Absolutely right, Mr. Wade. What we have done 
to increase education and awareness in this area, and so much 
of the private sector work that is being done is so important. 
And I think all of your points are important, because the data 
that tells the whole story can better guide the individual 
companies. So, that whole story has to be there as well as 
making more effective D&I solutions.
    Can you talk a little bit about how the quality of data has 
an impact on a company's efforts?
    Mr. Wade. The quality of data is extremely important, and 
here is the deal: I think companies are able to see this data 
from where they exist. They understand the workforce needs of 
the future. They understand the automation challenges that we 
are confronted with, and then can invest in communities and 
invest in HBCUs and in public education. I am thrilled about an 
interesting partnership that Howard University has with Google, 
where Google is sort of teaching from the standards of business 
and industry. And so, I think the quality of the data is 
extremely important, but the source of the data is also 
extremely important. And data that is volunteered, seen from 
the lens and experiences of business and industry, is extremely 
important.
    Mrs. Wagner. Thank you, Mr. Wade, for all of your great 
work.
    I have more questions, Madam Chairwoman, but we will have 
to find time to do this again. So, thank you very much.
    Chairwoman Beatty. And I will so note that we can do this 
again.
    It is my honor now to recognize the Chair of the full 
Financial Services Committee, the gentlelady from California, 
Chairwoman Waters.
    Chairwoman Waters. Thank you so very much. I would like to 
direct some questions to Ms. Anne Simpson, with CalPERS. I 
started diversity and inclusion in CalPERS some 30 years ago 
when I created the emerging fund for minority firms to get an 
opportunity to get their foot in the door. Out of that, some of 
the most successful firms, minority firms, in the country 
really did get in and were able to grow and progress. Victor 
McFarlane, who became one of the greatest real estate 
developers; and John Rogers; they both came out of this firm.
    Now, I am looking at your testimony, and I failed to hear 
it all. But I am looking at how you are saying that the SEC 
needs to do more in enforcing diversity, et cetera, et cetera. 
What have you done?
    Ms. Simpson. Thank you, Madam Chairwoman. Yesterday, 
CalPERS' board adopted a new diversity, equity, and inclusion 
framework. This covers the dimensions of our efforts on DEI as 
an organization, so it includes culture, which has been 
discussed, and it is so important; talent management; 
supplier--we, CalPERS, spend an enormous amount of money, so 
the supply piece is important--
    Chairwoman Waters. I am going to interrupt you for a 
minute. This was done yesterday. I have been gone for over 30 
years, and--
    Ms. Simpson. Oh, I apologize.
    Chairwoman Waters. --back to my emerging fund, why was it 
given up, or now excluded from what you do? What have you 
actually done to replace that and to make sure that the largest 
personnel employee fund in the country is absolutely exercising 
real diversity and inclusion? What have you done all these 
years?
    Ms. Simpson. Thank you. On the Emerging Manager Program, as 
you rightly say, Chairwoman Waters, this is a very long-
standing program. This was reviewed and restructured, as you 
know, last year. And the drivers for that were looking at costs 
and performance and the fit with each of our asset classes. We 
have--
    Chairwoman Waters. Okay. Excuse me. I only have a few 
minutes. So, you discarded that. What have you replaced it 
with? How many minority firms do you have now absolutely 
managing asset managers, et cetera, dealing with that huge 
public employees' fund and the State teachers' employment fund? 
What do you have?
    Ms. Simpson. Thank you. We have an emerging manager program 
in private equity. We have an emerging manager program for our 
real assets asset class.
    Chairwoman Waters. How many Black firms do you have?
    Ms. Simpson. And in our global equity portfolio, we have 
four external managers following the restructuring. One of them 
is an emerging manager, Victor Hymes' Legato, whom I am sure 
you know, and the other is a graduate of our emerging manager 
program. The restructuring--
    Chairwoman Waters. How many Black programs do you have?
    Ms. Simpson. We don't have the ability, due to Proposition 
209, to categorize investments by demographics. We have to use 
our emerging manager formula by size and vintage.
    Chairwoman Waters. That is not what my emerging legislation 
did. Can you name one Black firm that you have?
    Ms. Simpson. I just did. It is Legato, which is managed by 
Victor Hymes in our global equity portfolio.
    Chairwoman Waters. How do you spell that?
    Ms. Simpson. Hymes, H-y-m-e-s, and Legato, L-e-g-a-t-o.
    Chairwoman Waters. Thank you.
    Ms. Simpson. I do want to also say that the other element 
of our work in this area is to extend our understanding of 
diversity, equity, and inclusion across all of our external 
managers, not just the new emerging manager programs, which are 
so important to CalPERS. They have not been closed down. They 
have been restructured, and we are refreshing the strategy. 
That is the work that is going on now.
    We also monitor diversity through all of our external 
managers. We also, through our own work, through our internal 
management of the fund, and Lennox Park, excuse me, is the 
consultant that does that monitoring work for us so that we are 
gathering diversity, equity, and inclusion data right across 
our external manager portfolio, not just for the emerging 
manager part.
    Chairwoman Waters. Thank you very much. And I am not just 
interested in the emerging fund that I created 30 years ago. 
That should have been improved. It should have grown. You 
should be able to rattle off any number of firms that are not 
only diversity firms, such as ones with women, but Blacks, 
Latinos, et cetera, et cetera.
    And I am going to follow up. I haven't had the opportunity 
to really deal with this, but I have not been happy about what 
I have learned over the years about what has not happened. As I 
understand it, you had one some years ago. So, thank you very 
much. I have to yield back the balance of my time, but I will 
follow up with you.
    Thank you, Chairwoman Beatty.
    Ms. Simpson. Thank you. There is more. Thank you.
    Chairwoman Beatty. Thank you.
    The Chair now recognizes the gentleman from Tennessee, Mr. 
Rose, for 5 minutes
    Mr. Rose. Thank you, Chairwoman Beatty and Ranking Member 
Wagner, for holding this subcommittee hearing. And also, thank 
you to our witnesses for testifying today. I am new to the 
subcommittee, but I look forward to getting up-to-speed on the 
important issues in the diversity and inclusion space.
