[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]
DIVERSITY IN THE FINANCIAL SERVICES
INDUSTRY AND ACCESS TO CAPITAL
FOR MINORITY-OWNED BUSINESSES:
CHALLENGES AND OPPORTUNITIES
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON
OVERSIGHT AND INVESTIGATIONS
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTH CONGRESS
SECOND SESSION
__________
JULY 15, 2004
__________
Printed for the use of the Committee on Financial Services
Serial No. 108-101
U.S. GOVERNMENT PRINTING OFFICE
96-529 WASHINGTON : 2004
____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
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HOUSE COMMITTEE ON FINANCIAL SERVICES
MICHAEL G. OXLEY, Ohio, Chairman
JAMES A. LEACH, Iowa BARNEY FRANK, Massachusetts
DOUG BEREUTER, Nebraska PAUL E. KANJORSKI, Pennsylvania
RICHARD H. BAKER, Louisiana MAXINE WATERS, California
SPENCER BACHUS, Alabama CAROLYN B. MALONEY, New York
MICHAEL N. CASTLE, Delaware LUIS V. GUTIERREZ, Illinois
PETER T. KING, New York NYDIA M. VELAZQUEZ, New York
EDWARD R. ROYCE, California MELVIN L. WATT, North Carolina
FRANK D. LUCAS, Oklahoma GARY L. ACKERMAN, New York
ROBERT W. NEY, Ohio DARLENE HOOLEY, Oregon
SUE W. KELLY, New York, Vice Chair JULIA CARSON, Indiana
RON PAUL, Texas BRAD SHERMAN, California
PAUL E. GILLMOR, Ohio GREGORY W. MEEKS, New York
JIM RYUN, Kansas BARBARA LEE, California
STEVEN C. LaTOURETTE, Ohio JAY INSLEE, Washington
DONALD A. MANZULLO, Illinois DENNIS MOORE, Kansas
WALTER B. JONES, Jr., North MICHAEL E. CAPUANO, Massachusetts
Carolina HAROLD E. FORD, Jr., Tennessee
DOUG OSE, California RUBEN HINOJOSA, Texas
JUDY BIGGERT, Illinois KEN LUCAS, Kentucky
MARK GREEN, Wisconsin JOSEPH CROWLEY, New York
PATRICK J. TOOMEY, Pennsylvania WM. LACY CLAY, Missouri
CHRISTOPHER SHAYS, Connecticut STEVE ISRAEL, New York
JOHN B. SHADEGG, Arizona MIKE ROSS, Arkansas
VITO FOSSELLA, New York CAROLYN McCARTHY, New York
GARY G. MILLER, California JOE BACA, California
MELISSA A. HART, Pennsylvania JIM MATHESON, Utah
SHELLEY MOORE CAPITO, West Virginia STEPHEN F. LYNCH, Massachusetts
PATRICK J. TIBERI, Ohio BRAD MILLER, North Carolina
MARK R. KENNEDY, Minnesota RAHM EMANUEL, Illinois
TOM FEENEY, Florida DAVID SCOTT, Georgia
JEB HENSARLING, Texas ARTUR DAVIS, Alabama
SCOTT GARRETT, New Jersey CHRIS BELL, Texas
TIM MURPHY, Pennsylvania
GINNY BROWN-WAITE, Florida BERNARD SANDERS, Vermont
J. GRESHAM BARRETT, South Carolina
KATHERINE HARRIS, Florida
RICK RENZI, Arizona
Robert U. Foster, III, Staff Director
Subcommittee on Oversight and Investigations
SUE W. KELLY, New York, Chair
RON PAUL, Texas, Vice Chairman LUIS V. GUTIERREZ, Illinois
STEVEN C. LaTOURETTE, Ohio JAY INSLEE, Washington
MARK GREEN, Wisconsin DENNIS MOORE, Kansas
JOHN B. SHADEGG, Arizona JOSEPH CROWLEY, New York
VITO FOSSELLA, New York CAROLYN B. MALONEY, New York
JEB HENSARLING, Texas JIM MATHESON, Utah
SCOTT GARRETT, New Jersey STEPHEN F. LYNCH, Massachusetts
TIM MURPHY, Pennsylvania ARTUR DAVIS, Alabama
GINNY BROWN-WAITE, Florida CHRIS BELL, Texas
J. GRESHAM BARRETT, South Carolina
C O N T E N T S
----------
Page
Hearing held on:
July 15, 2004................................................ 1
Appendix:
July 15, 2004................................................ 39
WITNESSES
Thursday, July 15, 2004
Fernandez Haar, Ana Maria, Chair, New America Alliance........... 10
Hammond, Theresa A., Associate Professor of Accounting, Boston
College........................................................ 12
Hanley, Joanne, President, Women in Housing and Finance, Inc..... 18
Kennedy, Michael D., Manager of Diversity Program and Financial
Services Sector Executive, Korn/Ferry International............ 14
Lackritz, Marc, President, Securities Industry Association....... 16
Padron, Hon. Lorenzo, Commissioner, Office of Banks and Real
Estate, State of Illinois...................................... 19
APPENDIX
Prepared statements:
Kelly, Hon. Sue W............................................ 40
Watt, Hon. Melvin L.......................................... 42
Fernandez Haar, Ana Maria.................................... 43
Hammond, Theresa A........................................... 53
Hanley, Joanne............................................... 63
Kennedy, Michael D........................................... 71
Lackritz, Marc............................................... 75
Padron, Hon. Lorenzo......................................... 82
Additional Material Submitted for the Record
Baca, Hon. Joe:
American Latinos in Financial Services-Phase I White Paper,
New American Alliance...................................... 87
Kennedy, Michael D.:
Best Practices for Diversity: Corporate & Candidate
Perspectives............................................... 135
DIVERSITY IN THE FINANCIAL SERVICES
INDUSTRY AND ACCESS TO CAPITAL
FOR MINORITY-OWNED BUSINESSES:
CHALLENGES AND OPPORTUNITIES
----------
Thursday, July 15, 2004
U.S. House of Representatives,
Subcommittee on Oversight and Investigations,
Committee on Financial Services,
Washington, D.C.
The subcommittee met, pursuant to call, at 10:08 a.m., in
Room 2128, Rayburn House Office Building, Hon. Sue Kelly
[chairwoman of the subcommittee] presiding.
Present: Representatives Kelly, Hensarling, Garrett, Brown-
Waite, Gutierrez, Inslee, Davis and Frank (ex officio). Also
present were Representatives Baca, Bell, Gonzalez, Napolitano,
Scott and Waters.
Chairwoman Kelly. [Presiding.] This hearing of the
Subcommittee on Oversight and Investigations will come to
order.
This morning, the Subcommittee on Oversight and
Investigations will examine the state of diversity in financial
services, including access to capital for all businesses and
communities. These issues are critically important to achieving
full growth in our financial services sector and our overall
economy.
A simple snapshot of our country's current employment
composition displays some disparities among certain
populations, particularly with regard to women and minorities.
As a society, it is our responsibility to encourage the
diversity in financial services that reflects the makeup of our
country. It is also our responsibility to ensure that a lack of
diversity does not translate in to a lack of confidence in any
individual's ability to succeed at all levels of the financial
industry.
Today, we will investigate these issues and discuss ways to
improve efforts to achieve a more diverse financial sector and
to improve access to capital.
Over the past few decades, the visibility and involvement
of women and minorities in social, economic and political
circles has continued to increase. An important part of
increasing opportunities for all individuals begins at an early
age. This means ensuring that every child has access to a first
class education and the opportunity to succeed.
A key component of this education includes financial
literacy for individuals at all ages. However, a strong
education alone will not help improve access to all sectors,
which is evident by the fact that the financial sector
continues to lag behind other industries in representation. We
must have a continued commitment from the public and private
sectors in order to break down some barriers that still exist.
While there are still considerable strides that need to be
taken to increase opportunities for all individuals, the
financial services industry appears to be moving in the right
direction. Currently, there is promising representation in the
lower and middle management ranks; however, senior management
ranks continue to pose challenges. There are also signals that
senior management is starting to become more aware and active
in expanding opportunities to all qualified candidates,
regardless of their race or sex.
Some companies continue to be more successful at promoting
diversity in their workplace than others. In fact, some major
corporations today have diversity programs, which encourage and
recruit qualified individuals in under represented populations.
And many firms are also utilizing employee networks and formal
mentoring programs to facilitate a more diversified workforce
and to help all employees achieve their full performance and
career potential. Since it is the tone at the top of a company
that sets a good example for opportunity at all ranks, we must
continue to challenge our Nation's business leaders to
encourage these efforts.
Better representation in financial services should also
improve access to capital for all individuals. Earlier this
year, the Minority Business Development Agency of the
Department of Commerce released a report entitled, ``Expanding
Financing Opportunities for Minority Businesses.'' This
important study found that minority-owned businesses present an
historic and dynamic growth opportunity for the U.S. economy.
The study also highlights the fact that, while minority-
owned businesses are growing, they exist primarily in non-asset
based industries rather than in capital intensive sectors. The
subcommittee is very interested in the report's conclusion that
the lack of access to financing impedes participation in
certain sectors and that successful growth will require
bringing minority entrepreneurial efforts into the economic
mainstream.
We would like to hear more from our witnesses on how to
improve access to capital and encourage this transition. I
thank the witnesses for being here today, and I look forward to
hearing your views on these issues.
With that, I turn to Mr. Gutierrez.
[The prepared statement of Hon. Sue W. Kelly can be found
on page 40 in the appendix.]
Mr. Gutierrez. Good morning and thank you very much,
Chairwoman Kelly, for calling this hearing, which Ranking
Member Barney Frank and I spoke to you earlier this spring
about calling, and I really want to thank you for this.
It is important that we attempt to understand why there
remains a lack of diversity in the upper ranks of the financial
services industry and explore options to alleviate this
problem. I represent a very diverse congressional district in
Illinois. The 4th District is mostly in the city of Chicago but
encompasses part of the north side and parts of the south side,
parts of Cicero, some very low-income neighborhoods, some
working class and some somewhat prosperous neighborhoods.
Ethnically and racially, my district looks very much like a
microcosm of America, and I don't see any reason why board
rooms should not. All too often, we are exposed to executives
in the financial services industries who are exclusively white
and male. Sometimes it seems as though they all wear the same
identical suits from Brooks Brothers.
However, today, we have before us a very different panel,
not just in terms of their race, color, ethnicity or gender,
but different in the sense of their recognition and belief that
the board rooms of America's financial sector should reflect
the strength and diversity of the American people. And each of
the witnesses hear today has demonstrated a commitment to that
cause.
My colleague and friend, chairman of the Congressional
Hispanic Caucus, Ciro Rodriguez, from San Antonio once said
growing up he never met a stockbroker. I know that sounds
incredible to us on the Financial Services Committee where we
probably talk to several of them every week, but as a young
Latino, his neighbors and relatives were not accountants or
bankers or stockbrokers, they were mechanics and teachers and
cab drivers.
And there is nothing wrong with these honorable positions;
I was a cab driver myself for four years. But my point is young
people tend to strive for what they see as available goals. If
no one they know is a banker or an accountant, it is less
likely they will seek that out for themselves.
Today's witnesses will doubtless address the issue of
reaching out to these young people who might otherwise be
unaware of opportunities for success in the financial services
industry. They will also provide valuable insight regarding
recruiting, mentoring and retaining minority talent within the
industry. And they will share personal stories of success and
disappointment. I am looking forward to learning from their
experiences and helping to implement their suggestions.
At a proper time, I would like to introduce Commissioner
Padron from my one State of Illinois. With that, I yield back
the balance of my time, and I thank the gentlelady for calling
this hearing.
Chairwoman Kelly. I thank you, Mr. Gutierrez. You talk
about having driven a cab. My first job was as a newspaper
girl, and I picked berries in the fields and things like that.
And the reason you do jobs like that when you are young is
because you have hope that you can save a little money and get
ahead. And that is what this hearing is all about.
