[House Hearing, 116 Congress] [From the U.S. Government Publishing Office] GOOD FOR THE BOTTOM LINE: A REVIEW OF THE BUSINESS CASE. FOR DIVERSITY AND INCLUSION ======================================================================= HEARING BEFORE THE SUBCOMMITTEE ON DIVERSITY AND INCLUSION OF THE COMMITTEE ON FINANCIAL SERVICES U.S. HOUSE OF REPRESENTATIVES ONE HUNDRED SIXTEENTH CONGRESS FIRST SESSION __________ MAY 1, 2019 __________ Printed for the use of the Committee on Financial Services Serial No. 116-22 [GRAPHIC NOT AVAILABLE IN TIFF FORMAT] __________ U.S. GOVERNMENT PUBLISHING OFFICE 37-521 PDF WASHINGTON : 2019 -------------------------------------------------------------------------------------- HOUSE COMMITTEE ON FINANCIAL SERVICES MAXINE WATERS, California, Chairwoman CAROLYN B. MALONEY, New York PATRICK McHENRY, North Carolina, NYDIA M. VELAZQUEZ, New York Ranking Member BRAD SHERMAN, California PETER T. KING, New York GREGORY W. MEEKS, New York FRANK D. LUCAS, Oklahoma WM. LACY CLAY, Missouri BILL POSEY, Florida DAVID SCOTT, Georgia BLAINE LUETKEMEYER, Missouri AL GREEN, Texas BILL HUIZENGA, Michigan EMANUEL CLEAVER, Missouri SEAN P. DUFFY, Wisconsin ED PERLMUTTER, Colorado STEVE STIVERS, Ohio JIM A. HIMES, Connecticut ANN WAGNER, Missouri BILL FOSTER, Illinois ANDY BARR, Kentucky JOYCE BEATTY, Ohio SCOTT TIPTON, Colorado DENNY HECK, Washington ROGER WILLIAMS, Texas JUAN VARGAS, California FRENCH HILL, Arkansas JOSH GOTTHEIMER, New Jersey TOM EMMER, Minnesota VICENTE GONZALEZ, Texas LEE M. ZELDIN, New York AL LAWSON, Florida BARRY LOUDERMILK, Georgia MICHAEL SAN NICOLAS, Guam ALEXANDER X. MOONEY, West Virginia RASHIDA TLAIB, Michigan WARREN DAVIDSON, Ohio KATIE PORTER, California TED BUDD, North Carolina CINDY AXNE, Iowa DAVID KUSTOFF, Tennessee SEAN CASTEN, Illinois TREY HOLLINGSWORTH, Indiana AYANNA PRESSLEY, Massachusetts ANTHONY GONZALEZ, Ohio BEN McADAMS, Utah JOHN ROSE, Tennessee ALEXANDRIA OCASIO-CORTEZ, New York BRYAN STEIL, Wisconsin JENNIFER WEXTON, Virginia LANCE GOODEN, Texas STEPHEN F. LYNCH, Massachusetts DENVER RIGGLEMAN, Virginia TULSI GABBARD, Hawaii ALMA ADAMS, North Carolina MADELEINE DEAN, Pennsylvania JESUS ``CHUY'' GARCIA, Illinois SYLVIA GARCIA, Texas DEAN PHILLIPS, Minnesota Charla Ouertatani, Staff Director Subcommittee on Diversity and Inclusion JOYCE BEATTY, Ohio, Chairwoman WM. LACY CLAY, Missouri ANN WAGNER, Missouri, Ranking AL GREEN, Texas Member JOSH GOTTHEIMER, New Jersey FRANK D. LUCAS, Oklahoma VICENTE GONZALEZ, Texas ALEXANDER X. MOONEY, West Virginia AL LAWSON, Florida TED BUDD, North Carolina AYANNA PRESSLEY, Massachusetts DAVID KUSTOFF, Tennessee TULSI GABBARD, Hawaii TREY HOLLINGSWORTH, Indiana ALMA ADAMS, North Carolina ANTHONY GONZALEZ, Ohio, Vice MADELEINE DEAN, Pennsylvania Ranking Member SYLVIA GARCIA, Texas BRYAN STEIL, Wisconsin DEAN PHILLIPS, Minnesota LANCE GOODEN, Texas C O N T E N T S ---------- Page Hearing held on: May 1, 2019.................................................. 1 Appendix: May 1, 2019.................................................. 31 WITNESSES Wednesday, May 1, 2019 Budson, Victoria, Co-Founder and Executive Director, Women and Public Policy Program, Kennedy School, Harvard Univeristy...... 4 Guzzo, Richard, Partner, Mercer.................................. 11 Trimble, Adrienne, President, National Minority Supplier Development Council............................................ 6 Verrett, Rory E., Founder and Managing Partner, Protege Search... 9 Von Hoene, William A., Jr., Senior Executive Vice President and Chief Strategy Officer, Exelon Corporation..................... 8 APPENDIX Prepared statements: Budson, Victoria............................................. 32 Guzzo, Richard............................................... 35 Trimble, Adrienne,........................................... 70 Verrett, Rory E.,............................................ 72 Von Hoene, William A., Jr.................................... 75 Additional Material Submitted for the Record Beatty, Hon. Joyce: Written statement of Chris Armstrong, Co-Owner, Veritas Culture.................................................... 85 GOOD FOR THE BOTTOM LINE: A REVIEW OF THE BUSINESS CASE FOR DIVERSITY AND INCLUSION ---------- Wednesday, May 1, 2019 U.S. House of Representatives, Subcommittee on Diversity and Inclusion, Committee on Financial Services, Washington, D.C. The subcommittee met, pursuant to notice, at 2:07 p.m., in room 2128, Rayburn House Office Building, Hon. Joyce Beatty [chairwoman of the subcommittee] presiding. Members present: Representatives Beatty, Green, Gottheimer, Gonzalez of Texas, Lawson, Pressley, Dean, Garcia of Texas, Phillips; Wagner, Lucas, Mooney, Kustoff, Hollingsworth, Gonzalez of Ohio, Steil, and Gooden. Ex officio present: Representatives Waters and McHenry. Chairwoman Beatty. The Subcommittee on Diversity and Inclusion will come to order. I note a quorum is present. Without objection, the Chair is authorized to declare a recess of the subcommittee at any time. Also, without objection, members of the full Financial Services Committee who are not members of this subcommittee are authorized to participate in today's hearing. Today's hearing is entitled, ``Good for the Bottom Line: A Review of the Business Case for Diversity and Inclusion.'' I now recognize myself for 4 minutes to give an opening statement. Thank you, everyone, for joining me today for this trailblazing hearing of the Subcommittee on Diversity and Inclusion. This hearing speaks to the foundation of why this subcommittee exists because diversity and inclusion is a business imperative. Those who embrace it will be more likely to prosper, and those who ignore it will be more likely to fail. According to a study conducted by McKinsey & Company entitled, ``Delivering Through Diversity,'' researchers have found that companies in the top 25 percent for gender and ethnic diversity on executive teams were 21 percent and 33 percent more likely to outperform on profitability, while companies in the bottom 25 percent for both gender and ethnic diversity are 29 percent less likely to achieve above average profitability. Today's hearing seeks to set the stage and highlight the positive, tangible ways diversity leads to greater financial performance. This topic does not stop at the jurisdiction of this committee either. This narrative applies equally across corporate America. According to a Harvard Business Review article entitled, ``How Diversity Can Drive Innovation,'' employees at diverse companies are 45 percent more likely to report that their firm's market share grew over the previous year, and 70 percent more likely to report that the firm captured the new market. It is also important to remember that diversity and inclusion goes far beyond race and gender. There are many studies that I could quote, but studies by Intel show that improving ethnic and gender diversity in the United States technology workforce represents a massive economic opportunity that could create between $470 billion to $570 billion in new value for the tech industry. There are also studies, I am pleased to say, through the National Minority Supplier Development Council that reinforce this. This is not new to us. For many