    The purpose of this hearing is to discuss how data can 
measure a company's commitment to a diverse workplace. But I 
think it is important to make sure that the data collected 
allows companies to tell their own individual stories. There 
are obvious benefits of a diverse workforce, and each and every 
company faces unique obstacles in recruiting and retaining one. 
Several bills attached to this hearing would impose mandatory 
reporting requirements on companies. And this one-size-fits-all 
approach concerns me, because there are companies of all shapes 
and sizes in different regions of the country, and I believe 
these reporting requirements would not put their D&I stories in 
full context.
    Mr. Wade, could you explain how one-size-fits-all mandatory 
reporting requirements could hurt or hinder small businesses 
across the country?
    Mr. Wade. Thank you, Congressman Rose. We actually believe 
that there is not one size that fits all, as you aptly stated, 
in terms of business and industry. And one of the areas that we 
are deeply concerned about are the sector and growing emerging 
parts of our economy that we need to focus on, and investing in 
STEM, and education, and science, and technology so that we can 
have a pipeline of talent and enhance that pipeline for the 
industries and jobs of the future. So, there is not one size 
that fits all.
    And quite honestly, I think even as investors are 
interested in this data, they are also interested in how we are 
forward-leaning and forward-thinking about the workforce of the 
future. We believe that would be prohibitive to the growth and 
expansion of our economy, thinking about mandates that require 
an approach that is one-size-fits-all. We think comply or 
explain, where a company can develop programs and policies and 
initiatives, is a more appropriate approach as we think about 
diversity, equity, and inclusion in business.
    Mr. Rose. Thank you. And I do think that forward-thinking 
effort is so important in making sure that there is a pipeline 
of diverse applicants and individuals who are interested in the 
jobs across the full spectrum of economic activity. And I have 
seen that in the rural communities that are a major portion of 
my district. So, it is so important that we be creating role 
models, and setting examples, and equipping diverse young men 
and women for the careers that may lie ahead of them and 
inspiring interest in them, so that businesses, at least in my 
part of the country, have a ready pool of diverse qualified 
individuals to choose from as they try to improve diversity and 
inclusion in their workforces.
    Mr. Wade, in your testimony you referenced the Chambers' 
Equality of Opportunity agenda. I agree that we need to work to 
achieve equality of opportunity. And I was glad to see that 
closing the digital education divide was included in that 
agenda, because over half-a-million Tennesseans only have 
access to one internet service provider, and 274,000 people 
still have no access at their place of residence. Can you 
explain why broadband is a necessity for learning in today's 
digitized world, especially in the financial services sector?
    Mr. Wade. It is an extraordinarily important part of our 
infrastructure. And I think we have seen this play out during 
this tragic pandemic, where we have kids in certain parts of 
our country who don't have access to the internet, because of 
lack of broadband infrastructure. And that is the focus of our 
Equality of Opportunity initiative, to deal with the structural 
issues that hinder us from creating opportunities for all 
people to benefit from the economies of our society including 
workforce diversity.
    And so again, I think that we have to also deal with the 
structural challenges, whether it is broadband, investing in 
education, investing in skills. It is particularly STEM at the 
K-12 level, and these are some of the proposals that we are 
advancing on the policy level, many of which we have already 
endorsed, as well as private-sector solutions. So, looking at 
this from a public-private partnership approach is extremely 
important if we are going to deal with these issues for the 
long term and not just the short term.
    Mr. Rose. Thank you.
    Chairwoman Beatty, I see that my time has expired, and I 
yield back.
    Chairwoman Beatty. Thank you.
    The Chair now recognizes the gentlelady from Massachusetts, 
Ms. Pressley, for 5 minutes.
    Ms. Pressley. Thank you, Madam Chairwoman, and thank you to 
our witnesses for being here today.
    Following the devastating 2008 financial crisis, which had 
a disproportionate and harmful economic impact on Black and 
Brown women and communities, the Dodd-Frank Wall Street Reform 
and Consumer Protection Act established the Offices of Minority 
and Women Inclusion across many Federal agencies and tasked 
these offices with collecting and reviewing the diversity and 
inclusion data of the banks, lenders, insurance agencies, and 
other entities which they regulate.
    Now, despite this explicit authority, the Federal Reserve, 
the FDIC, the OCC, and the SEC jointly issued guidance that 
made reporting of diversity and inclusion data voluntary, thus 
weakening the oversight and enforcement intended to prevent and 
address predatory, discriminatory, and exclusionary actions. 
Ultimately, collecting this diversity data is certainly not 
extra credit. This is about holding institutions accountable.
    So, Ms. Johnson, if you were to fulfill the intent of Dodd-
Frank and require regulated entities to disclose diversity 
data, how would that increase accountability and transparency 
in the financial services sector?
    Ms. Johnson. Thank you for that question. I would be remiss 
if I did not, in this moment, acknowledge the loss of the CEO, 
the late Arne Sorenson, of Marriott International. And what I 
want to say here is that there is this idea that those of us 
who understand the power of diversity think that people are 
inherently bad. And I will tell you that the conversations that 
I was fortunate enough to have with Arne Sorenson usually led 
to, ``I didn't know this was happening until I saw the data.''
    And so, the opportunity here is for us to learn what has 
happened, whether it was done intentionally or not, so that we 
can fix it so that it doesn't happen again. This is not about 
shaming any industry or any one company. This is about the tide 
rising, and us all rising together.
    Ms. Pressley. True. I am certainly a believer in, that 
which gets measured, gets done. And that is certainly the 
importance of data. So, how might requiring disclosure of this 
data ultimately benefit everyday Black and Brown and other 
marginalized consumers whom the institutions serve? Could you 
speak to that component?
    Ms. Johnson. Absolutely. I think the first step is 
standardizing and making sure that the definitions are all on 
the same level. For a very long time, diversity has meant 
gender diversity. If you look at the methodologies of a lot of 
the research reports, when you really dig in, it really focuses 
on gender diversity, hence my testimony. So, we have to make 
sure that we are looking at all dimensions of diversity, not 
just the ones that give us lift in the news cycle. That is the 
first thing.
