For several months in 2020, news reports and articles began with a recitation of the names of black men and women killed by police violence. We engaged daily in a national discourse about systemic racism, and many business leaders joined the discussion. No longer reticent on this topic, corporate executives issued statements that pledged a commitment to antiracism work. Companies sent letters to consumers, employees and the general public. All of the statements mentioned injustice, racism or bias. Business leaders seemed to have moved beyond cosmetic rhetorical flourishes that focused solely on diversity, access and inclusion. This was a seismic and potentially powerful shift in corporate discourse relating to race. The promise of elevating the discourse on race was ripe with possibility.
As the New York Times reported in June, “[i]t has seemed like every major company has publicly condemned racism.”[1] Nike tweeted, “[d]on’t turn your back on racism.”[2] Starbucks’ CEO held a virtual forum for its employees during which many described their experiences with racism.[3] Coca-Cola’s CEO sent a message to its employees announcing an event that would present opportunities to discuss racism.[4] The CEO of Intel wrote to his employees stating that “racism of any kind will not be tolerated . . . at Intel,” and made a $1 million contribution to antiracist organizations.[5] Facebook and Levi’s also made donations to antiracism organizations.[6] Other companies, large and small, that have either donated money to, or made statements supporting antiracism efforts, include: The Verizon Foundation; Peloton; Twitter; Sephora; Lyft; Uber; Ulta Beauty; Chipotle; CityMD; and Tiffany & Co. The list of companies that engaged in anti-racism discourse and efforts continued to grow in the weeks after Mr. Floyd’s death.
Many Americans hypothesized that in those early months of 2020, our nation was ready to begin a post-Civil Rights era movement to address systemic racism. But by October 2020, there were so many other pressing things on which to focus – a pandemic, the economy, and the bitter, divisive campaign and election for the presidency. Now the names of George Floyd, Breonna Taylor, and many other police violence victims have begun to recede in our collective memory. As we enter the final months of 2020, it seems as though antiracism work was not a movement in 2020 – it was only a moment. Racism is, once again, relegated to the nation’s back burner.
A Brief History of Financial Regulation’s Failure to Confront Systemic Racism
Unfortunately, it is shockingly easy to transform a discussion about racism to a discussion about diversity. Many companies, after having issued statements about antiracism, are once again engaging in diversity doublespeak. And, the practice of ignoring racism and focusing on more comfortable discourse about diversity, inclusion and access was enabled by Congress upon enacting Section 342 of The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.[7] The Act requires federal agencies to establish an Office of Minority and Women Inclusion (“OMWI”) to develop standards for equal employment opportunity and racial and gender diversity at the agency.[8] Directors of these OMWI are also charged with increasing the number of minority-owned and women-owned businesses with whom they contract, and “assessing the diversity policies and practices of entities regulated by the agency.”[9] Section 342 makes clear that OMWIs have no power to enforce statutes, regulations, or executive orders relating to “civil rights.”[10] Each OMWI director, however, must participate in the development of remedies (such as terminating contracts) when firms fail to achieve, “to the maximum extent possible, the fair inclusion of women and minorities in the workforce of the contractor and, as applicable, subcontractors.”[11] The SEC has also weighed in on diversity, but not the issue of racism. Item 401(e) of the SEC’s Regulation S-K requires firms to briefly describe the “‘specific experience, qualifications, attributes or skills’ that led the board to conclude that such person should serve as a director[.]”[12] Some call this the SEC’s diversity policy even though the SEC did not define “diversity” in this context. The SEC’s policy focuses on disclosure, as does the Long-Term Stock Exchange’s requirement that companies that list on the Exchange explain their approach to diversity and inclusion.[13]
Firms can only help to mitigate the impact of centuries of systemic racism if they avoid empty rhetoric and happy talk about diversity and inclusion, and honestly confront the problem of racism in a way that is not merely cosmetic. In 2020, some companies did so. But they made their statements and moved on after having made little to no progress with respect to their firm’s racial climate. How can business leaders embed antiracism policy as an integral part of a company’s culture? How do we end the historical cycle of brief national discourse about racism, and the silence about racism that has always ensued? Can business leaders inspire the rest of the nation to do the kind of sustained antiracism work that moves beyond merely cosmetic efforts to address the seemingly intractable reality of systemic racism?
Mobilizing the Compliance Function to Confront Racism
It is imperative for business leaders to effectively frame their firms’ approach to racial equity. Business leaders must understand that diversity efforts bring individuals into an organization, but racism chases them away. They must acknowledge that a lack of diversity is just part of the problem. Corporate managers must face the possibility that a lack of diversity may be the result of explicit and/or implicit racial bias. A focus on antiracism transforms the racial justice advocacy of a firm’s employees, suppliers, consumers and the community in general from supplications to demands. Firms do not have to engage in ESG or social responsibility efforts, but they must comply with law, including the law that prohibits discrimination. Framing this as a compliance matter requires corporate directors and officers to determine whether there are effective processes and systems in place that measure compliance with antidiscrimination law. They have no choice in the matter.