decades we have been working on diversity, so I am proud to have today's hearing establish new policy setting for diversity and inclusion established by the Democratic Majority under the leadership of Full Committee Chairwoman Maxine Waters. I look forward to hearing from the expert witnesses today on how to tackle the business case and to further take action in transforming the culture of the financial services industry and beyond. I reserve the balance of my time for the Chair of the full Financial Services Committee, Chairwoman Maxine Waters. The Chair now recognizes the ranking member of the subcommittee, Mrs. Wagner, for 4 minutes for an opening statement. Mrs. Wagner. Thank you, Madam Chairwoman, for hosting our hearing today entitled, ``Good for the Bottom Line: A Review of the Business Case for Diversity and Inclusion.'' As the chairwoman has made reference to, and many in this audience know, McKinsey & Company published a study in 2015 identifying a direct correlation between corporate diversity and profitability of a company. Diversity can also help drive productivity, innovation, and good decision-making. When we talk about how diversity is good for business, I appreciate that it can encompass several different facets. It can mean, as Mr. Guzzo writes in his testimony, that a company's profits are growing or that a company is attracting a talented diverse workforce or that it is attracting more investment. Mr. Von Hoene describes diversity as indispensable to Exelon's success and growth. And Mercer has taken tremendous strides in this field as well. Identifying how financial services companies can continue to invest in diversity and inclusion is a primary purpose of this hearing, and I am thankful to everyone who is lending their best practices and expertise. I look forward to discussing the business case for diversity, but let me be clear: Promoting diversity and inclusion is not just good for business; it is also simply the right thing to do. It is right for businesses to reflect the diverse make-up of our country, and we need to focus on working to change business culture and environments from within. It is nearly impossible to legislate away cultural barriers or attitudes. A change in how a company treats and embraces women and minorities must come from active engagement and leadership. That is why I am so pleased to welcome our witnesses today, leaders from business and academia who are leading the way and helping us do better in this space. Mr. Guzzo, thanks for being here. I had the pleasure of meeting your Mercer colleague, Pam Jeffords, in March, when she participated in a very thoughtful, productive roundtable discussion on diversity and inclusion. I understand that she was not able to testify here today, but I want to thank you for being here. I look forward to your testimony. I have read through a copy of the report you included with your testimony entitled, ``When Women Thrive, Businesses Thrives,'' and I am excited about the conversation that Mercer is leading to offer thoughtful solutions to addressing female participation in the workforce and senior management. I hope we will hear more today about how to bring about cultural and programmatic changes that help women thrive. I look forward to diving into practical strategies that help financial services companies take the next steps in ensuring that women can rise through the professional ranks, even as many are simultaneously raising the next generation. Thank you all for sharing your time with us, and thank you to my dear friend and colleague, Chairwoman Beatty, for your leadership. I yield back, and reserve one minute for the ranking member of the Full Committee, Mr. McHenry. Mr. McHenry. I thank the ranking member for yielding. Thank you, Ms. Wagner, for your leadership. And thank you, Chairwoman Beatty, for your leadership. At our last hearing, I highlighted a Harvard Business School study on the distinction between diversity and inclusion, with inclusion being the driving force behind success in diverse companies. I will take it one step further to say that the market actually rewards diversity in recruiting, hiring, and retaining that diverse talent. So how we reward diversity, how we drive inclusion, should be the conversation we have today. I appreciate this great panel for assembling today. It was our intention for this to be a statement that we are bipartisan by having a bipartisan panel. Nonetheless, we have the same members of the panel that we had negotiated for a bipartisan hearing. We just have four Democrat witnesses and one Republican witness, even though we had offered to make this a fully bipartisan panel, because I think all of you have a great story to tell and we have a lot to learn from you. So, thank you for being here. And with that, I yield back. Chairwoman Beatty. Thank you. Today, we welcome the testimony of a very diverse panel of five witnesses, and as has just been said by the ranking member, we are very honored that the Majority has four witnesses and the Minority also has a witness. First, we welcome the testimony of Victoria Budson, co- founder and executive director of the Women and Public Policy Program at the Harvard Kennedy School of Government. She also served as chairperson of the Massachusetts Committee on the Status of Women from 2011 to 2016. Second, we welcome the testimony of Adrienne Trimble, president of the National Minority Supplier Development Council (NMSDC). She is a known leader in advancing corporate diversity, equity, and inclusion initiatives. Prior to her role with NMSDC, she was general manager of diversity and inclusion at Toyota Motor North America. Third, we are proud to welcome the testimony of William Von Hoene. He is the chief strategy officer and senior executive vice president of Exelon. A former partner at the law firm of Jenner & Block, in 2016 Mr. Von Hoene was appointed as co-Chair of the Obama Foundation Inclusion Council, which assists the foundation in establishing a framework for diversity and inclusion in all aspects of its operation. Fourth, we welcome the testimony of Rory Verrett, founder and managing partner of Protege Search. Mr. Verrett is a former leader in the diversity and public affairs practices of two global executive search firms, and the first ever head of Talent Management at the National Football League. He is the host of Protege podcasts, an award-winning series of podcasts on career success, and has 20 years of experience in recruiting, developing, and mentoring high-performing executives from diverse backgrounds. Finally, we welcome the testimony of Rick Guzzo, partner and co-founder of the Workforce Sciences Institute at Mercer. He has written dozens of professional papers and was one of the primary authors of ``Bridging the Diversity Gap,'' the report on the Chicago financial services sector initiatives to bring more African-American and Latino talent into the industry. He has earned a Bachelor's degree from the Ohio State University, I put emphasis on that, and a Ph.D. from Yale University in administrative sciences. The witnesses are reminded that their oral testimony will be limited to 5 minutes. And without objection, your written statements will be made a part of the