I am going to do a little bit of bookkeeping here. Without
objection, all members' opening statements will be made part of
the record, and without objection, the gentleman from Texas,
Mr. Gonzalez, the gentleman from Alabama, Mr. Scott, the
gentleman from California, Mr. Baca, the gentleman from Texas,
Mr. Hinojosa may participate in today's hearing. They may give
opening statements and question witnesses under the five-minute
rule. So ordered.
With that, I turn to Mr. Hensarling.
We are honored to have our ranking chairman, Mr. Frank.
Mr. Frank. Thank you, Madam Chair. I appreciate very much
your calling this hearing. As the Subcommittee's ranking
member, Mr. Gutierrez mentioned, this was a subject that was
important to us, and I just want to say that I am very pleased
as the ranking member of the full committee. As you know, the
chairman and I have been able to, I think, work very
cooperatively and put differences in one place and work
together, and this particular subcommittee, yourself and the
gentleman from Illinois have been doing the same thing on a
number of issues, like preemption and this, and I am very
appreciative of that.
I also want to acknowledge that part of the impetus for
this hearing on my part came from a visit to me from one of our
witnesses. Professor Hammond, who teaches in my part of the
country, approached me, wrote to me some time ago and pointed
out this serious problem with regard to African-American
representation in the accounting industry. We followed up. Ms.
Jeffers on my staff talked with her, and I am very pleased that
those conversations helped lead to this hearing.
The impetus also, of course, came from people in the New
America Alliance and the Hispanic members of our committee, but
I think this is a good sign that people aren't entirely wasting
their time when they bring things to our attention. I am glad
to be able to do that. And I am particularly pleased that we
are having this hearing.
The financial services industry obviously has an
extraordinary impact on the country. More and more of what we
do in the country is part of the financial services industry.
As we evolve, we know that manufacturing is less of a job
source.
The financial services industry is a major part of our
economy in two ways. First of all, of course, it performs this
extraordinary mediating function. It helps the rest of the
economy work.
But it is also a significant source of employment, and it
is also--I guess I should have said three things--it is not
only a significant source of employment, it is a significant
source of wealth accumulation. People in the financial services
industry get a chance not just to receive good salaries, but it
is a very important way to build equity, and it is a very
important way for them to help others build equity.
So having full representation of the various minority
communities in the financial services industry is really
absolutely essential if we are going to have the America we say
we want to have and that I think we want to have. That is,
unless we have good representation within our financial
services industry of all of America, there will be segments of
America that don't get the chance to be fully a part of this
society that we want them to be. So I am very grateful.
And to the people in the private sector--and you say we
obviously also have an obligation to talk about this in the
public sector. We don't neglect that, we don't neglect our
responsibility on our own committee, and it is one I take
seriously to the extent that I have been able to select staff.
And what we know is this: People who argue that we are in favor
of some kind of tradeoff between diversity and quality are
simply flatly wrong. That needs to be refuted.
We are not talking about making exceptions to the talent
pool to accommodate minorities. We are talking about
recognizing the fact that all of us, all of us have grown up
with prejudices, all of us have grown up with a kind of
tendency to prefer our own, even in ways that we are not fully
conscious of. And what we are asking for is a conscious effort
to recognize those facts.
No one denies that we have racism in the country, had
bigotry, and we are making great progress, but you don't go
from one point to another without passing through a phase in
which you consciously counteract that.
That is what this is about, and I am very grateful to you,
Madam Chair, and to the witnesses for their help in this, and I
am delighted to see that our committee is able to be so well
representative of these particular groups.
Chairwoman Kelly. Thank you very much, Mr. Frank.
We have been joined by the gentlelady from California, Ms.
Napolitano, and without objection, she may also participate in
today's hearing, give a five-minute opening statement and
question witnesses under the five-minute rule. We welcome you.
We go now to Mr. Garrett.
Mr. Garrett has no opening statement, so we will move on to
Mr. Scott.
Mr. Scott. Thank you very much, Madam Chair lady Kelly. I
certainly want to thank you and Ranking Member Gutierrez and
also our ranking member of our full Financial Services
Committee, the gentleman from Massachusetts, Mr. Barney Frank,
and the entire leadership of the Financial Services Committee
for hosting this very important and very timely hearing. And
thank you again, Ms. Kelly, for allowing me to speak and
participate at this Oversight and Investigation Subcommittee
hearing today.
The hearing's topic of diversity in the financial services
industry is of particular interest to me for several reasons.
The most important being the need to open access to capital to
minority communities. Access to capital is important.
For the district that I represent around metro Atlanta
where many financial firms are based, including SunTrust and
Equifax. Wachovia and Sun SouthTrust, as we know, is just going
through a merger procedure, and they will become the third
largest financial institution in this country. And they are
going to base their headquarters, their southern headquarters
in Atlanta. And Bank of America, of course, has a strong
presence in our city and in our region.
So most certainly, as the only member of Congress serving
on the Financial Services Committee from Georgia and Georgia
being certainly at the center of the financial services
industry in this country, I am vitally interested in diversity
in this area.
A recent article in the Wall Street Journal reported that
minorities hold 12 percent of directorships in Standard and
Poor's 500 country--up from 9 percent in 1999. That is very
good to show that we are making progress, but not enough
progress. While we must recognize the positive movement of
these numbers, we can clearly see that much more is needed to
diversify Wall Street.
Main Street is catching up much faster. For example,
Atlanta was named the top city for African-Americans for 2004
by Black Enterprise. Atlanta earned that top ranking because of
its entrepreneurial opportunities, its earning potential and
its diverse cultural offerings and its rich history of
committed black and white political and civic leadership doing
its job.
And with that in mind, it is so good to have Michael
Kennedy here, one of my constituents from Atlanta, Georgia, who
is the manager of Diversity Program and financial services
sector executive for Korn/Ferry International in Atlanta. And I
want to give you a warm welcome and good to have you here
before the committee.
I am an MBA graduate from the Wharton School of Finance. I
am an entrepreneur, I own my own business. So I know firsthand
what it means to struggle to build a business and the
importance of diversity in the marketplace and the importance
of access to capital. From the recent corporate scandals, we
have learned that the more homogeneous a corporate board is or
the more homogeneous its top executive ranks are, then the more
likely the members of that firm will move in lockstep.
With so much discussion about the need for independent
directors and diversity in top management, we should push for
minority directors to join more corporate boards and executive
ranks. Minority purchasing power in 2004, including African-
Americans and Hispanics, is nearly 21 percent. The only way
that financial institutions will find more future growth is by
paying more attention to these trends. The marketing and
earnings growth is growing from Asian, Hispanic, African-
American and immigrant communities, and diversity in the top
levels of management and its boards is critical to the future
success of all of our financial service industries.
To tell you the truth, I was quite frankly disturbed last
month by a story that I read in the Hill newspaper on June 23,
which described the challenges faced by many talented minority
lobbyists right here on Capitol Hill. And I recommend for those
of you who have not read that story in the Hill to please read
it. It will give you pause and give you reason to realize that
while we have made some progress, there is much more progress
we need to make.
Several of the lobbyists quoted are friends of mine who I
highly respect. I understand that the majority leader has a K
Street project which he is working to get more lobbyists hired,
Republicans and hopefully Democrats. What would impress me is
if there was a similar project with these high-profile lobbying
firms which would hire more minorities and with their full
value, for their full capabilities, who will serve both
Republicans and Democrats.
Madam Chairwoman, I thank you for this opportunity. I do
look forward to this distinguished panel, and thank you for
having me here and presenting me with the opportunity. I look
forward to asking questions from this panel's testimony. Thank
you very much.
Chairwoman Kelly. You are very welcome.
Mr. Baca?
Mr. Baca. Thank you very much, Madam Chairman and Ranking
Member Gutierrez. I want to thank both of you for holding this
important hearing on diversity in financial service
institutions and access to capital for minority-owned business.
As you may know, I am Chair of the Congressional Hispanic
Corporate Responsibility, and part of our goal is to make sure
that when we look at diversity it is reflective of our
community. When we look at the total population of the United
States, we have 44 million Hispanics in the United States. We
have approximately 16 percent, and by the year 2050 we will
represent one in 4 Hispanics in the United States. We currently
represent about 800 and some billion dollars purchasing power
right now, and by the year 2010, purchasing power will reach $1
trillion.
What does this mean? I also want to thank faces like the
American Alliance, Maria, for being here and talking about
access, because what we want to talk about is access to
capital. When we look at it, there is the ability for people to
have the ability to borrow money on fair and equal basis, not
discriminatory towards minorities, whether you are Hispanic or
black or Asian or Indian, but the opportunity to advance. This
is a time where we are seeing a lot of our growth, but yet it
is a time when we are actually cutting back funding for small
businesses and opportunities for capital investment in that
area.
As Chair of Corporate Responsibility, it is our
responsibility to make sure that it is reflective of our
community, because some of us would like to make sure that when
we walk into a room that we see people that look like us. And
that is on our board of directors, and we look at executive
managerial positions, we look at purchasing power, loaning as
well and media and philanthropy as well.
As Chair of Corporate Responsibility, hopefully we can hold
a lot of the companies accountable and that they start making
the right moves for the right reasons, because it is healthy
for our country and it is healthy for us. If we move in that
direction, I believe we will have more responsibility to make
sure that the face of corporate America looks like the faces of
America.
Unfortunately, Hispanics and some blacks are severely
underrepresented on corporate boards. Hispanics hold less than
2 percent of the Fortune 1000 board seats. We hold less than 3
percent of executive positions in the financial services
industry. This is just not acceptable. We expect corporate
America to be a good citizen when it comes to their hiring
practices, their business practices and their outreach to our
community, not only in looking at our dollars, but also looking
at hiring individuals that can be reflective in making our
country a lot better.
I hope that we will learn a lot today, and this is a first
step in the struggle for better representation of financial
service industries. I look forward to hearing from the
panelists in finding out how to improve access to capital, what
is it that we need to do, how do we do it, what are some of the
changes that need to be done to assure us that we can be at the
table as well as anyone else and have a fair level of playing
field for all Americans, for all minorities who have been
underrepresented in this area for generations and generations.
Thank you very much, Madam Chair.
Chairwoman Kelly. Thank you, Mr. Baca?
Members are reminded of the five-minute rule, and I would
respectfully respect that you keep your remarks within the five
minutes simply because we have a long panel, and these people
have come a long way. We need to hear what they have to say.
Mr. Bell, do you have an opening statement?
Ms. Napolitano?
Mrs. Napolitano. Thank you, Madam Chairman. I will be very
short and very brief. I am thankful for the opportunity to be
here and glad that we have a hearing on such an important issue
that deals with all minorities, women especially and
minorities. We have been in small business thrusting for
increasing funding to the women-owned SBDCs, to be able to do
all the things that we have been fighting for years and
continue to fight.
And when I see in your survey where it is a disagreement in
the effectiveness of corporations achieving diversity goals, we
begin to say, ``Why?'' People are there, and I know in some of
my personal wanderings as a minority, sometimes they look at us
and say, ``Well, we can't find qualified minorities,'' which is
a lot of you know what.
I am looking forward to this, and I hope that together all
minorities working together and others who believe in what we
are trying to do and the effectiveness for the benefit of this
country that we will move forward.
Thank you, Madam Chair.
Chairwoman Kelly. Thank you. We will turn now to our first
panel.
Our first witness is Ms. Ana Maria Fernandez Haar, chair of
the Board of the New America Alliance and founder and CEO of
the IAC Group, a full service, multicultural marketing and
advertising firm. We welcome you.
Ms. Fernandez Haar, lectures on the subjects of
transcultural marketing, global branding, market entry
strategies in the United States and Latin America. She also
serves on many foundation and community boards and has received
significant professional recognition for her work.
Our next witness is associate professor of accounting at
Boston College, Ms. Theresa A. Hammond. Professor Hammond is
the chairperson of the Accounting Department at the Wallace E.
Carol School of Management at Boston College. She is also a
member of the National Association of Black Accountants and a
co-founder of the African-American Accounting Doctoral Students
Association.
