[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
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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
March 18, 2021
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