    The second thing is that consumers, investors, are looking 
for transparency. And you will soon find yourself, if you are 
not transparent, having people look at products and services 
that you did not develop or create.
    Ms. Pressley. Yes. I really do commend those entities that 
have committed to hiring more employees who have been 
historically underrepresented. But it is also important that we 
pay attention to the experiences that those employees have who 
do gain employment in the financial services sector to make 
sure that these are not environments that feel hostile or where 
there are microaggressions, but that we are retaining that 
talent, that folks have the opportunity to move up, because it 
is an environment where they feel safe and where they can 
thrive.
    Mr. Garcia-Diaz, do the Offices of Minority and Women 
Inclusion collect and review data that can demonstrate whether 
employees are hired into an atmosphere where they feel 
included? If not, how could we collect more qualitative 
information to ensure that financial institutions aren't only 
reaching diversity benchmarks, but also are ensuring that 
marginalized workers aren't leaving their jobs or being 
prevented from fully participating based on some of the things 
I already enumerated?
    Mr. Garcia-Diaz. Thank you for that question. And, yes, our 
more recent work has looked at one of the regulators, the 
Federal Housing Finance Agency (FHFA), and their work with the 
government-sponsored housing finance institutions. And there, 
they are embedding in their processes a collection of 
information directly from these institutions, workforce 
information, board information, and analyzing it and 
incorporating it into their regular examination process. And 
so, while that information isn't made public, there is a back-
and-forth with the regulators to understand the status of 
diversity and inclusion efforts at those firms.
    But I have to emphasize that in the case of FHFA, they are 
dealing with a limited number of regulated institutions.
    Ms. Pressley. My time is up. Thank you.
    Chairwoman Beatty. Thank you.
    The Chair now recognizes the gentleman from Ohio, Mr. 
Gonzalez, for 5 minutes.
    Mr. Gonzalez of Ohio. Thank you, Madam Chairwoman, and 
thank you to our witnesses for being here today.
    I am going to start with Comptroller DiNapoli, and I am 
going to try to stick, given the context of this hearing, to 
data. So, you have $247 billion in assets under management 
according to your testimony, and I am trying to piece together 
what percentage of those funds are, or those assets are managed 
by diverse asset managers. In your testimony, when you say $6.7 
billion in the emerging manager commitments, and then $20 
billion in total MWBE investments, is that $26.7 billion on 
$247 billion?
    Mr. DiNapoli. Yes. Keep in mind much of our investment 
portfolio is managed internally by our own staff, so of our 
externally managed, we are about 25 percent by diverse firms. 
That is part of why I am proud that we have a very diverse team 
internally as well as working with many diverse managers.
    Mr. Gonzalez of Ohio. Okay. So, 25 percent of the external 
capital is managed by diverse managers. Great. And then what do 
you see, because that is obviously not fully representative, 
and I acknowledge the progress, because I know it is hard and 
this is where I am going with the question. What do you see as 
the biggest barriers to increasing that percentage to having a 
financial services asset management sector that is more 
representative of the population at large?
    Mr. DiNapoli. The challenge that we faced over many years 
is how to access the opportunities. And that, in many ways, is 
a two-way street. How do we make sure the doors are wide open, 
but also how can we explain to potential investment partners 
how it is that they can develop a relationship with us?
    Part of what we have done is to have a dedicated staff that 
works on emerging manager and MWBE investment opportunities. We 
have grown that staff out. And what we have found to be very 
successful is that we do an annual emerging manager MWBE 
conference at least once a year. This year we had to do it 
virtually, given COVID, but we had about 800 investment 
professionals sign up. That provided an opportunity for our 
team to explain what it is we are looking for in terms of our 
bottom line, an opportunity to get to know staff--relationships 
are very important, building relationships--and also to get to 
know our external managers, those firms who we deploy capital 
to let them know how they can pitch them on an opportunity.
    We are pleased with the progress we have made, but we feel 
we are not finished. We have more work to do. It is about 
communication. It is about opening the doors. It is about 
having a pipeline to be developed and that is what we are 
always working to improve upon.
    Mr. Gonzalez of Ohio. Thank you. Thank you for that answer. 
And then from a performance standpoint, how have the MWBE funds 
performed relative to their peers?
    Mr. DiNapoli. Similar, although in many cases we have seen 
a number of instances where they have actually outperformed the 
traditional relationships. Especially with emerging managers, 
which tend to be newer, younger, hungrier firms, if you will, 
exposure to niche markets that some of the more traditional 
relationships haven't given us exposure to. That has also 
created great opportunities. So from our perspective, it 
certainly hasn't hurt our bottom line. These firms have done as 
well, if not better, than the traditional relationships.
    Mr. Gonzalez of Ohio. Okay. Ms. Simpson, with my minute, 
what percentage of your assets are managed by diverse asset 
managers, external not internal? What percent?
    Ms. Simpson. Thank you. Our emerging manager program of our 
external managers is $1.5 billion. And as I was just explaining 
earlier, we have restructured, and we are in the middle of 
refreshing our strategy for our emerging manager program.
    Mr. Gonzalez of Ohio. Thank you. And then what--
    Ms. Simpson. We also--
    Mr. Gonzalez of Ohio. I'm sorry, $1.5 billion on what 
total?
    Ms. Simpson. Approximately 20 percent of our assets are 
invested by external managers.
    Mr. Gonzalez of Ohio. So, 20 percent of the $450 billion. 
So, $1.5 billion on $90 billion. Is that right?
    Ms. Simpson. I apologize. I don't want to improvise on the 
arithmetic. I would be very happy to come back to you 
afterwards with--
    Mr. Gonzalez of Ohio. Thank you.
    Ms. Simpson. --those numbers.
    Mr. Gonzalez of Ohio. I only have 30 seconds left, so I 
guess I will just finish with a comment.