Next is Mr. Michael D. Kennedy, the managing director in
the Atlanta office of Korn/Ferry International, a global
executive search firm. Mr. Kennedy leads the company's
diversity specialty team in the financial services area. Prior
to joining Korn/Ferry, Mr. Kennedy headed a venture capital
consulting firm and held the position of vice president in the
Corporate Finance Group at GE Capital Corporation.
We also have Mr. Marc Lackritz, president of the Securities
Industry Association. Mr. Lackritz has appeared before the
committee many times during his 14-year tenure at the SIA. We
welcome you, sir. Again, he serves on a number of boards and
advisory groups, including the Financial Accounting Standards
Advisory Council, the American Council on Capital Formation,
the Foundation for Investor Education.
And our next witness is Ms. Joanne Hanley, the president of
Women in Housing and Finance, Incorporated. Ms. Hanley is also
the associate director for Congressional Affairs at the Office
of Federal Housing Enterprise Oversight, the OFHEO. In her role
at Women in Housing and Finance, she works to promote women in
the fields of financial services and housing through the
professional enrichment and leadership enhancement.
Our final witness this morning will be introduced by our
ranking chairman, Mr. Gutierrez.
Mr. Gutierrez. Thank you very much, Chairwoman.
Well, members of the committee, I am pleased to introduce
the Honorable D. Lorenzo Padron who has served as commissioner
of the Illinois Office of Banks and Real Estate since May of
2003. I have known the commissioner for many years, and I am
pleased that he is able to be here today to share his personal
experience with the subcommittee.
Mr. Padron's a well-known Chicago banker, civic leader and
entrepreneur. Mr. Padron came to the U.S. from Colombia, South
America in 1968 to attend the University of Illinois in Chicago
where he earned a bachelor's degree in business management, and
he also attended the University of Chicago Graduate School of
Business.
Commissioner Padron entered the banking industry in 1977 at
the First National Bank of Chicago and worked in the Commercial
and International Banking Department. He became assistant vice
president in the Commercial Loan Department at Banco Popular
and then a senior vice president of Lending at Metropolitan
Bank and Trust where he also served as a member of the bank's
board of directors.
Commissioner Padron is a founding member of the Latin
American Chamber of Commerce where he served as chairman of the
board for the past nine years, the largest Hispanic trade
association in the Midwest and one of the largest minority
consulting firms.
He is also owned his own business. Commissioner Padron is
the first Hispanic to lead the Illinois agency responsible for
regulating and supervising State-chartered banks.
I will conclude by saying that although the commissioner is
not here representing the Conference of State Bank Supervisors,
I am pleased to report they have considerable diversity in
their ranks at the top level. There are currently 6 African-
American commissioners on the 50 States, 8 female
commissioners, 3 Hispanic commissioners and considerable
diversity at the deputy level.
It is an excellent start, and I would hope that steps in
the right direction by State would be followed by the Federal
Government in this and other matters. And I look forward to
hearing from the commissioner.
Chairwoman Kelly. Thank you, Mr. Gutierrez.
We welcome you, Mr. Padron. I know you had a hard time
getting here, so we are delighted you were able to make it.
Without objection, all of the written statements and
statements of everyone on the panel will be made part of the
record. You will each be recognized for a five-minute summary
of your testimony. The lights on the boxes at the ends of the
table will indicate--a green light means that you have five
minutes, a yellow light means please summarize because the red
light will come on, and that means that is time to stop. If you
haven't summarized prior to then, please do so quickly and end
your testimony.
And we begin with you, Ms. Haar. Welcome.
STATEMENT OF ANA MARIA FERNANDEZ HAAR, CHAIR, NEW AMERICA
ALLIANCE
Ms. Haar. Thank you. Good morning. U.S. House Committee on
Financial Services Chairman Michael Oxley, Ranking Member
Barney Frank, Subcommittee Chairwoman Sue Kelly, Subcommittee
Ranking Member Luis Gutierrez and members of the committee, on
behalf of the New America Alliance, I thank you and commend
your leadership on the opportunity to appear before you today
to discuss Latinos in the financial services industry and
access to capital.
Latinos currently exceed 44 million people in the United
States--15 percent of the total, the largest minority in the
country, the majority of the Western Hemisphere. Current
purchasing power exceeds $700 billion, projected, as mentioned,
to reach a trillion by 2010.
Indicators reveal increased participation of Latinos in all
facets of American entrepreneurial activity and in the economy,
except that they are very absent from leadership roles and
executives roles on corporate boards, and in the finance
industry they continue to lag. There are only 166 Fortune 1000
companies that include Latinos on their boards, and,
furthermore, out of 10,314 positions, Latinos occupy only 202
seats--1.97 percent.
Collectively, the 73 Fortune 100 companies classified as
commercial banks, securities firms and savings institutions,
have 936 director seats, 793 executive positions. American
Latinos occupy 28 of these board seats, 2.9 percent, and of the
total of 793 executive positions, they occupy 20--2.5 percent.
In anticipation of this hearing, we conducted an informal
survey of six major Wall Street investment banking firms to
determine the level of Latino participation at executive level,
managing director or partner. At not one of these firms did the
American Latino participation represent more than 1 percent,
and these are the same Wall Street firms that earn millions of
dollars, annually managing and handling the pension funds and
retirement savings of tens of millions of American Latinos.
In the institutional investment arena, Latino majority-
owned companies continue to struggle to find adequate access to
public and private pension funds in minority procurement
programs, and major corporations have not typically included
financial services. The New America Alliance inspired a
hearing, and I must tell you that the State of Illinois, and
Chicago in particular, has been exceptional in this area.
In October of 2003, the NAA published a white paper on
American Latinos in financial services. These are the
highlights. We looked at management consulting, asset
management, private equity, brokerage segment as follows: One
Latino owned an investment management consulting firm in the
entire country. Those are the gatekeepers. In the asset
management field, less than one-half of one-percent, $28.8
billion of the $7.2 trillion in U.S. institutional tax-exempt
assets is managed by American Latinos.
Latino and private equity firms have aggregate capital
available for investment of less than $500 million, translating
to control of less than 0.2 percent of the private equity funds
overall. The $1.1 trillion public pension fund arena in the top
6 America-Latino states total brokerage fees are roughly $1.5
billion for the management of assets. Latino participation is
0.005 percent at $7.5 million.
The challenges and barriers that limit the size and
competitive advantage of Latino financial services identified
in the white paper are: Limited access to decision makers;
misperception that Latinos do not have the ability to invest
and manage funds, and we have data contrary to that assumption;
companies lack capital for expansion as they face their
financing barriers; small company size in terms of asset under
management limiting companies' ability to secure contracts; and
a small number of new American Latinos entering the industry.
The four financial services sectors shared one common
conclusion: Public hearings such as this one at the local,
State and congressional levels, we believe, will place the
national attention on the subject.
Venture Capital Kauffman Foundation report found that
minority enterprise venture capital investment if profitable
with an internal rate of return median of 9.5 percent and a
mean of 23.9 versus 20 percent return indicated for the
comparable benchmark for the market as a whole. The Milken
Institute indicates that less than 4 percent of small business
investment company private equity funds were invested in
minority deals, and focusing on minority investment, firms have
less than 3 percent of all venture capital funds under
management.
Reliable data is part of our significant problem. We
respectfully suggest that the Congressional Budget Office look
into the possibility of additional research.
I would like to provide some recommendations, as Sarbanes-
Oxley reform provided historic opportunities to incorporate
diversity on corporate boards. Corporate leaders need to guide
board appointments and hiring initiatives. Elected and
appointed officials can promote corporate diversity through
public statements and simply starting a meeting by asking one
simple question of your corporate callers: What are you doing
in diversity? What does your board look like? What does your
management look like?
We appreciate the opportunity. We also suggest that
expansion of the current Community Reinvestment Act to include
insurance companies as well as private sector pension funds.
They have made a significant difference.
We appreciate this opportunity. We at the New America
Alliance are committed to increasing access to capital markets
and financing for Latino businesses. We stand ready to
collaborate with the U.S. House Committee on Financial
Services, other government leaders, corporate America and
minority community leaders in advancing our common goals of
prosperity for all in this country. Thank you for this
opportunity.
[The prepared statement of Ana Maria Fernandez Haar can be
found on page 43 in the appendix.]
Chairwoman Kelly. Thank you very much.
We would like to hear from you now, Dr. Hammond.
STATEMENT OF THERESA HAMMOND, ASSOCIATE PROFESSOR OF
ACCOUNTING, BOSTON COLLEGE
Ms. Hammond. Chair Kelly, Ranking Member Gutierrez,
Chairman Oxley, and Ranking Member Frank, thank you for the
opportunity to address the committee on the critical matter of
the dearth of African-Americans in the Certified Public
Accountancy profession.
I am going to talk about four major points. One is the
importance of the CPA profession; the second is that African-
Americans are vastly underrepresented in the CPA profession;
the third is the role that the experience requirement has
played historically in excluding African-Americans from the
profession; and the fourth is the lack of transparency in
providing information on how many African-Americans there are
at the various firms.
Before the Enron debacle of a couple years ago, very few
people paid any attention whatsoever to the CPA profession, but
now I think people understand that public accountants are
supposed to represent the public. As Mr. Frank said earlier,
how can the public accountancy profession represent the public
when 12 percent of the public is African-American but fewer
than 1 percent of CPAs are African-American? Ninety-eight point
seven percent of partners in the major CPA firms are white.
In addition to not representing the public, also this is
denying African-Americans well-paying jobs and also access to
capital. Most black-owned firms work closely with African-
American businesses and help them develop access to capital and
manage their capital effectively. So the lack of African-
American CPAs has a widespread effect on the economy.
As I said earlier, fewer than 1 percent of CPAs are
African-American, only one in 1,000 partners in the major firms
are African-American, and this is despite the fact that in the
past 20 years 6 to 8 percent of accounting graduates have been
African-American. There are plenty of accounting graduates who
are black, and yet there are very few black accountants in the
firms.
This contrasts poorly with the number of doctors who are
black, which is 4.2 percent, and 2.7 percent of lawyers. Both
of those professions require significant additional education
above CPAs, and yet they both have much higher percentages of
African-Americans than do CPAs.
I wrote a book on the history of African-American CPAs,
because I was trying to understand why this underrepresentation
was so severe, and I interviewed 40 of the first 100 CPAs in
the country. It reminds me of Mr. Gutierrez saying that one of
his friends had never met a stockbroker. Well, until the late
1960s no major white CPA firm would hire an African-American.
Therefore, young African-Americans today are less likely to
have an aunt or an uncle or grandparent or parents who are
CPAs. And it has an effect on mentoring as well as on role
modeling for young people today.
Two of the people I interviewed were Bernadine Gines and
Tab Tillman. In 1947, Bernadine Gines graduated from NYU with
an MBA, an exceptional accomplishment for any woman, and
especially for an African-American woman. Still she lived in
Harlem and she sent out job applications to every CPA firm she
had heard of, and she didn't get any interviews.
Subsequently, she moved to Queens, and now that her
neighborhood didn't betray her race, she got many, many
interviews. But when she would show up for interviews, people
would say, ``I am sorry, we cannot hire African-Americans.'' In
fact, the first interview she applied to, on the first
interview she went on, the interviewer said, ``I can't possibly
hire you, but could you please help me find a maid?''
This woman went on to become the first African-American
female CPA in the State of New York because a small Jewish-
owned firm hired her, and she celebrates her 50th anniversary
as a CPA this year.
Tab Tillman similarly moved from the South, he had been
born in North Carolina, and moved to Los Angeles in the hope of
getting more opportunity. He really wanted to become a CPA. He
became the first black MBA graduate of Syracuse University in
1949 and still he couldn't get job interviews once people found
out that he was African-American. He applied to every single
CPA firm in the city of Los Angeles and finally found a small,
again, Jewish-owned, firm to hire him.
He worked there for one year and in the time that he was
working there the managing partner of the firm was away serving
in the Korean War. When that managing partner came back to Los
Angeles, to his firm, and found Tab working there, he fired him
immediately because he said it wouldn't look good to have
African-Americans work in the office.
