OCC weighing rules on bank board diversity

WASHINGTON — The Office of the Comptroller of the Currency is considering ways to lean on banks to add more women and minorities to their boards of directors, acting Comptroller Michael Hsu said Tuesday.

Hsu said possible approaches range from recommending that institutions choose board members from a more diverse candidate pool, all the way to more prescriptive requirements. He also called on large banks to be more transparent about diversity in their senior ranks.

“Ultimately, we need to shift cultural expectations so that diversity and inclusion are the norm, not some distant aspiration. For the financial sector, this starts with improving transparency about the diversity of large bank boards of directors and executive leadership,” Hsu said in remarks to a meeting of the Washington-based group Women in Housing & Finance.

“We are also exploring and considering taking other steps, like encouraging banks to make it a practice to nominate or consider a diverse range of candidates or requiring institutions to either diversify their boards or explain why they have not,” Hsu added.

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Hsu said the models for the OCC to follow include a Nasdaq rule — recently approved by the Securities and Exchange Commission — that recommends listed companies meet a goal of having at least two diverse board members. If they do not meet that goal, the rule requires companies to explain the reason.

At the state level, two recent California laws require companies to have a certain number of women and directors from underrepresented communities on their boards, and New York regulators are now asking the financial institutions they supervise to disclose data about the diversity of their boards and senior leadership.

“At least one Federal Reserve Bank has set diversity goals for its own board,” said Hsu, a former Federal Reserve official. “We are also looking to experiences abroad. For example, German law already requires that a certain number of board seats for certain companies be filled by women, and the German legislature is considering expanding those requirements to even more companies.”

The comments continue a progressive tone Hsu has set at the OCC since being appointed in May. Yet he may not get to make the final decision on a board diversity policy developed by the agency. Last month, the Biden administration nominated Cornell University law professor Saule Omarova to become the Senate-confirmed head of the agency, although her path to being approved looks rocky.

In his remarks, Hsu pointed to data showing that both the financial services industry and the OCC have substantial room for improvement in diversifying their leadership. According to Moody’s Investors Service, women sit on the boards of 24% to 31% of banks included in the study, Hsu said.

“At the OCC itself, in 2021, 44% of our workforce are women and 36% are minorities. Of our managers, only 41% are women and 30% are minorities,” he said. “These numbers show that we continue to fall short in reflecting the communities we serve. This is disappointing and unacceptable.”