    When I look at the asset management world, it is clear that 
we have a ton of work to do. It is primarily dominated by non-
diverse, and specifically White men, if we are just being 
honest. And so, I think that the faster that we can get to work 
there in the pipeline and creating the programs that allow 
diverse asset management, the better we will be as a country 
and a profession. Thank you. I yield back.
    Chairwoman Beatty. Thank you.
    The Chair now recognizes the gentleman from Massachusetts, 
Mr. Lynch, for 5 minutes.
    Mr. Lynch. Thank you, Madam Chairwoman. And I want to thank 
the witnesses for participating. This is a very important 
issue. One of the other hats I wear, is I am the Chair of the 
FinTech Task Force here on the Financial Services Committee. 
And most, well, I think all of the FinTech firms, their whole 
model and their success is derived from the data that they 
gather and the data that they utilize. Many times, quite often, 
it is alternative data that actually gives a much more granular 
and detailed picture of the consumer or the investor, and yet 
there is really not much data out there for us to know whether 
or not a truly diverse picture is being gathered with respect 
to the business community. We don't know.
    So, let me just say this. Algorithm bias continues to be a 
problem. We have identified it in a few instances and we have 
been able to try to correct that. But because there are so few 
diverse members of the teams that are putting together these 
algorithms, it is very difficult to tell whether or not we are 
not making the same mistakes over and over again, and putting 
minority consumers and minority investors at a disadvantage 
because of the algorithms that are being used.
    I would like to ask the witnesses, is there any policy that 
we can inject here to make sure that policies are adopted to 
make sure that FinTechs, in particular, are not--well, let's 
put it this way, are considering the likelihood or the danger 
of adopting biased algorithms? Is there a way to prevent those 
from being adopted? And is there a way to make it systemic so 
that each and every firm knows when they are putting together 
these algorithms, that danger is out there? Because I have 
looked, and there are a half dozen studies out there and they 
all say that there is not enough data for us to conclusively 
determine that the algorithm bias has been rooted out.
    Let me see, I am not sure whom on the panel--Mr. DiNapoli, 
or Ms. Johnson, you might be able to answer that question?
    Mr. DiNapoli. If I understood the question, I would just 
offer that it really underscores the importance of having 
diverse leadership at the board level, certainly for the kind 
of companies we invest in, and certainly at the senior 
management level for any business. That is how you will get 
that diversity of opinion; you will get a sensitivity on those 
kinds of issues. So, I think from--
    Mr. Lynch. Reclaiming my time, what I am trying to get at 
is that the bias is baked into the algorithm. I am very 
supportive of diversifying the board of directors, but where 
the rubber meets the road is when these algorithms are actually 
being put together. And so, obviously, we need a more intimate 
involvement at that stage.
    Mr. Garcia-Diaz, you have some background in this. What are 
your thoughts?
    Mr. Garcia-Diaz. We haven't looked at the question in 
exactly the way you framed, but I can address it a little bit 
with some related work that we have done in the past looking 
at, for instance, facial recognition technology where we talk 
about how bias can actually intrude in the making of the 
programming. And particularly, when all of the programmers are 
of one group. Without the inclusion of other perspectives, 
people of different backgrounds, to, in a sense, provide 
feedback or input into that programming, you can run into the 
potential risk of bias that becomes systematic because it gets 
repeated over and over and over again by the different users.
    And if you apply that more broadly, to the extent that it 
has consequences, say, for lending, there are going to be fair 
lending considerations. And that will raise concerns. But I 
think this is an area that with the technology, it is so new, 
and we are still trying to figure out the impact of these 
biases.
    Mr. Lynch. Thank you, Madam Chairwoman. I yield back.
    Chairwoman Beatty. Thank you, Mr. Lynch.
    Ranking Member Wagner, or other Members at this time?
    If there are no other witnesses on the other side, the 
Chair now recognizes the gentlelady from Michigan, Ms. Tlaib, 
for 5 minutes.
    Ms. Tlaib. Thank you so much, Chairwoman Beatty. I really 
do appreciate your continued commitment and passion on 
diversity. I also, as a person who has valued the importance of 
inclusion of people like us in various spaces who are making 
decisions that impact our communities, I know that we have to 
go beyond just diversity in a sense, in the lens of people 
thinking that just putting our bodies into the room is enough. 
And we also should be accepting the lived experiences that we 
bring into that space are critically important.
    I have seen firsthand in my district, which is the third-
poorest in the nation, how the lack of diversity among 
corporate leadership and within the financial services industry 
primarily has directly impacted and harmed my residents. In 
Wayne County, Michigan, the unemployment rate for Black 
residents is more than double the unemployment rate for our 
White neighbors. According to the Brookings Institution, homes 
in Black neighborhoods are, on average, undervalued by $48,000.
    Black drivers in my district pay significantly more money 
for auto insurance, keeping them in the cycle of poverty, more 
than the White drivers for reasons that have nothing to do with 
their driving history. These are non-driving factors like 
marital status, education level, credit scores, and so forth. 
So, when it comes to addressing racial disparities in our 
country and in my district, what we measure does matter.
    Ms. Johnson, I want to give you an opportunity to really 
talk about how the lack of not just putting us into the space, 
but the lack of really truly allowing us to bring in that lived 
experience into the corporate leadership room, perpetuates 
these racist structures that are harming many of my neighbors 
in the 13th District?
    Ms. Johnson. Thank you for that question. And I think that 
if we think about gathering data, however that data is 
gathered--I think about the shock and awe that some of my peers 
went through in watching videos of people being killed by 
police officers who are supposed to protect them. And so I 
think that the opportunity to hear from and hear about the 
experiences of other people so that we can program and look for 
the bias, to the earlier question, that is clearly part of most 
every system that everyday Americans are having to deal with in 
some shape or form. I think that the opportunity to hear from 
people to see and have proof of what is actually happening is 
why the diversity data disclosures should be mandatory.
    If I can just say one more thing? PricewaterhouseCoopers, 
Ernst & Young, and KPMG have done outstanding work in 
standardizing how we report out on our financial performance. 