To become a CPA, you have to work for a CPA. Both Tab
Tillman and Bernadine Gines were denied that opportunity for,
in Tab's case decades after he first attempted to become a CPA.
Fortunately, the conditions changed in the late 1960s. The
National Association of Black Accountants was formed in 1969,
and the AICPA began tracking data. That is the American
Institute of the Certified Public Accountants. They began
tracking data that showed that there was a big increase in the
number of black CPAs. However, that number only increased from
1976 to 1981. During the 1980s, the number of African-Americans
hired by the firms declined precipitously, and beginning in
1990, the AICPA discontinued the survey.
As Ms. Fernandez Haar pointed out, having this kind of
information is critically important to understanding the
diversity of the profession. And so we call for more--I would
like to see Congress and the SEC call for more transparency on
the part of the firms. Just as you said when you interview or
when you speak with firms you should ask how many African-
Americans or Latinos they have on their board of directors, it
would be important to stress the importance of the diversity of
the CPA profession as well, and ask them how many partners they
have who are African-American and Latino.
The National Association----
Chairwoman Kelly. Ms. Hammond, if you could summarize your
testimony, please.
Ms. Hammond. Sure. The National Association of Black
Accountants is currently embarking on a project to try to get
firm-specific data so that we can track this better, but this
is a significant first step just to have this hearing and to
raise awareness and attention to this issue. So I thank you.
[The prepared statement of Theresa A. Hammond can be found
on page 53 in the appendix.]
Chairwoman Kelly. Thank you very much for your testimony.
Let me explain what has just happened here, because it is
rather interesting. When I went to Iraq, I met in Mosul with a
group of women who were anxious to be part of the new
democratic Iraq. One of the women that we met with is following
Mrs. Brown-Waite today. They have come here. As a result of our
meeting, four of the women that we met with have been elected
as women participants. They are members of the city council of
Iraq. For the first time, there are women on the city council
in Iraq, and we are very----
[Applause.]
Chairwoman Kelly. Would you stand up? The woman with her is
the interpreter.
[Applause.]
Chairwoman Kelly. We turn now to you, Mr. Kennedy.
STATEMENT OF MICHAEL D. KENNEDY, MANAGER OF DIVERSITY PROGRAM
AND FINANCIAL SERVICES SECTOR EXECUTIVE, KORN/FERRY
INTERNATIONAL
Mr. Kennedy. Chairwoman Kelly, Congressman Gutierrez,
Ranking Member Frank, Congressman Scott, distinguished members
of the Subcommittee on Oversight and Investigations, good
morning. I have been invited today to discuss the status of
diversity in the financial services industry. As Chairwoman
Kelly has already indicated, I am a member of the financial
services as well as the diversity practice at Korn/Ferry
International based out of the Atlanta office.
Our diversity practice was started in 1998 to assist our
clients in addressing their diversity recruiting needs. Today,
I come before you to share with you from a recruiter's
perspective what I see in the financial services world.
The story in financial services today is really a story of
good news and not so good news. First and foremost, there has
been considerable progress in the industry over the past 10
years. One of the major changes that we have seen has just been
in the attitude. Historically, diversity was something that was
just the right thing to do for corporate America, and many
firms viewed it from an altruistic viewpoint. Today that view
has changed. Senior management is looking at diversity from a
business imperative and recognize the ability to see the bottom
line benefiting from diversity.
Corporate diversity initiatives have become very
significant as well. As you indicated in your opening
statement, most major financial services firms today have
developed extensive corporate diversity programs. In many
cases, chief diversity officers have been appointed who report
directly into the CEO's position. What this shows is that there
is more or less of a commitment to financial services diversity
by senior management.
Recruiting has been fairly substantial over the last 10
years in terms of identifying talented people of color and
women and bringing them into the financial services industry.
However, recently, corporations have decided that they need to
focus more on the retention side. What is driving that is in
the recent economic downturn we have seen a disproportionate
number of talented women and people of color displaced from the
workforce in middle management ranks.
As a result, this puts more pressure on corporations,
financial services firms, to develop career development tracks
for their employees to allow them to be promoted up through
their organization. So although there is positive momentum in
the financial services segment, there is still a great deal of
work that needs to be done and significant challenges
confronting the industry.
Women and people of color are not represented on a
consistent basis throughout the financial services industry.
For example, in looking at the asset management sector, what we
see from a recruiting perspective is that there are still very
few women and people of color in roles such as equity analysts
and portfolio managers. And we also see that there tends to be
more representation in the government and the municipal
security segments as opposed to corporate, high-yield and other
areas. In those latter areas, the compensation packages tend to
be higher.
In looking at investment banking as another example, again,
women and people of color tend to be in either the municipal
finance or the public finance or similar kinds of areas and are
underrepresented in mergers and acquisition, corporate finance,
areas that again tend to have higher compensation attached to
them.
Another example is private equity and venture capital,
which is what we are here to discuss today. What we see is that
minorities and women tend to be employed in minority-focused
and female-focused private equity funds or are working with
funds that are affiliated with banks, foundations or
endowments. In looking at the private partnership structure,
which is the vast bulk of the private equity community, we see
scant representation of minorities and women.
Korn/Ferry recently developed a study that gauged the
effectiveness of corporate diversity initiatives. You have a
copy of it, and it is entitled, ``Best Practices for
Diversity.'' In this study, we surveyed senior executives,
corporate diversity heads and senior minority executives, and
as you can imagine, there was a wide variance in discrepancies
among the effectiveness with senior executives believing that
these programs are very effective, where minority executives
believe that these programs are not as successful as they
should be.
One other example and trend in looking at the industry
today is that most of the corporate diversity initiatives are
in the larger global financial services firms. When you look at
the regional firms, smaller financial services firms, what you
typically see is that there is not as much diversity. It is
being driven by the human resources area.
So with that said, the good news is that the industry has
made some considerable progress, but the not so good news is
that the financial services industry still has a long way to go
before diversity is embraced consistently throughout.
[The prepared statement of Michael D. Kennedy can be found
on page 71 in the appendix.]
Chairwoman Kelly. Thank you very much, Mr. Kennedy.
Mr. Lackritz?
STATEMENT OF MARC LACKRITZ, PRESIDENT, SECURITIES INDUSTRY
ASSOCIATION
Mr. Lackritz. Thank you, Madam Chairwoman. Madam Chair and
Ranking Member Gutierrez and members of the subcommittee, I am
Marc Lackritz, president of the Securities Industry
Association, and I appreciate very much the opportunity to
testify today about SIA's and our member firms' efforts to
encourage diversity within the securities industry and the U.S.
capital markets. We commend the subcommittee for recognizing
how important this topic is to the future of our economy, our
markets, our industry and our investors.
SIA and the securities industry are fully committed to
creating a non-discriminatory workplace and an industry where
anyone and everyone can succeed on his or her merits. I am
proud of the progress our firms have made over the last decade
to develop diversity initiatives in the workplace and to
improve their marketing to diverse customers. While our efforts
are clearly beginning to pay off, we recognize that more work
needs to be done.
The face of America is changing rapidly. By the middle of
this century, about half of all Americans will be minorities.
African-Americans, Asian-Americans, Hispanic-Americans and
women are some of the groups that will make the market
increasingly diverse. These changing demographic trends deliver
a clear message: Securities firms must establish and support
diversity programs in the workplace and in the marketplace if
they are to succeed.
About 10 years ago, SIA formed a Diversity Committee of
senior-level executives to increase industry understanding of
the strong business case for building programs to develop
multicultural workforces and client bases. The committee's
objective is to help shape an industry that is open to
everyone, where employees are limited only by their own
potential, clients' unique needs are actively served, and
shareholders receive value for their investment.
After first producing a business case for diversity and
then creating a resource guide for identifying, recruiting,
training and retaining a diverse workforce, the committee
undertook a benchmarking survey tracking industry employment of
minorities and women over time. The survey's purpose was to
help our industry keep tabs on our progress over time in
achieving an increasingly diverse workforce and customer base.
Importantly, our industry experienced one of its most
significant recessions ever during the time period the survey
covers. Given the difficult market conditions and severe cost-
cutting measures that our firms undertook, our results are even
more remarkable. For example, the percentage of women and
minorities in key securities industry management positions is
increasing, especially in large firms, which have all had
diversity initiatives in place since at least 2001.
All of the large firms have diversity training included in
their employee orientation programs, as compared with 89
percent in 2001. And 92 percent of all our large firms
responding had formal mentoring programs in place, up from 78
percent in 2001. I might add that many of our large firms also
have plans to add and expand their diversity efforts worldwide.
Similarly, all our mid-size firms have a diversity
initiative as well, and many of them are engaged in as wide a
range of diversity activities as the large firms. Four out of
five mid-sized firms have a management-level person dedicated
to diversity, and the percentage of mid-size firms
incorporating diversity training, employee networks and formal
mentoring programs more than doubled from 2001 to 2003. Almost
all of our large member firms are dedicated to helping minority
kids receive scholarships, summer internships and other
opportunities for advancement.
Although our survey does not catalogue every initiative, we
know that they are extensive and pervasive. The many positive
changes that have occurred are a tribute to the efforts started
more than a decade ago, and yet some of the trends indicated,
and we have heard already this morning, show that we still need
to make further inroads and improvements. We are firmly
committed to ensuring that equal opportunity is a hallmark for
all our firms' employment.
As we gain experience with diversity programs, we found
that there are several elements in common that contribute to a
firm's success. They include support, interest and active
engagement from senior management; encouragement of a corporate
culture that emphasizes diversity and provides training and
education to employees to be sensitive and supportive of this
goal; networking to identify, recruit, hire and retain women
and people of color; and innovative programs that reach out to
communities to hire people and provide support, including
mentoring throughout a new employee's first few years.
Finally, targeting recruiting efforts and partnerships with
established organizations that support women and minorities.
Programs involving both mentoring and networking of new women
or minority employees have been very successful in attracting,
training and retaining more women and minority employees.
We have also made a lot of progress on the educational
front with the development of a comprehensive web site,
quarterly teleconference calls for human resources and
diversity managers, inclusion of diversity in the core
curriculum of our professional education programs and
partnerships with organizations to support minorities and
women.
As I noted earlier, but I want to reemphasize in
conclusion, SIA and our member firms are fully committed to
creating a non-discriminatory workplace where all employees can
succeed on their merits. We have come far, but we still have a
way to go. We welcome your subcommittee's support and input on
how we can further improve our diversity efforts. Thank you
very much.
[The prepared statement of Marc Lackritz can be found on
page 75 in the appendix.]
Chairwoman Kelly. Thank you very much, Mr. Lackritz.
Ms. Hanley?
STATEMENT OF JOANNE HANLEY, PRESIDENT, WOMEN IN HOUSING AND
FINANCE, INC.
Ms. Hanley. Thank you Chairwoman Kelly, Ranking Member
Gutierrez and members of the subcommittee. I am Joanne Hanley,
president of Women in Housing and Finance. We appreciate the
opportunity to talk about this important topic today. I note
for the record that I am testifying today solely in my capacity
as president of Women in Housing and Finance.
Women in Housing and Finance is an example of an
organization that was created because of a lack of diversity in
the industry, principally, the lack of women. In 1979, the
``old boy network'' simply closed women out of important
meetings. Therefore, a small nucleus of women in the housing
field recognized the need for women to join forces, to share
policy views as well as tips for boosting each other's career
success.
This group was so small that they were able to meet for
lunch around one table in a restaurant in Chinatown. They soon
attracted women from financial services as well as housing and
rapidly grew to almost 100 members.
We then struggled with 2 decisions: Whether to grow beyond
100 members and whether to include men. Both of these questions
were answered in the affirmative, as Women in Housing and
Finance elected to increase its strength by becoming more
diverse. In the 25 years since those first lunches, we have
grown to an organization of over 700 women and men,
representing 260 organizations in both the public and private
sectors. Current members include heads of financial regulatory
agencies and the president of a major financial services trade
association.
The organization has grown to be regarded as a premier
forum for national policy leaders to address key policy issues.