record. The witnesses are reminded to turn on their microphones and abide by the three lights in front of you: green means go; yellow means wrap it up; and red means stop. Ms. Budson, you are now recognized for 5 minutes to give an oral presentation of your testimony. STATEMENT OF VICTORIA BUDSON, CO-FOUNDER AND EXECUTIVE DIRECTOR, WOMEN AND PUBLIC POLICY PROGRAM, KENNEDY SCHOOL, HARVARD UNIVERISTY Ms. Budson. Thank you very much. Chairwoman Beatty, Ranking Member McHenry, and members of the subcommittee, thank you for the opportunity to testify today about the importance of diversity inclusion within this industry. For America to be most competitive in the global marketplace, we need to draw on our full talent pool, not 50 percent of it. Every major city in the United States is predicted to be majority-minority by 2040. American women today are more highly educated than their male counterparts. They receive more high school, Associate's, Bachelor's and post-graduate degrees. When we look across the financial services industry, we see that the industry has yet to fully leverage this talent. In the industry, we also find that although there may be many women in entry-level positions, the ability to then retain and promote these women has not been maximized. Although 40 percent of the top 10 business schools will be graduating female MBAs at the rate of the top 10 schools, only 34 percent of financial advisors and 40 percent of financial analysts are women. And as it moves up the ranks to the top of the hierarchy, only about 20 percent of leadership positions are held by women. When we look particularly at intersectionality and women of color, the numbers are much lower, and women of color are nearly completely absent from the C-suite. There are, however, very specific ways that gender diversity and other forms of diversity can benefit the financial services industry. Numerous research studies show us that diversity in teams leads to better performance. Heterogenous teams solve complex problems and catch errors better than homogenous ones. Even top-thinking homogenous teams are out-performed by heterogenous ones. This is because cognitive diversity enables us to do some very specific things. When we bring divergent views and different life experiences and cognitive viewpoints into teams, people are more likely to view information carefully, to remain objective, to consider more viewpoints, and also to reexamine the facts. As a result, gender and racial diversity on teams is correlated with the creation of novel solutions, greater innovation, and higher collective intelligence. And in the financial services context specifically, diverse teams have been shown to price stocks more accurately. They are less likely to make a false bubble. Benefits to the overall economy show us that when women have a greater labor force attachment, the economy grows. Now, it would be better if we saw women's numbers rising. As of 2000, we had 77 percent of prime age women, meaning 24 to 55, in the workforce. But by 2017 Bureau of Labor Statistics, what we find is a drop. This is compared compared to the 89 percent of men who are currently in the labor force. When we have more women in the labor force and their participation is rising, what we find is overall market productivity rises. And this stimulus does several important things. Perhaps the most important of which, for many of our listeners today, is that wage growth continues for women and men. In summary, the research illuminates that more women in the financial services industry is important for the efficiency and competitiveness of the U.S. economy, as well as for financial services companies themselves. Gender inclusion needs to become business as usual, not only in this particular industry but across society as a whole. Newer research highlights that companies that have more diversity do better when the societal context values diversity overall. They get greater leverage out of this work of having ensured that they have a diverse and inclusive workforce. We need women in the financial services industry in general, and we need them as well at the top of the hierarchy. We need to create a broader environment that supports women and men's maximal success, not to mention that utilizing the full talent pool is simply the right thing to do for all of us and for America. Thank you again for inviting me today. I look forward to responding to your questions and to providing information about specific strategies and tools that can be used within the workforce to create greater diversity and inclusion. Thank you. [The prepared statement of Ms. Budson can be found on page 32 of the appendix.] Chairwoman Beatty. Thank you. Ms. Trimble, you are now recognized for 5 minutes to give an oral presentation of your written testimony. STATEMENT OF ADRIENNE TRIMBLE, PRESIDENT, NATIONAL MINORITY SUPPLIER DEVELOPMENT COUNCIL Ms. Trimble. Thank you very much. Diversity and inclusion are my life's work, but I don't say that because diversity and inclusion is a nice sentiment. It is not a social program. It is not a handout. I can tell you that diversity and inclusion make good business the best business. It is nothing less than the American future. In American business, diversity and inclusion already have concrete, specific, and strategic meaning. It is a mistake to assume, as some will, that diversity and inclusion are today's form of affirmative action with supporting quotas. Not at all. Diversity and inclusion strategies make good business more profitable, more efficient, and more of a factor in every aspect of American life. They have a clear, measurable impact to a corporation's bottom line. I am here today because I believe that the National Minority Supplier Development Council, or what we refer to as NMSDC, is the go-to for diversity and inclusion in American business. We are a non-profit organization sustained by our membership with a national network of 23 regional affiliate councils, over 1,400 corporate members, and over 12,000 certified minority businesses. Some of those businesses, over 2,300, are women-owned. We are uniquely positioned to partner with this committee as we drive economic growth in communities. We do this through business ownership, through employment, and through setting a foundation for sustainable wealth creation. I would like to take this opportunity to thank all of you, Congresswoman Waters and Congresswoman Beatty in particular, for bringing emphasis to this initiative and making it a top priority for American corporations. It is a fact that racial and ethnic demographics are on the move in our country. It has been that stated by 2045, our population will be majority-minority. As we approach that fundamental shift, it becomes more important than ever that all Americans have a stake in the economy that will support them, every race and ethnicity, as well as full gender parity. Diversity and inclusion strategies also transform the approach to the consumer. They offer the best ways to develop products to meet the market demand, as well as the best way to create disposable and discretionary income in communities, particularly those that have been underserved and underrepresented. Last year, Forbes