These three organizations have developed and disclosed a 
diversity report, and most of them are advising, or doing tax 
prep work, or consulting for most of the companies that we are 
talking about. Surely, if they have found a way to do this, the 
companies that they are advising can.
    Ms. Tlaib. And I appreciate that. Thank you so much.
    One of the things I want to stress to the chairwoman and 
many of us, many of my colleagues, is that due to a lot of 
regulatory exemptions, companies held by private equity firms 
don't have to disclose data on climate risk, labor standards, 
and yes, diversity and inclusion in the workforce. As many 
people here testify, one of the companies, CalPERS Investment, 
believes that, ``long-term value creation requires effective 
management of financial, physical, and human capital.''
    So, Ms. Simpson, would requiring private equity firms to 
make mandatory disclosures on diversity and racial equity 
impair the performance of these investments?
    Ms. Simpson. Thank you for the question. In our experience, 
diversity, equity, and inclusion are good for performance. It 
is good for risk management, and it is good for returns. And 
so, what CalPERS has done is, as part of being a member of the 
Institutional Limited Partners Association (ILPA), which we 
helped to found, is to support them in developing a template of 
what are called the the due diligence questions (DDQs), which 
go through private equity, capital allocation, and selection of 
managers, so that we can start to drive this agenda, drive this 
conversation through the private markets where this is just as 
important as it is in the public markets.
    Now, you have also seen some innovation in the response. 
One of our private equity managers quite recently set up a $4 
billion credit facility, which will lend at a cheaper rate of 
interest to those companies which achieve diversity progress on 
their boards. And I think that is a perfect example where the 
combination of disclosure and incentives can set the stage for 
improvement.
    Ms. Tlaib. Absolutely. Thank you so much.
    But one of the things that I think is really important for 
us to really be effective in this committee--the private equity 
industry controls more than 8,000 companies in the United 
States. That is more than double the number of publicly-traded 
companies. So, I hope that we do take an effort and require 
them to disclose.
    Chairwoman Beatty. Thank you.
    The Chair now recognizes the gentlewoman from Pennsylvania, 
Ms. Dean, for 5 minutes.
    Ms. Dean. Thank you, Madam Chairwoman, and thank you to our 
witnesses for sharing your expertise and your experience on 
this important issue.
    We all believe that we have to remain committed to ensuring 
that all our workplaces, from Congress to the classroom to the 
C-Suites, reflect diversity across our country. We talk about 
and believe that diversity is our strength. But asking these 
questions also poses the question that Ms. Simpson just said, 
``Where does racism show up in your portfolio?'' Those are 
important questions to ask.
    And so, what I wanted to start with was, Ms. Simpson, you 
explained in your testimony the importance of the benefits of 
corporations disclosing their diversity metrics. If companies 
were mandated to do so, what positive effects would you see for 
your investors and members in the short term and in the long 
term?
    Ms. Simpson. Thank you for the question. We expect two 
things. First of all, this disclosure means that companies will 
be paying attention to what matters to their risks and to their 
returns. And as investors providing the capital into those 
companies, this means we are able to be more effective 
fiduciaries. Without understanding, not just what is happening 
at the top, and diversity is one issue, I do want to say that 
the framework for human capital management and reporting needs 
to touch on other issues like health and safety, like 
employment status, like wages, health, and benefits, because 
this is the picture that gives us the equity and inclusion 
dimension when cross-referenced with diversity. And we have 
argued for that at the SEC. So, the benefit is all around the 
companies and to investors and, of course, to workers and 
communities.
    Ms. Dean. Let me ask you another question about that. You 
mentioned that there would be major problems if the company 
began to selectively disclose diversity information, choosing 
what items and what data points they want to share. Explain the 
danger of that?
    Ms. Simpson. Right. This is exactly the same as with 
financial reporting, in our opinion. If companies can choose 
how to calculate profit or what matters for return on capital 
investment, we would just have merry chaos. Even if we are 
buying food in the supermarket, we expect to see on the label 
for a tin to understand what is in there, what is good for us, 
what the standards are. So in every walk of life, we need 
standards, we need disclosure, and we need it to be regulated. 
It is no different on this, because it really matters to 
performance.
    Ms. Dean. Thank you.
    Mr. Garcia-Diaz, what steps should be taken to convince 
companies that disclosing diversity data can be a benefit? And 
I would also like you to talk about, if you can, diversity in 
other areas, not just gender or ethnicity. But I am 
particularly interested in diversity around people with 
disabilities.
    Mr. Garcia-Diaz. While GAO doesn't have a specific position 
on public disclosure of information, we do have a position on 
the importance of having good data about your employees and 
using that to make important management decisions that 
ultimately affect the business and their outcomes. And so, 
accurate data and also an intentional effort by management to 
analyze the data is foundational for the company's own well-
being in many ways. That would be a couple of things I would 
highlight in response to your question.
    Ms. Dean. And when you say, ``analyze the data,'' is it 
also, ``analyze and then act upon that data?''
    Mr. Garcia-Diaz. Yes. The data, the analysis of the data, 
will take you up to a certain point, but it should be used to 
define what your response will be and inform where problems may 
be in your organizations in terms of either recruiting or 
retaining diverse staff regardless of what dimension we are 
looking at whether it is race, gender, or disability status, 
veteran status. All of it begins with good data collection, 
analysis, and then acting on it.
    Ms. Dean. And could you speak to disability? And if not, 
maybe Mr. DiNapoli? You could touch on disability in terms of 
your data collection and your hiring?
    Mr. Garcia-Diaz. Yes. I would go ahead and defer. Go ahead.
    Mr. DiNapoli. Yes. I am just going to say a couple of 
things. We just added disability as one of the measurements on 
the diversity. We are working with advocacy groups in this 
regard. We certainly stepped up our engagement with companies 
to be sure that they are including supportive workplaces, and 
hiring policies to promote opportunities for people with 
disabilities who are severely underrepresented in the workforce 
across the country.
    Ms. Dean. They are severely underrepresented. They add 
value to the workplace, to the workforce, to any enterprises or 
endeavors. So, I just would encourage everybody at this 
important hearing to make sure we are analyzing, looking at, 
and hiring those with different abilities. They bring a lot to 
the table.
