HFSC Investment Firms D&I Hearing

House Financial Services Subcommittee on Diversity and Inclusion

A Review of Diversity and Inclusion Performance at America’s Large Investment Firms

Thursday, December 9, 2021

Witnesses

Michelle Gadsden-Williams, Managing Director, Human Resources, Global Head of Diversity, Equity and Inclusion, BlackRock

Eric Pan, President and CEO, Investment Company Institute

Ron Parker, President and CEO, National Association of Securities Professionals (NASP)

Cyrus Taraporevala, President and CEO, State Street Global Advisors

Michael Clements, Director, Financial Markets and Community Investment, Government Accountability Office (GAO)

Opening Statements
Subcommittee Chairwoman Joyce Beatty (D-Ohio)
In her opening statement, Beatty discussed report findings that women and minorities are underrepresented in the asset management area and that firms are underreporting their diversity data, reinforcing previous testimony in prior hearings saying that we must tackle diversity in the asset management industry.

Subcommittee Ranking Member Ann Wagner (R-Mo.)
In her opening statement, Wagner discussed slow progress in increasing diversity in the financial services industry. She stressed that it is important to remember that every firm has its own story and individual circumstances to tell. She also discussed factors affecting diversity in STEM degree programs.

Chairwoman Maxine Waters (D-Calif.)
In her opening statement, Waters discussed letters she sent to asset management firms requesting diversity data and the Committee’s report concluding that the industry has much work to do to promote diversity in the industry.

Testimony
Michelle Gadsden-Williams, Managing Director, Human Resources, Global Head of Diversity, Equity and Inclusion, BlackRock
In her testimony, Gadsden-Williams said BlackRock launched a new management leadership committee, the Global Diversity, Equity and Inclusion Steering Committee (GDSC), to guide and oversee the execution of their global DEI strategy. She explained the GDSC is comprised of twenty-six executive and senior firm leaders across regions and functions who have shown dedication and leadership around DEI initiatives. She added that an important part of driving accountability is measuring and improving human capital management practices. Finally, Gadsden-Williams said BlackRock will conduct a third-party audit of their DEI strategy and believes the review will provide useful external feedback in assessing progress and identifying areas for future focus.

Eric Pan, President and CEO, Investment Company Institute
In his testimony, Pan said the asset management industry plays a significant role in improving the financial well-being of investors by helping them build financial security. He said the industry is not only well positioned to support women and people of color, but also to break down barriers within the industry that have prevented historically marginalized groups from ascending in financial services careers. Pan acknowledged that the industry must improve in this area, and noted that ICI is working with members to develop and implement new targeted initiatives within firms and industrywide. He said these initiatives aim to make meaningful progress toward ensuring that women and minorities are fully represented at every level of the industry.

Ron Parker, President and CEO, National Association of Securities Professionals (NASP)
In his testimony, Parker said NASP supports passage of the Diverse Investment Advisors Act, spearheaded by Rep. Beatty, because in establishing a type of “Rooney Rule,” smaller firms will be guaranteed the opportunity to make their case alongside other firms in a process that is less about longstanding connections, but more about bringing new investment philosophies and strategies to the table. He said it would also be beneficial to track and publish information detailing how much large federal contractors spend on diverse owned professional services firms, including asset managers. Finally, Parker said NASP also stands behind legislation put forward to amend the Dodd-Frank Act, section 342 by requiring that diversity and inclusion tracking be added to the Uniform Financial Institutions Rating System.

Cyrus Taraporevala, President and CEO, State Street Global Advisors
In his testimony, Taraporevala discussed actions State Street took following the racial justice-related events of the summer of 2020, and then shared their ongoing commitments around gender diversity. For their Board and workforce, he said State Street has increased the racial diversity of its corporate board from 9 percent to 25 percent and adopted a global diverse candidate slate requirement for middle management and above, the U.S. version of which is commonly referred to as the “Rooney Rule.”

Michael Clements, Director, Financial Markets and Community Investment, Government Accountability Office (GAO)
In his testimony, Clements said GAO identified four key practices institutional investors, such as retirement plans, can use to increase opportunities for minority- and women-owned (MWO) asset managers. He said these practices are consistent with federal interests in increasing opportunities for MWO businesses and include: (1) demonstrated commitment to increasing opportunities for MWO asset managers; (2) reviewing investment policies and practices to remove barriers that limit the participation of smaller, newer firms; (3) conducting outreach to inform MWO asset managers about investment opportunities and selection processes; and (4) communicating priorities and expectations about inclusive practices to investment staff and consultants and ensure those expectations are met.