magazine cited a recent study by the Boston Consulting Group that found that increased diversity of leadership teams in business resulted in 19 percent higher revenue due to innovation, a huge factor in tech start-up companies and industries of the future. I built my career in diversity and inclusion by working for a global leader in the automotive industry. The strategy we developed and implemented lined up with the company's business objectives. That was how we won senior leadership buy-in and support. It covered everything from talent acquisition to marketing to the changing consumer demographics, to building a diverse supplier base. Senior leaders embraced the idea that in order to achieve maximum business results their consumers had to be reflected throughout the company. The best D&I strategies take a holistic view of the business. The bottom line is that CEOs have to drive this initiative within their corporations. Sometimes it is just asking the simple question, how diverse is your team, and how are all of our consumers reflected in product and/or service strategies? Diverse supply chains are better equipped to address consumer preferences in a direct way. Diverse companies tend to hire diverse workers at a much higher rate. That decreases unemployment in underserved communities, typically with those communities being populations of people of color. In fact, in 2018, our certified minority businesses sustained over 525,000 jobs and generated over $31 billion in wages earned; 70 percent of those workers were classified as minority. NSMDC serves to ensure that those who claim to be minority firms are indeed minority-owned, operated, and controlled. Our certification is the gold standard for corporate America. After we certify our minority firms, we develop their skills for building growth and capacity. Diversity and inclusion drives everything that we do at NMSDC. For that reason, I would like to close by reminding everyone how urgently important it is to address some of the challenges that impact our MBEs, such as access to capital. The challenge in seeking access to capital for our minority firms is obvious. Our certified minority businesses generated over $214 billion in tax revenues yet still struggle to get the needed capital to sustain and grow their businesses. That is why NMSDC has established its own initiatives, and that is the call to action and an advocacy issue and one that I look forward to working with and partnering with this Diversity and Inclusion Subcommittee. Thank you for allowing me to be here today. [The prepared statement of Ms. Trimble can be found on page 70 of the appendix.] Chairwoman Beatty. Thank you very much. Mr. Von Hoene, you are now recognized for 5 minutes to give an oral presentation of your testimony. STATEMENT OF WILLIAM A. VON HOENE, JR., SENIOR EXECUTIVE VICE PRESIDENT AND CHIEF STRATEGY OFFICER, EXELON CORPORATION Mr. Von Hoene. Good afternoon, Chairwoman Beatty, Ranking Member Wagner, and members of the subcommittee. Thank you for the opportunity to speak today about the critical role of diversity and inclusion in achieving financial success in business. Thank you for your commitment to this issue. I am pleased to share Exelon's experience, which is this: Our success would be impossible but for our comprehensive commitment to diversity and inclusion within our company, with many other companies that provide essential services to us, and with the communities we serve. Exelon operates six electric and gas utilities centered around major metropolitan areas, including Pepco, which provides electricity here in the District. We also are the largest operator of nuclear plants and the biggest producer of clean energy in the country. All in, we have over 12 million customers, including two- thirds of the Fortune 100 corporations, and we operate in 48 States. Our business is extraordinarily complex, rapidly changing, and frequently volatile. Nonetheless, as my written testimony reflects, in the last 6 years Exelon has enjoyed significant success. Illustratively, our total shareholder value during that period has increased 120 percent. Among other things, this has enabled us to contribute over $50 million annually to organizations providing critical services to the communities in which we work. Our commitment to diversity and inclusion has been invaluable in achieving these results. To meet the challenges we face, we need superb engineering, operational dexterity, regulatory and financial sophistication, political acumen, close connections to our customers, and myriad other skills. We have that array of skills only when our people possess a wide variety of perspectives, backgrounds, ideas, and connections to the diverse world in which we operate. Our commitment to diversity and inclusion has included, in addition to many other initiatives, the following: one, tracking our diversity internally against specific metrics, just as we do for safety, operational financial performance, and holding our officers accountable. The result? Where the utility industry is heavily white male, our workforce is 41 percent diverse. Two, recognizing the importance of diversity in senior leadership. Our 6 regulated utilities now produce well over 50 percent of our net income and that percentage is increasing. The CEO for five of those six utilities is either Hispanic or African American and all the utility CEOs report to the CEO for Exelon Utilities, the holding company, who is a woman. The result? Our utilities are in the top quartile or decile of virtually every metric by which utility performance is measured. Three, pursuing diversity and inclusion with our suppliers of goods and services. Our overall spend with diverse suppliers totaled $2.2 billion last year, a 100 percent increase over 5 years ago. This is more than 25 percent of our overall supply- managed spend. The result? A supply chain unsurpassed in our industry for efficiency, cost savings, and delivering value to our customers. Four, and perhaps of most relevance to this subcommittee, zealous pursuit of diversity and inclusion with professional service providers including banks and money managers. Many banks do business with us. We track the percentage of Exelon work done by professionals at each bank, rank the banks against each other, disclose to them their rankings, and weigh those results in deciding where to place our business. The result? Sixty-four percent of the outside bankers providing coverage services to Exelon companies are diverse. With respect to money managers, in 2010 we revamped a modest minority money manager program that relied almost exclusively on fund of funds arrangements by converting to a direct mandate approach. We then aggressively sought out relationships with minority- and female-owned money management firms. Today, 24 of those firms manage over $3 billion in Exelon pension, decommissioning, and employee savings funds. The result? In 3 of the last 5 years, a minority-owned firm has had the highest returns of any Exelon U.S. public money manager. It is, of course, impossible to measure with precision the financial impact of our diversity and inclusion efforts, but our financial success over the last 6 years unmistakably coincides with