We carry out our mission by offering substantive educational
programs on the current issues facing housing and financial
services, usually around the lunch hour to address our busy
schedules.
As Women in Housing and Finance celebrates our 25th
anniversary this year, let me talk about two of our relatively
new initiatives. Beginning in 2002, our Professional
Development Committee created a leadership training program
based on two principles: women learn differently, and women
lead differently. We offer a range of programs designed to
prepare our members for advancement into executive-level
positions. Further details about our leadership programs are
provided in my written statement.
Secondly, our members have proactively contributed to the
Washington community, to our related entity, the Women in
Housing and Finance Foundation. A centerpiece of these efforts
is financial literacy programs that the foundation offers to
low-income women and their families in the D.C. metropolitan
area.
In addition to funding these activities, our members have
actually taught some of the financial literacy classes. The
foundation has also provided grants to 14 local groups,
including Northwest Church Family Network, Hannah's House and
the Women's Center.
With the success of both Women in Housing and Finance as an
organization and of its members in their respective careers,
the question remains as to whether there is still a place for
an organization that focuses on the success of women in the
fields of housing and finance. Our leadership met earlier this
year in a series of strategic planning sessions and debated
this issue. The result was a reaffirmation of the focus on
women's success as a key element of our organization.
In summary, it is significant to note that the organization
represents a solution designed by women, for women, based on
our evolving needs. Some common themes emerge from a review of
our 25 past years. Our members want the same access to policy
makers as other groups have. Moreover, we don't just want to
network with the policy makers, we want to create career paths
that enable us to become those policy makers.
We saw the benefit in expanding our membership ranks to
include men. We simply found that having a diverse membership
furthered our individual goals of advancing in our profession.
Currently, one-third of our membership is men, and one-third of
our board is men.
Our members are willing to put in extra effort to acquire
the skills needed in these executive-level positions, and hence
our emphasis on leadership training. Finally, we want to use
our personal and financial resources to give back to the
community, especially to women needing assistance with housing
and finance issues.
Much progress has been made; however, women continue to
perceive the need for continued education and skill-building to
ensure their inclusion at the highest levels in the industry.
[The prepared statement of Joanne Hanley can be found on
page 63 in the appendix.]
Chairwoman Kelly. Ms. Hanley, could you please summarize?
Ms. Hanley. Yes. This is why our mission statement
emphasizes that Women in Housing and Finance promotes women
through professional enrichment and leadership enhancement.
Thank you.
Chairwoman Kelly. Thank you.
Mr. Padron?
Mr. Padron. Good morning, Chairwoman Kelly----
Chairwoman Kelly. Mr. Padron, push the button in the front.
Mr. Padron. Sorry.
Chairwoman Kelly. Yes. Thank you.
STATEMENT OF HON. LORENZO PADRON, COMMISSIONER, OFFICE OF BANKS
AND REAL ESTATE, STATE OF ILLINOIS
Mr. Padron. Good morning, Chairman Kelly, Congressman Luis
Gutierrez and members of the committee. I am Lorenzo Padron,
commissioner of the Illinois Office of Bank and Real Estate. I
am here today as a witness at this hearing to present the
committee a report on key experiences as an Hispanic
professional banker who has spent 25 years in the banking
industry. I would also like to present my personal perspective
on the progress made by the banking industry in its efforts to
promote racial, ethnic and gender diversity in senior
management and board membership. We commend you on this very
important hearing.
I established my banking career as a management trainee in
1977 at the First National Bank of Chicago. Before my
appointment by Governor Blagojevich, I was the senior vice
president and board member of Metropolitan Bank and Trust in
Chicago. During my early years of employment at First Chicago,
it became evident to me that I was just one of two Hispanics in
the domestic lending area of the bank, and all the senior
management positions were held by a single group--white males.
The 1982 outcome of the class action suit filed against
Harris Bank by its female employees charged in discrimination
in promotion and compensation woke up the First National Bank
of Chicago's senior management. Management initiated an
internal analysis of its labor force, developed affirmative
action goals and plans and an education and sensitivity
training program for its senior officers and managers. It also
initiated a public relations strategy directed to enhance the
bank's image in the marketplace.
As a result of these diversity initiatives, a few minority
males were promoted, but the bulk of the beneficiaries of these
efforts were white females. To this day, the bank lacks
Hispanics in amongst its senior management in its lending area,
in its board of directors and in other positions of leadership.
A comprehensive review of Chicago's banking industry
reveals that the employment of Hispanic senior lenders by the
five largest financial institutions have increased
significantly during the past five years as compared to any
other period in Illinois history. In fact, two of Chicago's
largest banks have formed teams of lending officers dedicated
almost exclusively to servicing the growing Hispanic business
market. However, senior Hispanic officers in leading management
positions, CEOs and senior executives, and board directorships
are absent from these large Illinois banks.
The major gains in leading management positions for
Hispanics employed by the top tier banks are in the areas of
operations, business development and diversity recruitment
rather than management, policy making and activities central to
the banks' profitability, which have changed over time.
While the banking industry consolidation and competition
from out-of-State banks have depleted the group of large banks
headquartered in Illinois, so have these trends reduced the
opportunities for minority participation in executive
management in Illinois at these large banks, now based in other
States. Non-Illinois large banks with significant operations in
Illinois present the same characteristics as the Illinois-based
large banks, except for Banco Popular whose CEO and a
significant number of the leading management positions are held
by Hispanics.
A somewhat different picture is observed in the community
banking segment. These are banks with total assets between $500
million and $2 billion, where Hispanic senior lending officers
occupy some leading management positions. Even in this sector
there are no CEOs or Presidents, but there are approximately 12
Hispanic board members in the top 6 banks.
One of the variables explaining the absence of Hispanics in
leading management positions in the banking industry in
Illinois relates to demographics. It was only during the past 2
decades that the Hispanic population in Illinois has
experienced significant growth, which is reflected in an
increasing number of junior level managers and officers in the
banking industry.
An analysis of minority-owned banks in Illinois, in the
Illinois banking industry, shows that the group of banks owned
by Hispanics and African-Americans remain in the category of
endangered species. Increased competition from a greater number
of out-of-State banks entering the Illinois market and the
consolidation of the banking industry reduced the number of
local Hispanic-owned financial institutions from three to one.
Banco Popular with assets in Illinois exceeding $3.5 billion is
considered an out-of-State bank.
There were three locally owned African-American financial
institutions operating in Chicago, in Illinois at the beginning
of this year. One of these three was sold in the first quarter
of 2004 due to poor performance, one is currently in
negotiations to be sold, and the third has been struggling to
survive. The eight locally owned Asian-American banks operating
in the State have been able to maintain their market share in
spite of serious performance challenges. The stability of these
banks has been supported by the strong loyalty of their core
customer base.
In summary, the restrictive nature of Illinois banking laws
produced a banking system that was unprepared to compete with
banks operating in States with unrestricted bank branching,
leading to the acquisition of the largest Chicago banks by out-
of-State banks. The liberalization of the Illinois banking laws
significantly reduced the number of banks operating in the
State, and the consolidation of the banking industry is
expected to further reduce the number of banks, including
minority-owned financial institutions in Illinois.
The progress made by the banking industry in Illinois in
its efforts to promote racial, ethnic and gender diversity in
senior management and on Boards of Directors have been
disappointingly slow.
Last week, headlines on Morgan Stanley's settlement
agreement on Monday, and yesterday headlines on First American
Bank in Chicago on its settlement agreement is really a sad
reminder to us all that there is yet a great deal of work to do
in this area.
Today's editorial page of Chicago Sun Times has an article
under the heading, ``Time for the Wall Street to Get Bullish on
Diversity.'' The article states that in terms of equality it
has been a bear market, and Wall Street must come up with a
better deal. The article starts with a quote from a former
employee of Merrill Lynch quoted in the New York Times that
reads, ``They have a specific view of what a successful banker
or manager will look, and it is not usually women, blacks or
Hispanics.
I am prepared to answer any questions you may have. Thank
you.
[The prepared statement of Hon. Lorenzo Padron can be found
on page 82 in the appendix.]
Chairwoman Kelly. Thank you very much, Mr. Padron.
Some of our panelists have noted that a lack of access to
capital financing is the primary barrier to the growth of
minority-owned enterprises outside of traditional service-
oriented endeavors. What do you think can be done to improve
access to capital to all individuals? And I am throwing this
out to the entire panel. I would like your answers quickly,
because I only have five minutes like everybody else to ask
this question. So, please.
Ms. Haar. Your greatest resources are in the pension funds
and the pension plans and their gatekeepers. Asking who the
gatekeepers are, when minorities may participate, who the board
members are, who the investment committee decision makers are,
because some of these funds, even those earmarked for
minorities, are not getting funds that then are the engine for
business. So just asking the question who is making the
investment decision and how many minority funds you have
invested. The return on investment, by the way, is excellent.
Chairwoman Kelly. Thank you. I am just going to skip down,
Mr. Lackritz?
Mr. Lackritz. Thank you, Madam Chair. I think that most
entrepreneurs go through a series of--they go through a cycle
where they get financing initially from their own savings and
those of friends. They then get bigger and get bank financing.
They get maybe a little bigger and get venture capital
financing. And if they are very successful, they might get in
the public capital markets. I think at every step along the way
we need to pay attention to who is making those decisions and
make a conscious effort to really expand those programs.
Chairwoman Kelly. Mr. Kennedy, do you have something you
want to say on that?
Mr. Kennedy. Yes, Madam Chairperson.
Chairwoman Kelly. Please push that button so we can hear
you.
Mr. Kennedy. Can you hear me now?
Chairwoman Kelly. Yes.
Mr. Kennedy. Yes. What I was going to contribute is that I
think we need to take a look at overhauling or at least
revising some of the guidelines for the SBA, particularly
pertaining to the small business investment company programs,
because I am aware that historically that has been an avenue
where minority funds have been started to get some equity
capital out into the community. But I think more needs to be
done there with that program, and I think it needs to be
overhauled.
Chairwoman Kelly. Thank you. You and I should talk. I sit
on the Small Business Committee as well, and we are trying to
do something about that.
Ms. Hanley?
Ms. Hanley. I agree with----
Chairwoman Kelly. I am sorry, Ms. Hammond?
Ms. Hammond. I am sorry. I agree with Mr. Kennedy. It is a
big issue among black CPAs who work closely with small black-
owned businesses as the SBA program has experienced such severe
cutbacks that it is very difficult to qualify for this type of
financing. When this financing was more available in the late
70s and the 1980s, black businesses were growing much more
quickly. Now they are shrinking, and this is an important area
to be addressed.
Chairwoman Kelly. I think we may need to talk more about
that.
Ms. Hanley?
Ms. Hanley. I don't really think I have anything to add. I
think we have probably touched on all the themes. We, as an
organization, would be looking to do what we could do via our
foundation as well.
Chairwoman Kelly. Thank you.
Mr. Padron?
Mr. Padron. Well, one of the problems that really limits
our ability of capital to minority companies is the fact of
employment of minority and women officers has been absent to
the banking industry. And, consequently, either because of
cultural conditioning or because of lack of interest, the
capacity or the inclination of non-minority and women loan
officers really limits their interest in this market.
I personally can tell you that I have spent a considerable
amount of time lending to a great number of minority companies
in Illinois, and the few minority and African-American and
women loan officers in the lending area actually with authority
to lend capital is where the deficit is. We have representation
in operations, in diversity recruitment and so on and so forth,
but in the critical area of lending, that is where we need to
emphasize that is where the decision making is done.
Chairwoman Kelly. Thank you very much. Thank you.
The recent harassment scandals on Wall Street have been
very publicized and Mr. Padron talked about that. There is
still a lot of progress that needs to be made. In an article in
the New York Times recently, one worker said, ``There are a lot
of women I know who have left the Street with $4, $5, $6
million in their pockets who say, 'I am never going to reach
the top, so I will go do something else.'"