Question & Answer
Equity versus Equality
Rep. John Rose (R-Tenn.) asked Taraporevala and Gadsden-Williams how they define equity versus equality. Taraporevala said they view equity as a level playing field in every sense. Gadsden-Williams said eauity is about creating parity and fairness in outcomes for all individuals. Rose said the Heritage Foundation has stated that “the push to replace equality with equity is unconstitutional” and asked if equity is an excuse to treat people unequally to achieve similar outcomes. Taraporevala said he does not agree with the definitions Rose was using and thinks equity means equal inputs and outputs. Gadsden-Williams said equity is far more important than equality and is all about creating the right opportunities and support systems.

Data Collection
Beatty asked Pan how a trade association can commit to encouraging members and firms to collect diversity data. Pan said increasing diversity starts from the top of the leadership structure. Rep. Nikema Williams (D-Ga.) asked why tracking data is important to improving diversity results, to which Parker said “you manage what you measure”. Wagner asked how many senior BlackRock employees are women. Gadsden-Williams said 43 percent.

Development Programs
Wagner asked about BlackRock’s leadership development programs and women’s leadership program. Gadsden-Williams said their Women in Leadership Program identifies high potential women in the organization, puts them through a rigorous learning and development opportunity, and assigns sponsors to them as a support mechanism. In response to a question about how long it has been in place, Gadsden-Williams said they began the program before she started her job.

Williams asked about the continued value of mentor protégé programs. Parker said a new mentor accountability measure should be introduced in these programs.

Rep. Anthony Gonzalez (R-Ohio) said he sent a letter along with Reps. Beatty, Wagner, and Garcia to the Pension Benefit Guarantee Corporation (PBGC) to expand their pilot program for women- and diverse-owned firms and asked if there are other opportunities to focus on in these pension programs. Parker said we should institute intentional systems to gain exposure to talent that may not be fully recognized. Gonzalez said some have described some fallout between the jump from “emerging manager” to the full portfolio and asked how to help more people bridge that gap. Parker cited intentional mentoring programs that allow emerging managers to be exposed to new areas of the financial services sector like cryptocurrency and ETFs.

Engagement with Outside Firms
Waters asked Gadsden-Williams and Taraporevala what steps their firms have taken to increase engagement with diverse asset management firms. Gadsden-Williams said it is BlackRock’s goal to remain connected with diverse firms. Taraporevala said State Street is committed to increasing diversity amongst its suppliers. Rep. Rashida Tlaib (D-Mich.) mentioned the SEC’s recommendations for diversifying the asset management industry and asked when a firm acquires the services of outside asset management firms, whether that firm is assessed holistically or just based on their assets under management. Pan said different firms follow a variety of factors that are unique to their needs. Taraporevala said they run the receiving end in terms of that selection process, but they agree that a wide variety of factors should be considered.

Hiring and Promotion
Rep. Ayanna Pressley (D-Mass.) asked if BlackRock’s retention and promotion rates for black employees and women are as high for white employees and men. Gadsden-Williams said discriminatory treatment has no place at BlackRock and described steps the firm has taken to create an inclusive environment but could not currently provide retention and promotion statistics. Rep. Madeleine Dean (D-Pa.) asked how to make sure there is diversity in middle management. Parker said diversity in middle management starts at the top, making sure the necessary processes are in place.

Benefits of Diversity
Dean asked how increasing diversity improves companies’ bottom lines. Gadsden-Williams said plenty of data exists to support the business benefits of diversity and inclusion, and Taraporevala added that studies have shown that diverse teams foster improved business outcomes, but he could not provide State Street-specific data.

Rooney Rule
Wagner asked how a reverse Rooney Rule is working for ICI’s member firms. Pan said he does not have information on specific firms’ experience but discussed their DEI committee that sees firms with unique circumstances. He said they do not have one singular program that fits all members’ needs, and thinks there is great value to the firms being able to “pick the brains” of each other.

Cryptocurrency
Gonzalez asked how cryptocurrencies fall into the broader discussion of DEI. Parker said any emerging area allows for underrepresented groups to get in on the ground floor.

General DEI Challenges
Rep. William Timmons (R-S.C.) asked what general challenges Congress should be aware of. Parker said there needs to be a cadence established around this topic and places for firms to share what works and what does not. Gadsden-Williams said transparency and accountability are critical to any DEI strategy, so BlackRock has tied performance reviews to their DEI mission to hold leaders accountable.

Language Barriers
Rep. Sylvia Garcia (D-Texas) asked panelists if their firms are exploring ways to reach future job applicants whose primary language is not English. Pan said they have not discussed this at ICI, but he will bring it to the attention of their Board. Parker said their organization is made up entirely of people of color, and they are working hard to connect with young people and demystify the world of financial services.

Working Mothers
Garcia asked the panelists what they are doing to support working mothers. Gadsden-Williams said they provide virtual programming to ensure they remain well connected and other support programs for care-giving individuals. Garcia asked if they provide a childcare stipend to working parents. Gadsden-Williams said they do, but she does not have specific details of the program. Taraporevala said they are supporting more hybrid-working arrangements, to which Garcia responded that the entire world already does this.

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