those efforts. A friend of mine captured the business case for diversity in a single question: Is a person smarter if she or he reads the same newspaper 4 times rather than reading 4 different newspapers? The obvious answer to that question is, of course not. And the compelling business case for diversity is just as obvious. Exelon is a vivid example of precisely that principle. Thank you. I look forward to your questions. [The prepared statement of Mr. Von Hoene can be found on page 75 of the appendix.] Chairwoman Beatty. Thank you, Mr. Von Hoene. Mr. Verrett, you are now recognized for 5 minutes to give your oral presentation on your written testimony. STATEMENT OF RORY E. VERRETT, FOUNDER AND MANAGING PARTNER, PROTEGE SEARCH Mr. Verrett. Thank you. I want to thank Chairwoman Beatty and Ranking Member Wagner for the invitation to provide remarks at this important hearing. My name is Rory Verrett and I am the founder and managing partner of Protege Search. We are the leading retained executive search and leadership advisory firm focused on diverse talent. At Protege Search we don't make excuses about not having a diverse talent pipeline. We don't invent the people we recruit. We simply find them. We lead searches for senior leaders at corporations, start-ups, trade associations, and nonprofit organizations. I am also the host of Protege Podcast, the leading career success show for diverse professionals. At Protege, we are in the trenches every single day working with corporations and organizations trying to meet their diversity and inclusion goals. Madam Chairwoman, diversity and inclusion are vital to the competitiveness of American companies. There are three principal reasons why companies are simply more successful the more diverse and inclusive they are. First, you will hear talk about diversity and inclusion being the right thing to do or the business case is right for diversity and inclusion. But simply put, diversity and inclusion helps companies become the fullest, most successful version of themselves as enterprises. From my experience in professional sports, I can tell you every single professional sports league, from the NBA to the PGA Tour, owes its current level of success and profitability to diversity and inclusion. The NBA, for instance, has several innovative D&I initiatives which have helped grow the game in Asia and Africa, and years ago launched a women's league. The strategic decisions by the NBA to enter these new markets were guided by a diverse team of executives, including Deputy Commissioner Mark Tatum and Amadou Gallo Fall who leads the efforts in Africa, both of whom brought a global perspective to the business of basketball. Second, diversity and inclusion helps companies outperform their competitors. As was mentioned previously about the McKinsey study, companies in the top quartile for ethnic and cultural diversity on executive teams are 33 percent more likely to have industry-leading profitability. As one venture capitalist in Silicon Valley told me, social media is driven by culture. Culture is driven by music. Music is primarily driven by influencers of color. So if we want to know what trends our social media portfolio companies need to predict, need to harness and focus on, all we need to do is follow what is happening in communities of color. Third, diversity and inclusion allow companies to better solve the problems they face. One of our clients at Protege Search is Freddie Mac. Freddie Mac has an innovative initiative in which the company actively hires as interns students who are on the autism spectrum. From the program's launch in 2012, Freddie Mac has found these professionals to be exceptionally capable, for instance, in data analytics, an area of critical importance for the company. So what can companies do to foster greater diversity and inclusion? From my work with companies in healthcare, financial services, tech, sports, and consumer products, there are five core principles which should guide any D&I strategy. First, the D&I strategy must have the support of the CEO and the board with the requisite budget and personnel necessary to execute an enterprise-wide strategy. Second, the diversity and inclusion strategy must be linked to individual and group performance standards and be tied to executive compensation. Third, companies have to move beyond diversity on candidate slates and mandate diversity on interview teams. Moreover, executive search firms must be held accountable for the diversity of candidate slates they submit to their corporate clients and not simply state that there is a pipeline problem. There is no pipeline problem. Fourth, companies must be transparent about hiring rates, promotion rates, and compensation and advancement to senior management by employees of color and women. It should not require public pressure by advocacy groups for companies to be transparent about equality. If companies want to continue to earn consumer trust, they must make public- facing disclosures about where they stand on diversity and inclusion. And fifth, companies must be smart enough to harness the latent entrepreneurial talent of their diverse staff by unleashing these high-potential professionals to help solve the enterprise's toughest challenges and help seize the company's greatest opportunities. In a country which will be majority people of color by the middle of this century, in an era where consumers and prospective employees are motivated by the social values in the companies they support, and against the overwhelming research which supports the positive business outcomes of diversity and inclusion, companies ignore this strategic imperative at their peril. [The prepared statement of Mr. Verrett can be found on page 72 of the appendix.] Chairwoman Beatty. Thank you very much. I now recognize Mr. Guzzo for 5 minutes. STATEMENT OF RICHARD GUZZO, PARTNER, MERCER Mr. Guzzo. Thank you, Chairwoman Beatty, Ranking Member Wagner, and members of the subcommittee. I appreciate the opportunity to share my views with you today on this important topic. I am Rick Guzzo, a partner at Mercer. Mercer is a consulting firm and a unit of a 75,000-person strong Marsh & McLennan Companies family of companies, and I do lead Mercer's Workforce Sciences Institute, of which I am quite proud. Mercer has worked with hundreds of companies on diversity, both in the U.S. and globally. We are well-known for our When Woman Thrive Initiative which provides research and solutions on gender diversity for many industry sectors, including financial services. During my 20-plus years with Mercer, I have witnessed the importance of diversity rise on the business agenda, and some of my most rewarding professional experiences have come with clients working on this topic. It is a topic that matters to me. One element of our diversity-related work is fairness. I am proud to be part of a company that has affected millions of work lives by helping employers ensure that pay is fair, and that opportunities for advancement exist for all. While compliance has always been part of the agenda, today that agenda also is very much about values, and the business value of diversity has many aspects. For one, reputations matter. Employers are