Dodd-Frank Brings Diversity into Sharper Focus for Organizations Contracting with Federal Financial Agencies

Organizations contracting with federal financial agencies, and their contractors, will encounter new scrutiny of their diversity programs and accomplishments during 2011. A feature of the Dodd-Frank Wall Street Reform and Consumer Protection Act requires each agency to adopt procedures prescribing that a contractor shall ensure, to the maximum extent possible, the fair inclusion of women and minorities in the workforce of the contractor and, as applicable, subcontractors.

The reach and anticipated impact of the diversity initiative is evident from the federal agencies having responsibility for programs and the types of organizations impacted by those programs. Agency directors of the Department of the Treasury, the Federal Deposit Insurance Corporation, the Federal Housing Finance Agency, each of the Federal Reserve banks, the Federal Reserve Board, the National Credit Union Administration, the Office of the Comptroller of the Currency, the Securities and Exchange Commission, and the Bureau of Consumer Financial Protection are charged with developing standards for increased participation of minority-owned and women-owned businesses in the programs and contracts of the agency, including standards for coordinating technical assistance to those businesses. The provision, set forth in Dodd-Frank Section 342, applies to "all business and activities of the agencies at all levels, including in procurement, insurance, and all types of contracts."

A "minority-owned business" is one in which more than 50 percent of the ownership or control is held by one or more minority individuals and more than 50 percent of the net profit or loss accrues to one or more minority individuals. A women-owned business has comparable features of ownership and share of net profit, with an additional requirement that a significant percentage of senior management positions is held by women.

Contractors failing to make a good faith effort to include minorities and women in their workforce may be subject to contract termination, further investigation by the DOL's Office of Federal Contract Compliance Programs, or other appropriate action.