SEC makes another push to get diversity data from managers

The Securities and Exchange Commission is, again, asking its regulated entities, including money managers, to voluntarily disclose their diversity policies, practices and workforce data. Since its first attempt to collect this data in 2018, the agency has taken additional measures to improve the response rate, which has so far been tepid.

Surveys have been sent to the first group of potential respondents while all others will receive the "diversity assessment report" by November, the agency confirmed.

"The SEC has taken steps that will hopefully get more entities to share information about efforts to enhance diversity and inclusion in their organizations," said Pamela Gibbs, director of the SEC's office of minority and women inclusion, in a Jan. 28 email.

"At educational events and conferences hosted by industry trade associations and professional organizations, we have encouraged regulated entities to conduct self-assessments of their diversity policies and practices and share their self-assessments with the SEC," Ms. Gibbs said.

The commission's Office of Minority and Women Inclusion also contacted chief compliance officers of SEC-regulated entities and requested that they provide the appropriate point of contact within their organization for the diversity assessment report, she added.

The assessments, which were introduced in January 2018, are primarily intended for regulated entities with more than 100 employees, the SEC said at the outset of its first round of surveys that year. Regulated entities include those reporting as investment advisers, broker-dealers and private fund advisers to the SEC, as well as self-regulatory organizations, such as FINRA. The SEC, which expects to collect the information every two years, created the survey to assess the diversity policies and practices of the entities its regulates, as required by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.

In the aftermath of the first survey, only 5%, or 69 of the 1,367 regulated entities that received the survey, responded, according to data provided by the SEC.

The assessment asked firms about their commitment to diversity and inclusion, how this is implemented in employment practices, and steps taken to provide business opportunities to diverse suppliers in the procurement process, among other questions.

In the 2018 survey, even fewer respondents provided specific data on the diversity of their workforce, such as the percentage of men and women in executive and other roles at firms, as well as a breakout of race and ethnicity by job category.

The SEC received a total of 38 responses to its diversity assessment report in the first year, which technically represented 69 regulated entities since larger financial services firms in some instances provided information for more than one division or subsidiary regulated by the SEC. The SEC received responses from investment advisers, a reporting group that includes money managers, as well as broker-dealers and self-regulatory organizations, Ms. Gibbs said. Responses were not broken down by the type of entity.

Only aggregated findings are published. In the 2018 survey sent to participants, the commission said it "will not publish any information that identifies a particular regulated entity or discloses confidential business information.''

Among the 38 responses, only 17 included all of the requested workforce diversity statistics and seven responses included no workforce diversity statistics at all.

Some findings from the 38 responses submitted to the SEC in the 2018 survey round include:

• 89% of firms had written diversity and inclusion policies.
• 84% of firms had a senior level official with experience in diversity and inclusion who oversees and directs the firm's diversity and inclusion efforts.
• 71% of firms regularly evaluated performance under its workforce diversity and inclusion programs.
• 61% of firms included diversity and inclusion objectives in performance plans of their managers.
• 55% of firms' supplier diversity policies were aimed at providing business opportunities to diverse suppliers, including minority- and women-owned businesses.
• 50% of firms measured the percentage of contract dollars awarded to minority- and women-owned businesses by gender, race and ethnicity.
• 50% of firms published information about progress toward achieving diversity and inclusion in the workforce on their websites.

For money managers that are considering disclosing such data, there are probably multiple factors that give them pause, sources said.

JoAnn M. Strasser, a Columbus, Ohio-based partner and vice chair of the corporate transactions and securities practice group at law firm Thompson Hine, said that while "money managers appreciate the role that the SEC and other regulators play in protecting investors, there is some level of distrust of any regulator."

"Engaging in any disclosure of information on a voluntary basis can be a challenge just because of the nature of the relationship" between regulators and regulated entities, said Ms. Strasser, who is also head of the investment group at Thompson Hine.

Additionally, firms facing a number of regulatory demands are unlikely to place voluntary disclosures on their list of priorities, said Emily P. Gordy, a Washington-based partner at McGuireWoods LLP who focuses on regulatory, compliance and enforcement issues in the financial services industry.

"I think there are a number of different factors involved in the low response rate," Ms. Gordy said. "Probably, chief among them is because it is voluntary. I think there is an element of fatigue and prioritization that goes on with any firm in regards to what they are going to respond to, to whom and when."

Despite the challenges, diversity disclosures would be "good for the industry at large, (including) financial services firms or asset managers," she said.

"It projects and communicates that they are diverse and serving a diverse population," Ms. Gordy added.

As the SEC urges regulated entities to participate in its voluntary diversity assessments, legislation passed the House in November that would require public companies to publish diversity data annually in proxy statements filed with the agency.

Under the bill, H.R. 5084, which passed by a vote of 281-135, public companies would disclose the racial, ethnic and gender makeup of boards, executive officers and nominees for the board of directors. The SEC's office of minority and women inclusion director would also need to publish best practices for compliance every three years for companies, while the office would create an advisory council to advise on best practices.

Rep. Gregory Meeks, D-N.Y., who introduced the bill, said in an interview that "the SEC has not been resistant to where we are going," as it seems to recognize that "we should have a diverse financial sector on top, (including) on boards and in the C-suite."

Juan J. Martinez, vice president, chief financial officer and treasurer of the $2.3 billion John S. And James L. Knight Foundation, Miami, said the low response rate that the SEC received to its diversity survey is consistent with asset owners' efforts to get similar data from money managers.

"Detailed data on diversity is very hard to get," Mr. Martinez said of the asset management industry.

He has seen that foundations, in particular, want to know not just company-level data on workforce diversity, but information specific to diversity on portfolio management teams.

To delve further into firms' commitment to diversity, "you have to do much deeper due diligence, which is an extra cost and extra effort because the managers aren't necessarily being forthcoming with that data," Mr. Martinez said.

"If the SEC is having trouble getting that data, you can imagine it is hard for an investor," he added.

"When dealing with complex things like investments, there is evidence to suggest that having a diversity of opinions helps you to make more informed decisions. Knowing (an asset manager's) accounting staff is diverse doesn't help me know your investment team is. I can't measure how you're doing if you never give me a baseline," he continued.

The SEC has also been subject to scrutiny over diversity within its own agency as of late, and, separately, measures it is taking to address the lack of diversity in asset management.

Last month, Rep. Maxine Waters, D-Calif., chairwoman of the House Financial Services Committee, and Rep. Joyce Beatty, D-Ohio, chairwoman of the House Financial Services Subcommittee on Diversity and Inclusion, wrote a letter to SEC Chairman Jay Clayton about the lack of ethnic and racial diversity on the agency's four advisory committees, including its 23-member asset management advisory committee, which was formed in October.

The SEC declined to comment on the matter.

The congresswomen wrote that the new asset management advisory committee includes no black committee members and that "it is no surprise that the asset management advisory committee with its limited diverse membership would propose an agenda for its inaugural meeting with no plan to discuss the historical bias against and limited investment with diverse-owned asset management firms."

Ms. Waters and Ms. Beatty went on to request data on the demographics of the SEC's advisory committee members since 2015, plus other information, including details on the advisory committee appointment process and how the SEC plans to increase representation of racial and ethnic minorities on its advisory board.