constantly under scrutiny in social media and on websites devoted to employer reviews by employees and job applicants. Companies that acquire reputations of being inclusive, of enabling all types of people to contribute to the best of their abilities will be favored when competing for top talent and in the eyes of consumers. Investors matter. For publicly traded companies, ESG investing, environmental, social and governance, is on the rise, and how a company manages gender, racial, and other types of diversity is an important element of the social and governance qualities that ESG investors look for. Those qualities influence where investors put their money. And, of course, business results matter. There is real, tangible evidence that well-managed diversity contributes to business success. I would suggest the story is not a simple one, however. It is not the case that all diversity is good for all aspects of business performance. Whose diversity, what types of diversity, and what measures of performance we are talking about all matter. Commensurate with the intensifying interest in diversity is the rapid rise of data and analytic methods in business. And so why is this worth noting today? I think there are two reasons. First, financial services firms respect good analytics of customer behavior, of market dynamics and applying analytics to issues of workforce diversity can produce powerful and readily accepted insights. Applying this to ourselves, for example, we at Mercer recently learned some new things about the value of gender diversity in our sales teams. Second, workforce analytics change the game for employers with regard to how best to attract, retain, and unleash the capabilities of a diverse workforce. What is a best practice in one employer may not be a best practice in another because circumstances differ. Analytics can reveal what diversity practices work best in what circumstances, thus making employers smarter. Another development to note is the growth of collaborations among employers, and I am fortunate enough to have firsthand experience with one such example, the Financial Services Pipeline Initiative. If you are not familiar with it, this is a Chicago-based collaborative among banks, asset managers, the Federal Reserve Bank of Chicago, and other employers in the industry, small and large, working with the Chicago Community Trust with a mission to achieve 2 things: increased representation of African Americans and Latinos at all levels in the industry; and increased cultural competence in the industry. The Initiative is remarkable for its many services and resources such as online toolkits for individuals and for employers, the internships it offers, career advancement workshops for people in the industry and more. It is also remarkable for its transparency. I encourage you to visit its websites, see who is doing what, the information that is shared, talk to its people. And it is also remarkable for its reliance on data and research to guide actions. Participating employers share workforce data and make their employees available for research inquiries for the good of all. In conclusion, it is clear that the financial services industry faces many challenges on the road to greater diversity. Progress on that road, I believe, is being made. And I think it can be accelerated through a genuine appreciation of the business case for diversity, through good research and data to steer by and by the energy produced by collaborating to achieve common goals. Thank you again for this opportunity. I look forward to answering your questions. [The prepared statement of Mr. Guzzo can be found on page 35 of the appendix.] Chairwoman Beatty. Thank you very much, Mr. Guzzo. I now recognize myself for 5 minutes for questions. We have heard a lot of data and statistics. We have even heard about asset management, so I am going to start my questioning and hopefully we can give brief and concise answers and I can get a question to most of you. Mr. Von Hoene, you are up first. We have heard a lot about statistics and data, and you mentioned that your company started a diverse asset management initiative. Can you tell us briefly how you made that decision and what was one challenge with that? Mr. Von Hoene. Thank you for your question, Chairwoman Beatty. We made the decision because of two reasons. First, the program that we had in place was not advancing our interests nor was it advancing the social interests that we think were important for a diverse management program. The second reason we made the decision is because we weren't performing as well as we needed to perform in terms of returns on money management for our company. So what we did was say we will be responsible for direct relationships. We sought out those relationships. We used them and deployed them, and we were able to bring into our management of money in pension funds and other funds tremendous assets that had not previously been available to us. The success story, as I mentioned in my testimony, is obvious. Chairwoman Beatty. Thank you very much. Ms. Trimble, can you tell us how we can ensure that minority business enterprises are getting fair access to Federal contracting opportunities in order to generate more of this kind of economic growth? Ms. Trimble. Absolutely, and thank you, Chairwoman Beatty, for the question and for allowing me to participate. I think that it is really important for the Federal Government to understand where their sourcing opportunities lie and to do more forecasting of what those needs are going to be and reach out to the partners who can help provide those minority suppliers that have the capability and the capacity to meet those contracting opportunities. That is something that the NMSDC is positioned to do, and there are other advocacy groups that also have membership of minority firms that can deliver on those goods and services. Our minority firms can only get access to opportunities if those opportunities are made available to them and they are transparent in the procurement process. So I think that those are things that we need to work more closely hand-in-hand and understanding who the capable minority suppliers are, how do we position them for those opportunities and making sure there are accountability measure throughout the Federal Government for inclusion. Chairwoman Beatty. Thank you very much. Mr. Verrett, we have heard a lot about pipeline and all this great statistics about if we do this, it builds a case for diversity. But can you tell us, if you look inside a company, what do we need to know to ensure minority retention in firms so they are getting into the pipeline? Mr. Verrett. Thank you, Madam Chairwoman, for that question. I think a couple of things have to happen. First, I think most companies underappreciate the difficult journey that women and executives and professionals of color have in corporate America. They are the least likely to be mentored. They are the least likely to be sponsored. They are the least likely to be promoted. And so I think having the right data on the engagement of your minority and women employees is hugely important. I think companies have to also have a brand recognition about how they are recognized