    With that, I yield back.
    Chairwoman Beatty. Thank you.
    The Chair now recognizes the gentlelady from Texas, Ms. 
Garcia, for 5 minutes.
    Ms. Garcia of Texas. Thank you, Madam Chairwoman, and thank 
you to all of the witnesses today. I have reviewed the 
testimony, but I have not been able to be here for most of the 
hearing because I am also attending a Judiciary Committee 
hearing on hate crimes against the Asian-American community. 
And it has struck me, Madam Chairwoman, that in this 
subcommittee, we often talk about the hidden barriers to 
diversity in the financial services sector, or the historic 
routes of redlining that perpetuate the racial wealth gap, or 
other forms of soft, even unconscious bias.
    But the recent attacks against our Asian-American brothers 
and sisters, and the hearing of the Judiciary Committee today, 
highlights that there still remains direct, hard racism in this 
country. And even in boardrooms and places of business, there 
is a temptation to think of such hatred as in the past, but we 
must be mindful that it is still here, and it still lives on. I 
just think we all need to recognize and remember as we have 
this conversation to be mindful about how much more work still 
needs to be done.
    I want to move on to some questions, and I want to start 
with Mr. DiNapoli. Can you talk some more about the New York 
State Common Retirement Fund shareholder proposal to Amazon for 
racial equity audits and explain what that might entail?
    Mr. DiNapoli. Yes. Thank you, Congresswoman. Thank you for 
those opening comments as well. Obviously, Amazon looms large 
in all of our lives, especially as a consequence of the COVID-
19 pandemic. We have been following very closely media reports 
that seem to indicate disparate treatment of workers in a 
number of situations. Take the warehouse workforce at Amazon, 
largely Black and Latinx employees, in terms of safety and 
working conditions, some of it related to COVID-19, but not all 
of it: issues related to the fulfillment and distribution 
facilities; pollution that has caused many of those facilities 
to be disproportionately located in non-White neighborhoods; 
and firing of certain workers who are involved with some union 
activities. This was the first effort on our part to say to an 
important investment in our portfolio, we would like Amazon to 
look inward. We filed a shareholder resolution for the company 
to have a racial equity audit done by an external authority who 
has the credibility to accomplish that.
    Unfortunately, Amazon has challenged that shareholder 
resolution with the SEC. They have not made a determination yet 
as to whether or not our resolution will proceed. We hope it 
will, but we are looking at other companies as well to take 
this approach. Again, given the size of Amazon not only in our 
portfolio, but in all of our lives, their verbiage and their 
public pronouncements have been very pro-diversity and 
inclusion and equity, especially after the George Floyd murder. 
But the reality of what we are hearing on the ground is that 
there is not a connection between what is being said and what 
is happening in their facilities.
    Ms. Garcia of Texas. I hope you continue in your efforts 
because I think it would be very, very helpful and, of course, 
transparency does matter.
    Now, I want to move on to Mr. Garcia-Diaz. In GAO's 2019 
report on the Federal Home Loan Bank board diversity study, GAO 
recommended that the Federal Housing Finance Agency, which 
oversees the Federal Home Loan Banks, should conduct a review 
of each Bank's processes for collecting gender and race 
ethnicity data. Can you go into more detail about this 
recommendation and how this data collection process would be 
effective in diversifying boards?
    Mr. Garcia-Diaz. Absolutely. The recommendations stemmed 
from the fact that complete information on board demographics 
was not available. For about 8 percent or so, we didn't have 
any information on them, and so FHFA did require their 
regulated entities to submit, or to collect that kind of 
information. But what we found was that the individual Federal 
Home Loan Banks collected the information in different ways. 
And it was unclear if the board member intentionally decided 
not to self-identify, or whether it was something about the 
data collection methods themselves that may have led to a non-
response. And so, we recommended that they review the processes 
that the Federal Home Loan Banks had in place to collect that 
information.
    Fortunately, I can report that the FHFA has taken action. 
They have reviewed the process, and they are sharing 
information on effective practices across the Federal Home Loan 
Bank system.
    Ms. Garcia of Texas. Thank you. My time has expired.
    I yield back, Madam Chairwoman.
    Chairwoman Beatty. Thank you.
    The Chair now recognizes the gentlelady from Georgia, Ms. 
Williams, for 5 minutes. And before we start the clock, let me 
just say that all of us share in lifting our hearts up for the 
tragedy in your great State. The Chair recognizes Ms. Williams.
    Ms. Williams of Georgia. Thank you, Madam Chairwoman, and 
that tragedy makes this conversation and others that we are 
having here in Congress all the more timely, because two of the 
spa shootings happened in my district, not far from my home. 
So, thank you.
    And thank you for convening the hearing this morning. As we 
all know, it is well understood that companies should increase 
diversity because it is the right thing to do. But diversity is 
also good for the bottom line, and today, I want to explore 
further why diversity isn't just a social benefit, but also a 
financial benefit for companies and their potential investors.
    Mr. DiNapoli, in your testimony you talked about how 
diverse companies can outperform their competitors. How are 
diverse companies better positioned to attract and retain 
talent in their workforce? And what can retention of top talent 
mean for a company's bottom line?
    Mr. DiNapoli. Thank you. Thank you for that question, and 
I'm sorry for what your community is going through in your 
district. There is no doubt that the markets are changing and 
evolving, and diverse companies, from our experience, have been 
better-positioned to take advantage of new market 
opportunities, to take advantage of untapped consumer interest 
in products and in services. We are obviously, increasingly, a 
services-oriented economy. So, companies that reflect the 
diversity of the community where they are operating can take 
advantage of market opportunities.
    And certainly, if you have employees who are diverse and as 
importantly in your point in your question, the ability of 
retention is very key as well. Obviously, when you integrate 
someone into a workplace and train them, they become part of 
the team you want to have as long-term relationship as 
possible. A high turnover of an employee base at any level, 
especially the leadership level, means you have to start over 
again.