As a matter of fact, a woman in my hometown started
something called, ``85 Broads,'' because 85 Broads is the
address of Goldman Sachs, and at that point--this is quite a
number of years ago--the women could only reach a certain
level. That corporate environment has now changed, but this is
a brain drain. It is a brain drain when we don't use everyone
in America who wants to be in on this and has something to
give. Very clearly, these are successful women, but they are
limited in terms of their advancement.
I want to know what you all think--and let's just start
down here with Mr. Padron--what do you think it is going to
take to break through these barriers?
Mr. Padron. It is a real challenge to break through these
barriers. Some people like in my capacity when I was at First
National Bank of Chicago, I realized, and the rest of the
minorities and women in the Commercial Loan Department
realized, that the glass ceiling was just too thick to break,
and some of us decided to go into the International Banking
Department where promotion and the rate of promotions were
faster. And from there I moved to Banco Popular where I knew
that there was a great deal of sensitivity to promotion and
compensation.
I think that it is a serious challenge. I think that we
need to continue to regulate with stricter interpretation of
the laws, and also I think that we need to review the
legislation to see what additional areas we need to tighten up.
Chairwoman Kelly. Let's go on down the line.
Ms. Hanley. I think this is a perfect question for our
organization. It is why we continue to exist. We have
internally debated as an organization, with an increase of men
in our membership, the need for women's organizations. We
absolutely believe the barriers continue to exist, and we are
looking to enhance our professional development training, get
more women on corporate boards with the appropriate training
and get them to break through the upper ranks.
Chairwoman Kelly. Thank you.
Mr. Lackritz, I know that you at SIA have really tried to
encourage these firms to move forward and become more diverse,
and I am very happy to hear that. I would like to know--and I
know that on Wall Street the woman that I spoke of is back on
Wall Street, so that I know that the corporate climate there
has changed a great deal. Are there specific things that you
have actually worked--specific companies you have actually
worked with to try to put in place some more sensitivity? Have
you run courses or anything?
Mr. Lackritz. Yes, Madam Chair. Our committee basically
exists not so much to work with companies but to share the best
practices of what other firms are doing. And so it is a great
information-sharing network that has evolved.
What we have also done is we have established a leadership
within the association for the most innovative programs that
firms are doing in this area, and the first two winners, number
one, was Edward Jones a couple years ago, and then last year
was Quick and Riley, and they have very unique programs that
are both replicative and have been very successful.
In the case of Quick and Riley, for example, they had, I
think it was called, a Financial Consultant Advisory Program
where they went out specifically to minority areas and went
after specific underrepresented groups and then provided
specific training programs for them and have really focused on
the retention.
The firms that are most successful have mentoring programs
in place so that women and minorities have mentors within the
firms as they start up, and they also create networking groups
within the firms of these new employees so that they can get
some reinforcement. And I think that combination--it is making
a difference.
I also think the role model of women in the industry makes
a difference. I can tell you my cousin, Mickey Siebert, had a
big challenge to break through the glass ceiling back in 1954,
1953 when she became the first woman to own a seat on the New
York Stock Exchange. Since then we have had other path-breaking
women, such as, for example, Sallie Krawcheck is now the CEO of
Smith Barney; Alicia Shallot is the CEO of Bernstein, she sits
on our board; Ellyn McColgan is the head of the brokerage,
Fidelity, she also sits on our board. And I think those kinds
of role models will help to replicate that success as well.
Chairwoman Kelly. Thank you. I am out of time. If we have
enough time, I am going to ask this question again at the end
and ask the three of you to address that as an answer.
But in the meantime, I am turning to Mr. Gutierrez.
Mr. Gutierrez. Thank you very much. Well, first of all, I
would like to welcome you all again for being here, and I would
like to acknowledge the presence in the audience of a woman
pioneer, Marita Perez who heads Porta Lesa Asset Management and
who knows in her own right how difficult it is and she is an
asset manager. But it is hard to get the big corporations to
give Latinas or Latinos or African-Americans the right to
manage. But she manages very well, and I am happy she is here.
She has taught me a lot about the difficulties that minorities
encounter.
And I have a question. I would like to ask starting with
Mr. Padron. What was the most important ingredient in your
success?
Mr. Padron. I think that the realization that I had to work
twice as hard as the rest of the individuals in my group to
make it. Also the attitude that this was not fair, the attitude
that I had to overcome this issue, this problem and the
recognition that I had to be in a capacity to fight and to
advocate to change the laws.
Mr. Gutierrez. Thank you.
Mr. Kennedy, a simple question but you have a wealth of
experience. How have you been so successful? What single thing?
Mr. Kennedy. I would have to go back to education, and I
was fortunate to have grown up in a family with professional
parents. So as a result, they always emphasized the importance
of education, and I have been blessed to have been able to
attend one of the better boarding schools, colleges and
graduate schools here in the United States, which provided me
with the confidence to be able to go out and really do some
things that I have wanted to do. So I think ultimately it gets
back to education.
Mr. Gutierrez. Dr. Hammond?
Ms. Hammond. I think the key for all the African-Americans
whom I interviewed for my book and also the African-Americans
in the profession today, is mostly African-Americans helping
African-Americans. As Mr. Padron said earlier and implied
earlier, the programs that have been developed to increase
diversity have actually mostly benefited white women in public
accounting as well as in a lot of other industries. A lot of
times firms talk about diversity and they say, ``Well, 37
percent of our firm is diverse,'' and it turns out that 36
percent of that is white women and 1 percent is people of
color.
And so there has been a real lack--subsequent to the push
for African-American inclusion that occurred in the late 1960s,
early 1970s--there has been really a lack of attention to that
issue. So what has happened is the National Association of
Black Accountants and African-American-owned firms have filled
those gaps.
In 1965, there were 100 CPAs in the country; 27 of them
were in Illinois. And the main reason for that was because of
Mary Washington, who you may know, has a CPA firm, Washington,
Pittman and McKeever, in Chicago. She trained African-American
CPAs who came from all over the country to come and work with
her because they needed to work for a CPA to get a CPA, and no
white firms would hire them.
Subsequent to that, the National Association of Black
Accountants--and I have some colleagues from NABA behind me
here, including the president of NABA--the National Association
of Black Accountants took that leadership from the 70s through
the 80s and 90s and has conventions and organizes opportunities
to make it easy for the firms to recruit African-Americans, for
African-American professionals to meet each other and be
supportive, for African-Americans to meet the few black
partners there are in these firms. That has really been where
the leadership has come. And that is wonderful, but it is not
enough.
Mr. Gutierrez. Ms. Fernandez?
Ms. Haar. Thank you. Twenty-five years ago, I retired as
the vice president of Corporate Lending and Corporate Finance
in a bank called Flagship Banks, now SunTrust. Having been
through the executive training program, first Latino of any
gender in charge of the Credit Department, first corporate
lender, I want to answer that question. No one gives the
opportunity unless there is a benefit, but it has to come from
the top. And these diversity programs that have been cited
here, sometimes the diversity officer is the diversity. That is
it. That is the program. It is not on the money-making end of
the business, it is not in line to be promoted.
If I can tell you what happened is that I found a chairman
who wanted to do it as an experiment. It wasn't even social
consciousness, he just said, ``I want to see if you can do it.
You say you can do it. We will see.'' And handicapped by not
having had the level of education, the MBA, I did have to
acknowledge working twice as hard, but I said I am going to
make it my business to make it work and not do the traditional
route.
All these minority diversity programs, Madam Chairman, with
all due respect, are put in areas, Human Resources, where they
can trot them out, staff positions. The decision makers where
the money flows are not people of color and are not usually
women in commercial lending, because it makes us too
uncomfortable. I left to start my own business because it got
to be uncomfortable. I said I am not going to--as much as I
want to fight this battle for other women, I am going to do
something that is my way.
So we need you to ask those questions and have those
changes made at the top. Otherwise we are going to hear about
great programs that keep making more and more diversity
personnel type executives. Thank you.
Mr. Gutierrez. You know, I thank all of you for those
answers, and I just want to answer quickly if I were asked that
question, you know what was the most significant thing for me?
I grew up in a very Puerto Rican neighborhood of Chicago, so my
parents, all their friends were Puerto Rican, the family event.
Over at the factory, they spoke Spanish among one another. I
didn't have a Latino teacher, I never saw a Latino police
officer, I never a Latino--I mean I saw Latino cab drivers and
dishwashers and factory workers, like my mom and dad.
And then what helped me, I think, to be successful is that
my parents went back to Puerto Rico, and we went to this little
town, and when I got there the doctor was Puerto Rican, the
architect, the mayor, the senator. I turned around and I said--
the principal of the schools, all the school teachers. And all
of a sudden--and I had great parents, but I never saw that I
could be all of these things.
And so it was very lucky and fortunate for me to see people
in all those positions, because it said to me, ``Look, you can
do all of these things.'' Had I stayed in Chicago--and I just
want to say to all the members of the committee, many young
African-American, Latino youngsters it is all they see. They
don't see it. They grow up with such a thirst and they don't
see anything else other than the crime and the poverty that
surrounds them each and every day.
And so you all are important--Mr. Kennedy, Ms. Fernandez,
Lorenzo--all of you are very, very important, because you are
all role models for the young people, and I thank you all for
your wonderful testimony.
Chairwoman Kelly. I thank you.
We have been called for a series of votes, so we are going
to take a--oh, I am sorry, do we have enough time--can we pick
up Mr. Hensarling? Okay.
Mr. Hensarling, if you can make this just roll, we will do
that.
Mr. Hensarling. Thank you, Madam Chair, and I will attempt
to be brief. One, I applaud holding this hearing in the first
place, because I have observed it is very difficult in America
to have an intelligent conversation about race relations and
hiring practices. Given the history of racial prejudice in our
Nation, it is an important topic that we take up.
Perhaps contrary to some members of the panel, I, myself,
do not have interest in diversity as a goal in and of itself. I
have a great interest in diversity as a means towards a goal,
and that goal is to move us to a freer, more colorblind
society. So where I see diversity and it represents an absence
of racial prejudice, I tend to celebrate it. Where I see the
existence of diversity and I believe it represents the triumph
of color consciousness over equality of opportunity, I tend to
be critical of it.
I believe that a properly structured diversity program can
be very good in helping those who suffer from a legacy of
prejudice to reach greater heights of opportunity, but I also
know that there is a very thin and gray line between diversity,
color consciousness and de facto quotas.
So I guess my first question is, Mr. Lackritz, can you tell
me, in your opinion, what does a properly structured diversity
program look like in the securities industry?
Mr. Lackritz. Well, I wanted to give you a very thoughtful
response, so I will try to be brief. The reality is that there
are lots of different ways at this, and we have got a number of
different programs that are finding success. I think the most
important qualities are engagement of top management, and I can
tell you that in our large firms now diversity and openness and
equality of opportunity have become one of the top two or three
goals of almost every CEO of all of our large firms. So you
need top-down engagement by the CEO.
You need a commitment culturally within the firm to both
recruit and try to track new types of employees, whether they
are women or people of color and an active aggressive effort to
go out and get that. You need to have a mentoring program
internally in the firm to help people succeed, as all of us
have been mentored along the way by older people, and you need
to have a method for the new employees to network among one
another and get to know one another a bit to give each other
support in a new environment where they may find it unusual or
new. I think all of those components add up to a good program.
I also think that the main reason for engaging this is
because you are going to be more successful from a business
standpoint, and that is the reason to go after it. But that is
why you do this and a way to reach customers in new ways.
Our market, like every market, is evolving very
dramatically. You can just look at the different ways people
buy securities. It is dramatically different from the way it
was 10 years ago. Look at the number of people that are buying
securities, that has changed. So you need to have flexibility,
but I think that is the main focus. Sorry for the long answer.
Mr. Hensarling. No, no, no. It is an important question.
Speaking of questions, instead of asking five questions, I
think I will ask two questions.
The second question I had is I have heard a number of
statistics relating to the discrepancy between an ethnic
population, or a racial population, in America and their
representation in the upper management at various financial
services industries. I am curious if there are any studies that
the panelists might be aware of as what the disparities look
like, assuming you can hold constant certain variables like
income and education and two-parented families and such.