in the market by women and by executives and professionals of color. Not every employee, future employee, thinks about that company the same. And what we encourage our clients to do is to have a narrative that is specific to employees of color, specific to women candidates of color, who may want to work at the company. So I think there is a lot of work that needs to be done and, frankly, there are companies like Exelon and others in sports and in utilities that are doing admirable work in this area. Chairwoman Beatty. Thank you. Ms. Budson, we know that you have done extensive work at Harvard University and you mentioned in your testimony the inequities and disparities with gender equality in talking about women. Can you give us one thing or one practice that you think organizations should take heed to to help overcome gender and racial biases in the workplace? Ms. Budson. Yes, and thank you for the question, Chairwoman Beatty. So one of the things that we see is often when someone is recruited into an organization who is a woman, who is a woman of color or who is a person of color, anywhere across the gender spectrum, they often, even if they are on the team, aren't given the same opportunities for stretch assignments which are the pathway to promotion. So if there can be a system that is metric-based, that is organized and that is tracked, we can then provide opportunities more equally across the organization so people aren't going to people who read physically like them, might happen to live in their same community, might go to their same community of worship, but instead there is an evidence-based, tracked system so that each new employee has opportunities for advancement. Now, within the financial services industry, this is particularly important around profit and loss. So we have a-- Chairwoman Beatty. Sorry, my time is up, but hold some of those thoughts. I know we will be able to let you get to them. I now recognize the distinguished ranking member of the subcommittee, Mrs. Wagner, for 5 minutes for questions. Mrs. Wagner. I thank the chairwoman. Mr. Guzzo, I think we are all here because we recognize that diversity and inclusion are essential for future growth and innovation in the financial services industry. Both from your experience and from your report on ``When Women Thrive, Businesses Thrive,'' how specifically can leaders in this industry actively implement practical strategies to build diverse workforces? And then also, how does the financial services sector compare to other industries, please? Mr. Guzzo. The financial services sector has, if you will, a more favorable representation of women and minorities than some industries. It could be, if I recall, manufacturing and energy. But less favorable than others, right? So I think each industry has its own unique challenges. Certainly, financial services does as well, but it is in the distribution. In terms of tactics, I think the first tactic that everyone looks to, business leaders look to, is hiring. And you have to, if you want to increase representation. But the big lesson that we have had in our work with clients is that hiring surely is not enough, right? That the notion of bringing people in can sometimes be a revolving door because they go out. Why? Because of the factors that create a work environment that are not accommodating, friendly, which frankly don't let them flourish, don't let them thrive, hence how we got to that word with regard to women. I would say that the fundamentals of fair practices in the workplace, right, fair opportunities are the starting point after hiring, and close tracking of the dynamics of who is staying, who is going, who is advancing and how to change it are the-- Mrs. Wagner. In your testimony, you mentioned how the evidence-based business case for diversity in terms of its impact on business is sometimes nuanced. Mr. Guzzo. Yes. Mrs. Wagner. Can you elaborate on these nuances? Mr. Guzzo. Well, the standards of evidence, if you will, that sometimes go into the public discourse aren't maybe the standards of evidence that you would find in research publications, right? Mrs. Wagner. Yes. Mr. Guzzo. And I make that statement based on the standards of evidence in research publications to say it is not simple. It is very nuanced, such that we might find, for example, in our organization that gender diversity matters to sales teams, but ethnicity may not in one situation, but it may in another. There are lots of place and people differences that need to be understood and need to be accounted for. And my observation is simply that we need to be nuanced in our thinking about the topic with regard to the business case. Mrs. Wagner. Ah, I see. Well, you also write that the business case for diversity is multifaceted. We shouldn't assume that one of the best practices discussed today will work effectively, as you said, in all business sectors. So could you elaborate on the one-size-fits-all approach when it comes to diversity within a company? Mr. Guzzo. Yes. No, absolutely true. For example, many companies will have what might be called resource groups in their organization which are affiliations of people with something in common. It could be ethnicity. It could be a women's group, et cetera. Sometimes those groups are really effective at creating climates and cultures in the place that enable others like them to succeed. Sometimes it is not. Why? I think it is sometimes leadership. I think it is sometimes resources. I think it is sometimes other aspects of the environment which make their work believable or not to the newcomer to the organization. So there is just lots of variation. The fact that you implement a resource group isn't sufficient. Mrs. Wagner. Mr. Von Hoene, you spoke about your efforts to recruit, retain, and promote underrepresented groups. Can you tell us what programs you have established to make Exelon a more attractive place to work for your diverse employees? Mr. Von Hoene. Thank you for the question, Ranking Member Wagner. We do a series of things once people arrive, including an extensive mentorship and sponsorship program for new people entering the company, programs that are particular for lifestyle challenges that people may have in terms of flexible work schedules, in terms of equal pay, in terms of paid family leave. We have systems in which we have training programs for people at all levels in the company designed to enable them to be successful and to learn how they can rotate through the company and find opportunities in other areas in the company. And we take a personal stake in development and hold our officers and our leaders accountable for doing all of these things. Mrs. Wagner. In my brief time here, tell me more about the Honor Roll Program. Mr. Von Hoene. The Honor Roll Program is a program that we instituted with respect to professional services. We started it with law firms. What we do is we measure-- Mrs. Wagner. Banks and then other institutions, too, right? Mr. Von Hoene. Insurance companies, consultants, banks. What we do is we measure for each engagement team at Exelon the percentage of work that is performed by women, by people of color. We then rank those. We tabulate that. We rank the firms from