Debate in the states

By Monica C. Meinert and Marlee Ribnick

Last summer, the Supreme Court issued a ruling that saw the effective end of race-conscious admissions practices at U.S. colleges and universities — a decision that has had reverberations throughout some state legislatures, raised new questions around recruitment and promotion practices, and placed the discipline of diversity, equity and inclusion, or DEI, under a microscope.

Following the 2020 murder of George Floyd in Minneapolis, many corporations — including banks of all sizes — expanded their commitments to DEI initiatives. Yet more than four years later, as the American political climate has grown more deeply polarized, the term “DEI” has become something of a political flashpoint, and vocal opposition to perceived DEI-related practices has emerged in recent months.

In the banking sector specifically, the friction surrounding DEI issues links back to the broader “environmental, social and governance,” or ESG, issue set, where DEI activities are often included. At the core is a sharp philosophical divide over the extent to which these issues should factor into business decision making — and whether and how that should be regulated on both the state and federal levels.

Related to DEI specifically, a few states have put forth legislation to require limited DEI standards and reporting. In Hawaii, for example, HB 2179 would require publicly held domestic corporations to have gender-diverse boards and would establish associated reporting requirements and penalties. In New Jersey, AB 2452 would require the state treasurer to collect and study certain demographic information on corporate boards and senior management for domestic and foreign corporations authorized to do business in the state.

Other states have moved in the opposite direction. While unrelated to corporate DEI initiatives, Missouri’s HB 2619 would prevent state departments from spending money on DEI programs. Meanwhile, in Florida, Governor Ron DeSantis recently signed into law a bill that seeks to connect ESG and DEI issues to bank safety and soundness.

Specifically, Florida’s HB 3 states that it is considered an “unsafe or unsound practice” for banks or credit unions to deny financial services to someone on the basis of an exhaustive list of factors, including “the person’s failure to meet or commit to meet, or expected failure to meet any of the following as long as such person is in compliance with applicable state or federal law: environmental standards including emissions standards, benchmarks, requirements, or disclosures; social governance standards, benchmarks, or requirements, including (but not limited to) environmental and social justice; corporate board or company employment composition standards, benchmarks, or disclosures based on characteristics protected under the Florida Civil Rights Act of 1992; policies or procedures requiring or encouraging employee participation in social justice programing, including but not limited to diversity, equity, and inclusion training.”

“The legislature clearly perceives that banks are taking stands and cherry-picking based on political views rather than serving all customers,” explains Florida Bankers Association President and CEO Kathy Kraninger. “That just is not the case.”

Effective July 1, financial institutions doing business in Florida will be required to sign attestations certifying compliance. “It clearly is attempting to reach all banks that operate in Florida,” adds Kraninger.

As laws like these continue to be enacted, it’s clear banks could be facing a compliance quagmire, as they work to reconcile a patchwork of different requirements and prohibitions — and there could be significant downstream implications for customers.

“What we’ve seen with some of these anti-ESG bills is that they result in less access to banking,” says ABA VP Anthony Pardal. For example, some states are barring banks from participating in the public finance market if they aren’t viewed as sufficiently supportive of the oil and gas industry. “Excluding some banks from bidding on public finance opportunities means less competition and the likelihood that taxpayers will end up paying more.” Pardal notes. “There is a cost to these policies, but some state legislatures are moving forward anyway.”

The fundamental objective of diversity, equity and inclusion is to broaden leadership pipelines and ensure that opportunities are available to everyone, says Cathy Nestrick, VP for DEI at ABA. “DEI was created because too many people were excluded from opportunities, particularly in leadership roles. State-level legislative crackdowns that make DEI programming more difficult will hamper efforts to attract and retain a competitive workforce.”

That’s a key concern for Jenn Docherty, CEO of Bank On Women, an organization dedicated to increasing the representation of women on bank boards and senior leadership teams.

“Laws should be agnostic about letting banks figure out what is the best thing to run their institutions and be successful,” Docherty says. “The irony is that you have legislation being proposed which actually inhibits business. … It is not pro-business in any way shape or form.”

Docherty wants to dispel the idea that focusing on diversity, equity and inclusion detracts from banks’ ability to hire the best person for the job, stating, “those two things are congruous, they’re not in conflict.” Widening the candidate pool increases a bank’s opportunity to find the best possible candidate for a job role.

When it comes to retaining that talent, “it’s about understanding the real dynamics of what makes people want to stay around in your institution or not,” rather than the figures, says Docherty.

For John Asbury, CEO of Atlantic Union Bank, DEI is not a political football. “It’s an expression of our culture, and it’s an expression of how we work together as an organization,” he says. Asbury believes embracing DEI practices is just good business, especially when banks serve a diverse clientele.

Banks like Atlantic Union remain committed to DEI, but as Nestrick points out, there are steps banks can take to navigate the current charged climate around DEI and communicate their commitments in a way that aligns with their corporate values and also comports with existing law.

“Banks should audit their internal practices and communications to ensure they comply with all legal requirements,” says Nestrick. This includes reviewing all written statements about DEI efforts on webpages, in press releases, onboarding materials and brochures. “Our industry gets stronger when we reconsider how talent decisions are made, ensuring the most qualified person is hired or promoted,” she says. “That means following updated DEI guidelines to create a robust workforce and leadership pipeline.”

Monica C. Meinert is a senior editor at the ABA Banking Journal. Marlee Ribnick is a staff writer at the ABA Banking Journal.

Defining DEI
DEI emerged in the corporate world in the 1970s and began growing in earnest in the 1990s as new studies emerged about the benefits of diverse workforces to meet the increasing complexity of business demands.

The term “diversity” refers to the representation within an organization of a number of identity factors, including gender, race, ethnicity, socioeconomic class, age, gender identity and expression, sexual orientation, abilities, veteran status, religion or marital status, among other things.

“Equity” involves removing systemic biases and ensuring that every member of an organization is treated fairly and afforded access to opportunities and advancement, while “inclusion” is all about creating cultures in which all employees are treated with respect with a sense of belonging.