Consider, for example, the explicitly racist practice of many financial institutions that targeted consumers of color – African Americans in particular – for high-interest predatory mortgages in the years leading up to the 2008 recession. Many people of color who qualified for prime or low-interest mortgages were steered into predatory, high-interest loans so that loan officers and the companies themselves could profit by lending money at subprime rates.[14] Predictably, many borrowers were unable to repay the predatory mortgages. The mortgages had been pooled together to create securities that were sold to investors, enabling lenders to transfer the foreseeable risks that borrowers would default on the underlying mortgages. Former loan officers at Wells Fargo, one of the financial institutions engaging in this predation, testified in a deposition that there was an attitude prevalent at the bank that black Americans were not “savvy” enough to know whether they qualified for lower-cost loans.[15] (We can’t know whether black Americans are less savvy than white Americans about these matters because white Americans were not systematically targeted for predatory loans.) Former Wells Fargo loan officers also revealed in depositions that the black people who were steered into predatory loans were referred to as “mud people,” and the loans were called “ghetto loans.”[16] These predatory practices at Wells Fargo and other financial institutions were the result of glaring corporate governance and compliance failures. The firms failed to include in their compliance programs a reporting and information system that would bring information about widespread, pervasive failure to comply with the many laws that prohibit racial discrimination to the attention of the board. Financial institution managers limited their consideration of race to questions about diversity even in the face of explicit racism.
A lack of diversity may have contributed to the racism that pervaded these firms. But most salient were the racially discriminatory practices themselves. Shockingly, there are new iterations of racial discrimination in the financial sector in 2020. (Dr. Janis Sarra and I describe many of these new forms of predation in our recently published book, Predatory Lending and the Destruction of the African-American Dream.) Only robust compliance programs that detect and confront twenty-first century racism have the power to transform a moment of racial reckoning into a movement.
Footnotes
[1] David Gelles, Corporate America Has Failed Black America, N.Y. Times (June 6, 2020), https://www.nytimes.com/2020/06/06/business/corporate-america-has-failed-black-america.html.
[2] Nike (@Nike), Twitter (May 29, 2020, 6:50 PM), https://twitter.com/Nike/status/1266502116463370241.
[3] Joan Verdon, Starbucks, Salesforce and WordPress: Executives on Embracing Diversity, Inclusion and Change, CO: U.S. Chamber of Commerce (Sept. 21, 2020), https://www.uschamber.com/co/good-company/launch-pad/starbucks-salesforce-wordpress-diversity-inclusion-interview.
[4] A Message from James Quincy on Social Justice, The Coca-Cola Co. (June 1, 2020), https://www.coca-colacompany.com/media-center/a-message-from-coca-cola-chairman-and-ceo-james-quincey.
[5] Bob Swan Memo: The Sidelines Are Not an Option; Intel Pledges $1M to Address Social Justice, Racism, Intel Newsroom (May 31, 2020), https://newsroom.intel.com/news/bob-swan-note-to-intel-employees/#gs.n6b6u8.
[6] Isabel Togoh, Corporate Donations Tracker: Here Are the Companies Giving Millions to Anti-Racism Efforts, Forbes (June 3, 2020), https://www.forbes.com/sites/isabeltogoh/2020/06/01/corporate-donations-tracker-here-are-the-companies-giving-millions-to-anti-racism-efforts/?sh=3ce08e8537dc.
[7] https://www.frbsf.org/our-district/files/Dodd_Frank_Act_Section_342.pdf.
[8] 12 U.S.C. § 5452(a)(1) & (b)(2).
[9] Id. § 5452(b)(2)(c).
[10] Id. § 5452(a)(3).
[11] Id. § 5452(c)(2).
[12] Compliance & Disclosure Interpretations: Regulation S-K, SEC, https://www.sec.gov/divisions/corpfin/guidance/regs-kinterp.htm.
[13] LTSE Rule 14.425(a)(1).
[14] Michael Powell, Bank Accused of Pushing Mortgage Deals on Blacks, N.Y. Times (June 6, 2009), https://www.nytimes.com/2009/06/07/us/07baltimore.html.
[15] Richard Rothstein, A Comment on Bank of America/Countrywide’s Discriminatory Mortgage Lending and its Implications for Racial Segregation, Econ. Pol’y Inst. (Jan. 23, 2012), https://www.epi.org/publication/bp335-boa-countrywide-discriminatory-lending.
[16] Powell, supra note 14.
Cheryl L. Wade is the Harold McNiece Professor of Law at St. John’s University School of Law. Her book, Predatory Lending and the Destruction of the African-American Dream, coauthored with Dr. Janis Sarra, was published by Cambridge University Press in 2020.
Disclaimer
The views, opinions and positions expressed within all posts are those of the author alone and do not represent those of the Program on Corporate Compliance and Enforcement (PCCE) or of New York University School of Law. PCCE makes no representations as to the accuracy, completeness and validity of any statements made on this site and will not be liable for any errors, omissions or representations. The copyright of this content belongs to the author and any liability with regards to infringement of intellectual property rights remains with the author.