So I know that, unfortunately, racial prejudice is alive
and well in the USA, but I wonder how much of that relates to
what might be viewed as an earlier pattern of prejudice with
unequal educational opportunities, perhaps unequal family
environments and other variables.
Maybe we can just go left to right, and if somebody's aware
of the study, if you could just educate me or cite that study
for me, I would be appreciative.
Ms. Haar?
Ms. Haar. Thank you. There is not such a study that I am
aware of given the Hispanic--one of the recommendations that we
made was perhaps that we could look at such information.
However, we do know from an anecdotal basis, just looking at
the top Hispanic 500 firms, that it does not seem to be
compatible that directors are not available simply because we
already have people who have succeeded, who have achieved and
who actually sit on their own boards. So just from observation,
it would not be logical.
Mr. Hensarling. Ms. Hammond, are you aware of any such
study?
Ms. Hammond. Well, from my own research, it is obvious that
for the past 20 years 6 to 8 percent of accounting graduates,
that is people who graduate with degrees in accounting, have
been African-American. And despite the fact that it only takes
about five years after graduation, typically, to become a CPA,
still less than 1 percent of CPAs are African-American. That is
a huge disparity controlled for graduation rates in college.
There is a study specifically about minority group members.
There was a study in 1990 of all the students who had gotten
offers from major public accounting firms. So they first found
the students who had gotten offers, and then they went back to
their GPAs and how many offers they got, and they found that
the white males had the lowest GPAs and the highest number of
job offers. And the minority women had the opposite.
Mr. Hensarling. Thank you. Unfortunately, my time has
expired.
Chairwoman Kelly. Ms. Hammond, I have to stop--I am sorry,
I have to stop this. We have less than three minutes to make it
to the floor to vote. We are going to take a recess. I would
hope that we will be able to get back here by about ten after,
quarter after 12. We have three votes and we have to get there
now. Thank you.
[Recess.]
Chairwoman Kelly. [Presiding.] Thank you very much. Sorry
we had the break but these things happen.
Now I am going to call on Mr. Davis.
Mr. Davis. Thank you, Madam Chairwoman. Let me welcome you
all back. One of the reasons that I think you have a sense of
this, after listening to comments from other members and the
comments from yourselves earlier this morning, is that there
are, I guess, two sets of concerns.
One of them is related to the absence of personnel, the
absence of a larger presence and boards of directorate, that
kind of thing, and the concern, as I would define it, is that
we aren't making the most of the talent pool that we have in
this country, that we have a talent pool that is dryer and
shallower than it should be. And a lot of the other members
have talked pretty eloquently about that.
The second set of concerns is that the absence of African-
Americans or Latinos has had the effect of keeping a certain
viewpoint or a certain perspective out of the board room, if
you will.
Let me follow up, if I can, on the second set of concerns.
While I know that it is not quite the scope of the panel, I
want to talk for a minute about the CRA issue. I am not up to
date on the national statistics, but I think we would all agree
that for whatever reason there has been a lag in compliance
with CRA and that we simply have not gotten what we wanted to
out of CRA when it was passed. And I would surmise that that is
one of the consequences of not having more minorities on board.
Do all of you agree with that, by the way, that the absence
of minorities and minority representation in the hierarchy of
banks has some spillover in CRA compliance? Is there agreement
on that? Okay. All right. As we say in the courtroom, let the
record reflect that all your heads are nodding.
What can this panel do--we haven't had a hearing on CRA
this year. Hopefully we will have one in the next month or next
session. What guidance would you give us as policy makers about
two things. What can we do to make CRA more than just a
promissory note, because right now it strikes me that it is a
promissory note, and it is not a whole lot more binding or more
powerful than that? What can we do to make CRA more powerful?
And, second--well, let me get your answer on that, first of
all, from any combination of you all.
Ms. Haar. I think it is really important to say that
although it might have flaws in not living up to its total
potential, that it has been extraordinary. I think that in this
particular case doing a better job than what we have, but when
you look at it, from 1997 to 2001, $1.5 trillion in loans
investment and service to minority and low-moderate income
communities went through CRA agreement. That is a lot of
progress.
I would venture to say that tightening the compliance and
perhaps expanding it to the areas that the chairwoman had
already commented on earlier will perhaps be the best people,
are not management, for example, are not so willing to change
unless it is mandated in a way that becomes really measurable.
Mr. Davis. Any other perspectives on that?
Mr. Kennedy. Yes. I have one perspective. I would suggest
that it would be beneficial to expand or at least change CRA to
an extent to incorporate incentives for private equity funds to
be raised for minority firms, women-focused investment firms. I
know that has been one of the aspects of it over the past
years, but my sense is that I have seen qualified minorities
and women who have tried to raise private equity or venture
capital funds go to banks, and since it is included as part of
CRA, CRA has not been allocated to get those equity funds
raised. So I think if there is a way we could do a better job
sort of utilizing CRA to get some funding out in the equity
capital side, it will help small and female-owned businesses
down the road.
Mr. Davis. Let me ask a related question. My understanding
of CRA is that banks receive a rating. They receive a rating
for whether they have an outstanding record. Is that right, the
banks receive a rating on the CRA performance? What are the
criteria? What are the categories or the delineations? That is
just an informational question from any one of you.
Mr. Kennedy. I am not sure.
Mr. Davis. Okay. Well----
Mr. Kennedy. They do see ratings, but I am not sure how it
is structured.
Mr. Davis. All right. Right now what happens if a bank does
not get an outstanding rating? Does anything happen?
Mr. Padron. Well, one area which I think we have been
lacking in enforcement of CRA, First American Bank of Chicago
just announced yesterday in the Chicago newspapers that they
have been found in non-compliance with the serious violation of
CRA. I think that there have been a diversion in attention to
CRA in the last couple of years, and I think that the issue
comes to light mostly whenever a bank is in the process of
acquiring another bank. And all of a sudden you see that they
are starting to pay attention to it.
I have, as Congressman Gutierrez indicated, spent a great
deal of time throughout my professional life working on a pro
bono basis in the area of economic development and access to
capita, and you see that my personal experience is that most of
these banks, large banks, when you approach them to initiate or
to join in special programs to facilitate access to capital to
minority-and women-owned businesses, the attraction for them is
just not there. But only at times when they are being bought or
they are buying another institution, then they come around and
invite you to participate in whatever programs they have.
So it is becoming an issue of enforcement, it is becoming
an issue of having, as you indicated, the individuals from
minority groups represented at a higher level of management, at
the executive level of management or at the board level where
they can influence these positions.
Mr. Davis. Madam Chairwoman, if I can just steal an
additional 30 seconds just to make my point. What you have
touched on is something I do think is fundamentally important,
and it is something that I hope that this panel will examine.
There is no question that CRA has been a positive event. It has
expanded community development work on the part of our
financial institutions.
But it is also very clear to me that exactly what this
gentleman said is so, that if a bank chooses not to do its
obligations under CRA, essentially the only thing that we do
right now is to say, ``Oh, that is bad that they don't do
more.'' And I think something that we need to look at is what
can be done to incentivize compliance? On the flip side of it,
what are the sticks if you don't get more proactively engaged
in this area?
And the final point that I would make is I do believe that
a poor CRA rate has something to do with the absence of
minority executives in prominent positions in the hierarchy.
Thank you.
Thank you, Madam Chairwoman.
Chairwoman Kelly. Thank you very much.
Mr. Baca?
Mr. Baca. Thank you, Madam Chair. I appreciate the comments
that were made by each of the panelists earlier when they were
describing the need for minorities in diversity and having
access. And we looked at access in terms of financing. We saw
that yet there is a need for additional access, but at the same
time it seems like we are cutting back the funding, and yet we
have growth in minority, which also presents a problem in
assuring that they do have.
And when we looked at and discussed the lack of diversity
in each of the areas, not only from Hispanics, black CPAs or
women in certain areas and then talked about the double
standards that are applied there in terms of the numbers and
statistics that are used, but as you look at and you talk about
education as being one, you can have education and I believe
that we do have educated Hispanics, we have educated, blacks,
we have educated women.
And one of the things I was hoping that I would hear from
you is that there needs to be sensitivity and there has to be a
change, because without sensitivity and attitudes and
behaviors, then you can draft a plan, any kind of a structure
within any corporate America, but if that change and that
sensitivity and that attitude and behavior isn't there, that is
going to be hard to implement any kind of a plan that you have
because you have the educational structure.
I want you to address that perspective, any one of the
panelists, in terms of the need for the change in sensitivity,
attitude and behavior in order to make sure that we do have
people that have the ability to be not only on our corporate
board but our executive board as well as to look at lending
because, Kennedy, you talked about guidelines that needed to be
done. Well, that is part of it too as well when you change
those kind of guidelines. Can any of you then just sort of like
touch base on it?
Ms. Hammond. I agree completely in the public accounting
industry. I think that given the overwhelming white male
dominance of the profession for so long, that even if the firms
say that they would like to try to hire more African-Americans,
they can't retain most African-Americans or Latinos who come to
work for the firms.
And the main reason for that is the culture of the firms
themselves. And the firms don't recognize the fact that they
don't adapt to the culture of the people who--they are not
making any adaptation whatsoever to anything but a white male
culture. So they don't recognize that they are hanging out or
taking staff members out golfing who are only other white
males. They don't recognize that African-Americans may not know
what certain terminology means because they don't have any
familiarity with that from their family background.
And I think that one of the things that--besides the
diversity training, I think that if there is such a white
dominance in the management of these firms, that just an
awareness of the experiences of others makes a huge difference.
A lot of white people don't even know that only 30 years ago
the same firms that they are working for refused to hire
African-Americans, and so I think just an increase in awareness
will help change the culture, just to know more about the
backgrounds of other people instead of assuming that everyone
has the same background as they do.
Mr. Baca. Any one of you? Marc? Kennedy?
Mr. Kennedy. Yes. I would like to piggyback on what Dr.
Hammond had to say. Earlier, I talked a lot about the corporate
diversity programs that many of the major financial services
firms have initiated, and I think when you really look at the
more successful programs, those are at institutions where you
have a CEO who is passionately committed to making diversity
happen throughout his or her organization.
Mr. Baca. He is leading by example.
Mr. Kennedy. Leading by example. And my sense is, at least
from the recruiting work that I do in large financial services
firms, that number is a very, very small number of CEOs who are
passionately committed to making that happen. When you look at
the business objectives every year for most of the major
financial services----
Mr. Baca. So what I am hearing is he is got to change his
attitude.
Mr. Kennedy. Well, you are going to have to change the
attitude of a lot of other CEOs and leaders in the financial
services world to make sure that they are more sensitive before
they can then drive diversity down through their organization.
Mr. Baca. Marc?
Mr. Lackritz. Yes. Thank you, Congressman. I guess I would
just note that it is changing. Only yesterday the new
management team at CS First Boston that just came into place,
the new CEO sent out a memorandum to his entire staff saying
that the objectives going forward for the firm were, first, to
become a world class investment bank; secondly, to produce a
talented, ethnically diverse workforce; and I forget what the
third one was. But that objective coming from the new CEO of a
major investment banking firm sets the tone and I think really
places the importance upon driving that through the whole
organization.
I can also tell you that all of our large firms have
diversity sensitivity training as part of their employee
orientation programs. That was not true 3 years ago, and it
certainly wasn't true 10 or 15 years ago.
Mr. Baca. Right. But then the problem is the implementation
process. You can have the training, but if you don't implement
it, then it becomes difficult. And I think all of us have
procedures, guidelines but the implementation process. Because
there are qualified individuals. I am always tired of hearing
people say that we don't have enough qualified individuals to
be on the board of directors, we don't have enough CEOs,
minorities or women to become the CEOs. But we do have them.
Mr. Lackritz. I think the point you are making is right. I
think that procedures and processes and institutions are fine,
but people do make the difference, and leadership really does
matter.
Mr. Baca. Ms. Fernandez, were you going to----
Ms. Haar. Congressman Baca, thank you, members of the
committee. I would like to make a point about the focus. We
talk about diversity, and we talk about what is right, but
there is a business reason here. We have for the first time in
months where we will reduce our trade deficit. The president
has trade promotion authority. We have before us by 2005 the
discussion of free trade area of the Americas.