    One of the points that we always try to make is that hiring 
is certainly an important aspect of it, but retention becomes 
just as important. So, it is the hiring practices, and it is 
also what is happening in the workplace. How is the workplace 
being supportive? How are you identifying talent, and then, 
providing opportunities for a career ladder as well? All of 
these are important considerations.
    And we also put a priority on that when we look internally. 
If we are asking companies to do things, I have said to my 
staff, let's make sure that our own agency, the work that we 
are doing, we are modeling those best practices in those areas.
    Ms. Williams of Georgia. Are there other key factors that 
you would like to mention that explain why diverse and 
inclusive companies may see greater productivity, revenue, and 
market share?
    Mr. DiNapoli. I just think, from our experience, we have 
seen that they have been--very often, they are newer companies, 
but not always. So, there is a certain energy that comes with 
that. There is an ability to source out niche market 
opportunities that some of the traditional companies that we 
may be invested in or our investment relationships just 
overlook. So again, we are living in a dynamic time where there 
are many entrepreneurs just starting out, new businesses.
    A lot of what we talk about is some of the bigger 
investment allocations, but we are also trying to expand upon 
the opportunities to support small business lending where you 
see incredible entrepreneurship opportunities, especially with 
diverse entrepreneurs. Again, all are ways for us to maximize 
return.
    As a pension fund, that has to be our bottom line, but we 
have found promoting diversity, inclusion, and equity in how we 
invest very much comes back to a strong benefit. I think it is 
one of the reasons why our pension fund is actually one of the 
best-funded in the country because of these investment 
opportunities that we have been sourcing.
    Ms. Williams of Georgia. Thank you, and just one further 
question. How important is the disclosure of diversity data to 
helping investors understand the future financial success of a 
company as well as its commitment to eradicating systemic 
racism?
    Mr. DiNapoli. As others have said, the data is very 
important for us to make our judgments. And I think it is 
important to point out that if there isn't a standard that is 
being set that is required across-the-board, then we end up 
having to go, in effect, company by company or pay for third-
party information. It is a cost to us as an investor. So to 
have standardized comparable data, we think required by the SEC 
in terms of what we would be interested in, will inform us as 
we do our corporate engagements. And it is so important to keep 
the discussion going. It is not about shaming or pointing a 
finger. It is saying, we all need to look inward. Public 
entities need to do that, and certainly, corporations do as 
well. And especially if you are falling short, don't be afraid 
and hide the information. Let us have a discussion about, how 
we can make those numbers become better. But it all starts with 
data that is consistent, comparable, and timely; that is what 
we need.
    Ms. Williams of Georgia. Thank you to all of the witnesses 
today.
    And, Madam Chairwoman, I yield back.
    Chairwoman Beatty. Thank you.
    The Chair now recognizes the gentleman from Massachusetts 
Mr. Auchincloss.
    Mr. Auchincloss. Thank you, Madam Chairwoman, and to our 
witnesses today. I would like to address these questions to Ms. 
Simpson, and they are about ESG policies. I know that ESG has 
gone in the last decade from being a relatively marginal 
consideration to one that is now increasingly driving 
investment decisions and is driving corporate practices. Even 
though it remains, in the grand scheme of things, a relatively 
small amount of assets under management (AUM), can you talk 
about the effect that you think your ESG policies are having, 
not just on the companies directly being invested in, but on 
companies who are updating their own policies with the 
expectation that ESG will become a new standard?
    Ms. Simpson. Thank you very much for the question. CalPERS, 
5 years ago, understood that this was a driving force not just 
on return, as Tom DiNapoli was explaining and we fully agree 
with his comments, but it is also about risk management. So, 
some of the biggest risks in our portfolio are very difficult 
to manage because we don't have the data.
    Climate change is a great example. When we looked at our 
total portfolio, we found about 20 of our assets are exposed to 
climate risk. We have also found big opportunities, 
particularly in the private markets where almost 20 percent of 
our private market opportunities are in what you might call 
climate solutions. So, this risk and return balance plays out 
all the way through the ESG agenda.
    We like to think of it as sustainable investment with these 
three forms of capital, because we know that producing those 
financial returns to produce pensions means that we need to be 
stewards of human capital and of physical capital. So, this is 
good for the returns on the balance sheet, but it is also very 
important to risk management.
    Mr. Auchincloss. I know that former Vice President Al Gore 
has been a leading investor on this front with Generation in 
London, and he has really made environmental investing a 
touchstone of how he does it, and he has done very well for his 
fund and for himself and for the companies he invests in, to 
his credit.
    Can you talk specifically about whether your criteria and 
your investments have started to change diversity practices in 
the firms that you are investing in, or in firms, sort of, on 
the frontier that might have to watch what you are doing and 
react accordingly?
    Ms. Simpson. Yes. Thank you. In our public holdings, which 
is about half of the portfolio, we have close to 10,000 
companies. We also have big exposure in private markets and 
that was rightly recognized earlier. What we are finding is 
that we can have an influence directly through engagement, not 
just through the dialogue, as our sister fund in New York State 
has said, but it is also the use of the votes. And what CalPERS 
has been doing over a period of years is, if we are not seeing 
progress on board diversity, we are actually voting against the 
chairs of the nominating committee and saying, look, you are 
falling down on the job. You are not looking at the full range 
of talent this company needs, because we need boards that are 
independent, competent, and diverse in order to drive the 
returns that we need as an investor.
    Over 500 companies that we have engaged have responded 
positively and improved--brought diverse directors into the 
boardroom. And I do want to say this is not just a question of 
investors creating demand. We have also worked with our sister 
funds like CalSTRS New York City, New York State to create 3D, 
the Diverse Director DataSource, which is an extraordinary pool 
of talent, so that if any companies really believes it is not 
easy to find the right mix of independence, competence, and 
diversity, you can go to this resource and find really 
wonderful candidates, and it has been a great success. We have 
over a thousand diverse candidates that have been sourced 
through that facility and the associated suite run by Equilar.
    Mr. Auchincloss. Have you seen evidence that greater 
diversity at the board level induces more diversity in the 
senior management and then mid-management level as well?
