New York regulators are asking the financial institutions they supervise to disclose data about the diversity of their boards and senior leadership, which state officials plan to publish on an aggregate basis.
In a letter to regulated firms, the state's department of financial services characterized the move as a first step in helping the industry improve on current diversity efforts. The agency plans to collect data related to the gender, racial and ethnic makeup of companies’ boards and senior management, as well as information about board tenure, at the end of 2019 and 2020.
And that initial request for diversity-related may not be the last such effort by the New York agency. Superintendent Linda Lacewell stated in the letter that the department will consider collecting and disclosing more granular data from regulated firms in the future.
“Particularly in the wake of a changing society affected by the COVID-19 pandemic, racial injustice, and climate change, it is now more than ever paramount that the banking and financial industries have strong boards and executive teams comprised of people with diverse experiences, skills and perspectives in order to better confront evolving risks and find new opportunities," Lacewell wrote.
The data-gathering effort applies to banks with more than $100 million of assets and non-depository institutions, including virtual currency businesses, that have at least $100 million of gross revenue. Banks regulated by the New York state agency include Goldman Sachs Bank, the Bank of New York Mellon and Signature Bank.
Many banks
A California law enacted last year requires public companies headquartered in the state to have two or three people from underrepresented groups on their boards by the end of 2022. Also last year, Nasdaq filed a proposal with the Securities and Exchange Commission to require that companies listed on its U.S. public exchange add more women and minorities to their boards.
In the letter to New York-regulated financial institutions, Lacewell wrote that those companies should “pay close attention to their talent pipeline,” adding that greater diversity in the pipeline will better position companies to diversify their senior management and boards.
And she said that regulated firms should view diversity like other strategic priorities, including by providing a plan for how it will be achieved, setting measurable goals and tracking progress toward those goals.
The letter stated that the New York State Department of Financial Services has evaluated several regulatory approaches to advancing diversity and inclusion. The approaches that were evaluated include imposing quotas and disclosing diversity-related data on a firm-by-firm basis.
Lacewell described data collection as key to setting goals and measuring progress. “Making this information public will allow firms to assess where they stand relative to their peers, and it is our hope, raise the bar for the entire industry,” she wrote.
“Firms should aim to have a board and management team that benefit from a wide diversity of skills, experiences, and perspectives, including those based on gender, race or ethnicity; not simply aim to have one or two diverse board members. To be clear, one or two diverse board members is better than none, but that is insufficient, particularly for a large board, and is not the goal,” Lacewell continued.
The Department of Financial Services plans to collect data from regulated companies over the late summer and publish aggregate results, categorized by the type of institution and other factors, in the first quarter of next year.
Lacewell wrote that the department “strongly” encourages companies to publicly disclose the composition and diversity of their boards and management.
"Time and time again, research reveals that corporate governance benefits from diverse leadership teams," she said in the press release. "Diversity in board membership and senior management leads to companies that are more innovative and more profitable, and that connect with a broader customer base."
Lacewell also outlined diversity-related steps the New York agency has taken internally, including starting employee affinity groups and establishing a new statewide office of financial inclusion and empowerment.