What we are talking about here is part of the United States
maintaining some sort of global competitiveness. If we are
going to continue as the leading economy in the world, we have
to become more globally competitive in these markets, and part
of that is dealing with our own resources. Our minority
communities here are our linkages to the rest of the Western
Hemisphere and in terms of FTAA and, in essence, to the rest of
the world.
I think it is an extraordinary resource, and we sometimes
have to look at it also as this is good business. You need to
do this because this is good business. It makes you a better
company and part of a global competitiveness initiative too.
Mr. Baca. Thank you. Ms. Fernandez, could you please
describe the relationship between----
Chairwoman Kelly. Mr. Baca? Mr. Baca? I am sorry, you are
already two and a half minutes over your time. I will come back
to you in a minute, but Mr. Scott has been waiting.
Mr. Scott?
Mr. Scott. Thank you very much, Ms. Kelly. First question
to whoever may want to take this: What percentage of chief
diversity officers in these firms report directly to the CEO?
Mr. Lackritz. I don't have an exact percentage for you. I
know in some firms they do, and in other firms they report to
the head of Human Resources who reports to the CEO. It varies.
I can try and get a more specific number.
Mr. Scott. I mean could we, just generally, from you all's
experience, would you say half of them, 10 percent of them, 20
percent, most of them?
Ms. Haar. Very few.
Mr. Scott. Very few. Good. That is----
Mr. Kennedy. I would probably estimate 20 to 25 percent,
maybe one in 4, of the larger financial services firms.
Mr. Scott. And don't you think therein lies a part of the
problem for the inaction in much of the things that you have
said is the fact of that, and that that would be one
recommendation and finding that we could come out of this
hearing, that we find an inadequacy and so the record would
reflect that this committee could be in the position of making
that recommendation.
Certainly, as a member of this Financial Services
Committee, I would certainly want to go on record as one of the
areas in which we can improve in and should work towards is the
fact that for diversity to be taken seriously, it has got to
come from the top. And the person in charge of diversity should
report directly to the CEO.
Now, with that in mind, Mr. Kennedy, without necessarily
putting you on the spot, I would like to know do you report to
the CEO at Korn/Ferry?
Mr. Kennedy. Well, indirectly, I do. Obviously, we are a
publicly traded company now. We went public in 1998. But prior
to that we were a private partnership. So the way that we are
structured, I report into a regional managing director who then
in turn reports into the CEO of Korn/Ferry.
Mr. Scott. All right.
Mr. Kennedy. But I am not head of our diversity practice. I
am just one of the members of our diversity practice, but I
tend to have a specialty within financial services.
Mr. Scott. Well, hopefully, after this hearing it gets to
report back to C-SPAN and they might make that promotion for
you.
[Laughter.]
I hope that positive comes out of this.
Now, Mr. Kennedy, you mentioned in your testimony you
referred to scam representations, if I remember correctly, of
minorities and women. Would you share with us what you mean by
scam representations in diversity and describe one of those for
us?
Mr. Kennedy. Yes. What I meant was scant, S-C-A-N-T.
Mr. Scott. Oh, scant.
Mr. Kennedy. Yes, scant.
Mr. Scott. Okay.
Mr. Kennedy. Very little representation of minorities and
women. And I think the point I was making there it gets to the
private equity venture capital segment. When you look at the
numbers of people of color and women who are in private
partnership, private equity funds, there is scant
representation. And the implications for that then are that
since the majority of private equity funds are in this private
partnership structure, then you have a whole group of people
who, by and large, have been excluded from participating in the
venture capital arena, at least most of the mid-size and larger
funds.
Mr. Scott. Okay. This question: I would think a purpose, a
part of our purpose as the Financial Services Committee in this
hearing is to receive input from you. And a part of that is to
determine what, if anything, we in Congress can do or act upon.
And with that in mind, I would like to give you all, those of
you who may wish to ponder this question, the opportunity of
sharing with this committee what do you think we in Congress
can do to improve the picture of diversity in corporate
America, in the financial services industry particularly, and
access to capital? And not only what we can do through our
bully pulpit, through persuasion but also through specific
legislation and through Federal agencies.
Ms. Haar. Congressman Scott, you made an excellent point
about reporting to the CEO. Although I am not an expert in
Sarbanes-Oxley, it is my understanding that the CEO now has to
sign off on the financials as part of that. If an expansion of
that included that he would have to sign off on his diversity
mission, that would be an extraordinary thing. If it is a wish
list, an expansion of CRA to include the pension funds and
other areas, insurance companies in the financial services
industry, that would be extraordinary.
And perhaps research--what would be the arm of the Congress
that funds the research?
Chairwoman Kelly. That would be somebody like GAO.
Mr. Scott. General Accounting Office.
Chairwoman Kelly. The General Accounting Office. There are
several places for us to go to get research like that.
Ms. Haar. Part of the reason that we are not moving forward
is that everyone has proprietary data and it is not really
being shared. So none of us are really getting a picture of how
bad it is. We know in the areas that we look at, but if you
actually investigated and looked at the total picture in the
country, it would be incredible.
Chairwoman Kelly. If the gentleman will yield for a moment.
Mr. Scott. Yes, go ahead.
Chairwoman Kelly. That is probably a fairly good idea. What
if we asked GAO to put together this information and report
back to us?
Mr. Scott. I think that would be excellent.
Chairwoman Kelly. Okay. Then so moved.
Ms. Fernandez Haar, you have actually accomplished what you
wanted here, I hope.
Ms. Haar. Thank you very much.
Chairwoman Kelly. Thank you.
Ms. Hammond. I would like to include the CPA firms in that
and not just the financial services industry.
Chairwoman Kelly. So moved.
Ms. Hammond. Historically, the CPA firms have only
responded to pressure from two different groups: Their clients
or the SEC through Congress. And because they are supposed to
be accountable to the public, Congress, I think, plays an
important role in encouraging them to share this kind of
information so that we can track and see who is doing well and
who isn't and how we can do better.
Mr. Scott. Thank you.
Mr. Kennedy?
Mr. Kennedy. And I actually have a couple of thoughts as
well. First, as we may have talked about earlier, I think it
would be beneficial to take another look at the SBA and the
SBIC Program, specifically to revamp aspects of that to make it
more attractive to place equity capital into minority and
women-only businesses, and I think that would be one way.
The other thing would be to take a look at the public
pension fund industry, and we didn't talk about it in my bio,
but I am actually chairman of the board of the State of
Georgia's Employees' Retirement Pension Fund. We have about $14
billion in assets under management, and partly what we do is
that we actually work with some minority-owned asset management
firms that do an outstanding job for us to help them grow.
So when I go to many of the national conferences of various
public funds, there are very few people of color represented on
boards there. We had the only African-American executive
director running a public pension fund in the country in
Georgia who just left a couple months ago.
So I think that would be one area that I would ask you to
take another look at, because you are talking trillions and
trillions of dollars, and, certainly, there must be a way to
get some of the assets from the public pension fund into
minority-owned and women-owned asset management firms, but it
has to be done the right way. So it can't just be a handout, it
has got to be done the right way.
Mr. Scott. Okay. Does anyone else want----
Chairwoman Kelly. If the gentleman will yield.
Mr. Kennedy, we have just added that to our list.
Mr. Lackritz. I don't have any specific legislative
suggestions. I think your bully pulpit, your shining a
spotlight on the issue continues to push us as a group, as an
industry to continue to do better. I don't think now we need
that push, but I think it is important to keep the spotlight
on. I think sunshine is the best disinfectant, and I think from
the standpoint of transparency, it has remarkable effects. So I
really commend the chair and the subcommittee for holding this
hearing.
Mr. Scott. Thank you.
Chairwoman Kelly. Mr. Scott, thank you.
Mr. Scott. Thank you.
Chairwoman Kelly. Mr. Baca, let us go back with you. With
the indulgence, I am going to ask the panel first, you have
been here with us for some time. This constitutes a second
round of questioning, so I want to make that very clear. If you
have to catch a plane, if there are other things that you need
to do right at this moment, if you could indulge us so that Mr.
Baca could finish this with his final question, I would be very
grateful. Is that acceptable to you? Let it be seen as they are
all shaking their heads. Thank you.
Mr. Baca, please.
Mr. Baca. Thank you very much, Madam Chair. Just a couple
of questions.
One, Ms. Fernandez, could you please describe the
relationship between the lack of Hispanic leadership on
corporate boards and executive management teams and the flow of
capital into the Hispanic community throughout the United
States?
Ms. Haar. Yes. In terms of corporate America, one of the
things that happens is that the initiatives have already
improved at the consumer level, so they are more than willing
to advertise that industry has grown $3 billion and Spanish
advertising, this is just corporate, to deliver the consumer
business to the bottom line.
In the absence of senior executives or members of the
board, the relationship does not grow to the next level, which
is wealth creation. That means that, for example, in
procurement, we have made progress, we can sell office
supplies, but the financial services of the private funds and
other high-end services, including accountants fees, for
example, are not available.
The minority communities are not taken into account when
investments are going to be made into new distribution centers
or plans. So the entire wealth creation machinery does not work
in a fair and equitable way.
Mr. Baca. What specific recommendations do you propose to
members of this committee to enact to ensure economic
empowerment to the Hispanic community, and what should be the
consequences of hearing focused on and what legislative steps
can we take?
Ms. Haar. The one thing I want to do is express our extreme
appreciation because the gentleman was right, your shining
light on it, in and of itself, puts everyone on notice that it
is an issue that is important and it is not going to go away.
That is number one.
The other areas that we talked about, getting credible
numbers, because the excuse oftentimes is we don't have the
numbers, prove it. That is why we as an industry could not even
grow in the media until there was media measurement. And coming
from Congress, I think it is the most important thing. The
minority community has only been recognized really, really as
of the last census, and that is because it was the official
U.S. government numbers, credible numbers saying how many of us
and how diverse we were. So that is critical.
CRA, I think, has incredible potential, as we have
mentioned earlier. And, for sure, the pension fund--we at the
New America Alliance have a pension fund initiative. We have
gone into State pension funds training the legislators, asking
them and teaching them to ask the questions that we shared with
you today: What is the composition of your board, what does
your Investment Committee look like, how many investments have
you made to minority companies? Those three questions,
Congressman Baca and members of the committee, will be
critical.
Mr. Baca. Thank you. One other question. In your white
paper released last year, you reviewed that the asset
management industry you identified fewer than 20 Latino asset
managers in your survey. Only one Latino firm was identified in
the top 100 asset managers. You have also suggested that public
funds should be given specific guidelines that should
facilitate the inclusion of Latino firms and asset teams. Which
pension funds have a model out there that other funds can
emulate?
Ms. Haar. That is a difficult question, because in absolute
numbers we can see that Calperse, for example, has done more
than anyone, as an example, but yet the percentage is dismal in
its comparison. The white paper has it in great detail, those
four areas that we studied, but I do believe that training
other legislators with the State fund or taking examples from
you that could be applied under perhaps more of an umbrella
guideline will be really critical.
Now, we have legal counsel and experts from an organization
here who have a more specific focus than I do, and I am sure
that they would be available to answer any questions.
Chairwoman Kelly. Thank you very much.
Thank you, Mr. Baca.
Mr. Baca. Madam Chair, can I have unanimous consent to put
the white paper on record?
Chairwoman Kelly. By all means. So moved.
Mr. Baca. Thank you.
[The following information can be found on page 87 in the
appendix.]
Chairwoman Kelly. Thank you very much. The chair notes that
some members may have additional questions for this panel, and
they may wish to submit those in writing. So without objection,
the hearing record will remain open for 30 days for members to
submit written questions to these witnesses and place their
responses in the record.
I want to thank this panel, the witnesses today. You have
indulged us longer than we expected, and for that we are very
grateful. Thank you so much for your appearance today.
This hearing is adjourned.
[Whereupon, at 12:49 p.m., the subcommittee was adjourned.]
A P P E N D I X
July 15, 2004
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