    Ms. Simpson. This is an area where the research isn't very 
good, and here is why: We don't have the data. It is a classic 
catch-22 where we are sort of getting handcrafted solutions by 
trying to gather this data directly from individual companies 
or paying third parties to give us their opinion on what the 
status is. So, this is tricky. However, CalPERS is very 
committed to improving the research in this field, and we 
actually have a project underway at the moment to commission 
new research specifically on human capital management, which 
would enable us to start looking at the impact of having 
diverse leadership. Until we get the full reporting that we 
need, it is going to be a case of estimates and guesstimates, 
which really isn't good enough from a financial perspective.
    Mr. Auchincloss. Thank you, Ms. Simpson.
    I yield back.
    Chairwoman Beatty. Thank you.
    The Chair now recognizes the gentleman from Texas, Mr. 
Green, who is also the Chair of our Subcommittee on Oversight 
and Investigations, for 5 minutes.
    Mr. Green. Thank you, Madam Chairwoman. This is an 
excellent hearing. I would like to thank the staff as well, 
because the staff has shared some information with me just this 
morning that is exceedingly important. I have, in my hands, a 
document that is titled, ```Racial bias runs deep' at America's 
largest banks, study says.'' Madam Chairwoman, with your 
consent and permission, and without objection, I would like to 
have this admitted into the record.
    Chairwoman Beatty. Without objection, it is so ordered.
    Mr. Green. Thank you, Madam Chairwoman. Madam Chairwoman, 
this document indicates, and this, by the way, is from CNN 
Business dated March 18, 2021, that the banking industry has a 
race problem and a new study is putting a spotlight on the 
inequities within the nation's largest financial institutions. 
It goes on to say that for people of color, the chances of 
getting promoted to the highest levels of management or senior 
and executive leadership at some of the nation's most powerful 
consumer banks are much lower compared to their White peers, 
according to this report. And the report was compiled by the 
Committee for Better Banks.
    One of the things that I would just like to highlight is 
what has been highlighted here, and it is this notion that 
accountability begins with transparency. And I would like to 
thank all of the Members and the witnesses who have made the 
case for accountability. I need not make that case, as you have 
made a proper predicate for what I would like to go to, which 
is legislation that I am proposing with other Members of 
Congress, H.R. 8160, the Promoting Diversity and Inclusion in 
Banking Act of 2021.
    On the existing laws, federally-regulated depository 
institutions are scored by financial regulators under the CAMEL 
Rating System, an internationally recognized standard that has 
evolved since its creation in 1979 to categorize banks' 
conditions. Specifically, CAMELS measures an institution's 
overall condition with respect to capital adequacy, asset 
quality, management, earnings, liquidity, and sensitivity. This 
legislation would add diversity and inclusion to the list of 
measurements. If we do so, by objectively doing so D&I efforts 
would give an additional focus, and cause resources to be 
brought to bear on diversity and inclusion as an essential 
corporate priority.
    So, I would like to move to Ms. Johnson. Ms. Johnson, I 
have a question for you. How can public access to bank 
diversity data create more accountability for genuine diversity 
results, similar to the ones you measure in your annual 
surveys?
    Ms. Johnson. Thank you for that question, Mr. Green. 
According to the Center for American Progress, in the 2019 
report, corporations lost an estimated $64 billion because of 
discrimination lawsuits based on orientation, gender, and 
ethnic discrimination. And a lot of those organizations were 
not collecting the same types of data that, by the way, every 
organization that completes the DiversityInc Top 50 survey is 
completing the same assessment. It is not industry-specific; it 
is not region-specific. It is standard, across-the-board, and 
we are collecting data not just around total workforce, which 
depending on the type of company it is, may look very good.
    We are collecting data based on board diversity. We look at 
gender, ethnicity, veteran status, the trust and disclosure of 
whether individuals in your leadership team, your workforce are 
talking with you about a disability, whether it is seen or 
unseen. And so, we look at all of this information and we know, 
based on the human resource information systems, that it is 
something corporations can collect.
    These disclosures, this transparency is not just about 
consumers. It is also about what you are telling your 
workforce. Are you being honest with them about the opportunity 
for them to grow in the organization and one day be a leader in 
an area which they choose? This transparency, these disclosures 
are for external purposes as well as internal treatment and 
development of your workforce.
    Mr. Green. Have you had an opportunity to peruse the 
legislation that I have called to your attention, H.R. 8160?
    Ms. Johnson. Yes, I have.
    Mr. Green. A quick assessment: Do you find it to be 
valuable?
    Ms. Johnson. Yes, I do.
    Mr. Green. My hope is that we can pass it in this Congress, 
and hopefully, it will help you with what you do.
    Madam Chairwoman, with my last 5 seconds, let me thank you, 
and use some of your language. I thank the Honorable Maxine 
Waters for putting this Diversity and Inclusion Subcommittee 
together, and I thank you for your leadership of it. I yield 
back.
    Chairwoman Beatty. Thank you, Mr. Green.
    I would like to thank all of our witnesses for their 
testimony, and certainly I join Mr. Green in not only thanking 
Chairwoman Waters, but acknowledging her presence for the 
entire hearing.
    Without objection, I would like to submit statements for 
the record from: The Alliance for Board Diversity; Ariel 
Investments; the Association of Asian American Investment 
Managers; Garcia Hamilton & Associates; the Knight Foundation; 
National LGBT; U.S. Chamber of Commerce; New America Alliance; 
and the D&I Diversity Data Request Letter, which asks for data 
and allows for flexibilities for all of the companies to share 
any additional information they have.
    The Chair notes that some Members may have additional 
questions for this panel, which they may wish to submit in 
writing. Without objection, the hearing record will remain open 
for 5 legislative days for Members to submit written questions 
to these witnesses and to place their responses in the record. 
Also, without objection, Members will have 5 legislative days 
to submit extraneous materials to the Chair for inclusion in 
the record.
    The hearing is now adjourned.
    [Whereupon, at 11:53 a.m., the hearing was adjourned.]

                            A P P E N D I X


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