first to last. We tell them where they are ranked. We give them report cards. Those who perform best get an opportunity to have a personal dinner with our CEO. Those who perform worse don't get as much business as they would have if they had been in the latter categories. Mrs. Wagner. Thank you. My time has expired. I yield back. Mr. Von Hoene. Thank you. Chairwoman Beatty. Thank you. The Chair now recognizes the distinguished Chair of the full Financial Services Committee, the gentlewoman from California, Chairwoman Maxine Waters. Chairwoman Waters. Thank you so very much, Madam Chairwoman. I appreciate the opportunity to be here with you this afternoon. I appreciate all the work that you have done on OMWI where we created this opportunity for diversity in the Dodd-Frank reform. And you have been carrying that for the whole time that you have been here and what you are doing now is a part of all of that, and I appreciate the work that you have done. I want to just raise a question about upper mobility in firms, in corporations. One of the consistent complaints that we get all the time, particularly from African Americans, and African-American women in particular, is that, ``I have been on this job for 10 years and they pass over me and give the job to newcomers coming in.'' And this is a constant, consistent complaint of African Americans in general, and African-American women in particular. So what do we do to help companies stop passing over good employees who put the time in, who do the work, but when the time comes to select a new supervisor or manager, they are overlooked? It is constant. Who wants to take this question? Mr. Verrett? Mr. Verrett. Madam Chairwoman, thank you so much for that question. It is common. It is frequent. And the research behind this beyond the anecdotal information that stretches across nearly every company. David Thomas, who is the president at Morehouse, and was an organizational design professor at Harvard, wrote a book called, ``Breaking Through.'' And he said that if you want to understand diversity and inclusion in corporate America, and why people don't get promoted who are not white men, it is because of risk. It is the risk of the blowback if they don't work out. So what you have to do is simply tie promotion of minority and women executives to executive compensation. What gets measured will get done. If people's performance standards are tied to diversity and inclusion it will get done. If it is a nice-to-do it will be the last thing that gets done, and it most often will not get done. Chairwoman Waters. I think Ms. Budson had her hand up? Yes. Ms. Budson. Thank you, Chairwoman Waters. One of the things which can take place is that when these decisions are being made rather than having an evidence-based framework where there is a clearly defined set of what needed to be achieved for someone to move forward, there is, in essence, a conversation which takes place where people talk about who is ready. And when companies can use best practice and evidence-based performance models where instead of saying who is ready you define out clear characteristics for that upward mobility within the organization that are transparent to the employees. And these decisions are made within the management team where it is literally written out. And instead of talking about general fit or readiness, one can mark who has ticked off all the different things to rise. Sometimes what we find is that this implicit bias makes it so one does not, as my colleague shared, take the risk instead of looking at who has demonstrated. And as I mentioned earlier, if people are not given the opportunity for their stretch assignments they then can't collect those key factors for upward mobility. A second piece which can take place as well is during the evaluation process ensuring that there are metrics which can live outside of either the self-evaluations, because people with less social capital in the organization tend to rate themselves lower and people with more tend to rate themselves higher. But to again move to an evidence-based approach rather than a readiness or a fit conversation. Chairwoman Waters. Well, thank you. And of course what we have had to do is we have had to file discrimination complaints and we can't keep doing that for the rest of our lives. But what about when you first get hired and you are told what the job is all about and how you get promotions and what is possible so that when the time comes and it doesn't happen, you know what to do in order to speak up for yourself, et cetera, et cetera? I want to thank you for your comments. This is a very important subcommittee and this is very important work that is being done. And again, I want to thank our chairwoman here, Ms. Beatty, for the work that is being done. And I am very pleased that this issue is finally getting attention in this country all over every section of the country. Thank you very much, and I yield back. Chairwoman Beatty. Thank you, Madam Chairwoman. The gentleman from Indiana, Mr. Hollingsworth, is recognized for 5 minutes. Mr. Hollingsworth. Good afternoon. I appreciate everyone being here and I genuinely appreciate you holding this hearing. This is an important topic of discussion. I know every Member sitting up here cares a lot about these outcomes and cares a lot about the work that has been invested by so many private firms and frankly us as a government in making sure we get to better outcomes with regard to this. And Mr. Von Hoene, I wanted to talk to you for a brief second. You have talked about how you guys really walk the walk. How you don't just talk the talk but you are genuinely making these efforts, having these scorecards, ensuring this is a part of your company's very DNA. Now, we have seen so many of the research studies that indicate there are tremendous rewards out there for firms that do pursue with meaningful intent diversity and inclusion as a part of who they are. But I wondered if you might talk about the genesis of this at your firm? How did this all get started? If everyone in every private firm has the opportunity to see the rewards that might come out of this not only for themselves, not only for their employees but for their communities and for the country as a whole, how is it that others haven't followed in your footsteps? And how did you and your firm get started in this? Mr. Von Hoene. Sure. Well, we are in an industry where we touch large urban populations. Mr. Hollingsworth. Right. Mr. Von Hoene. So as a starting point one of the things that we have to be mindful of is who are our customers? Who are our stakeholders? And they reflect a very broad, diverse group of individuals and institutions. In order to address concerns that they have it is important that we be able to mirror that effectively so we start with a little bit of an advantage in that regard. But the other part of it that is really important is the work that this committee is doing today which is when you stop and recognize that this is not simply the right thing to do, it is the right business thing to do. And you see how that evolves in your business as you see people making contributions who had not historically been invited to the table to do so and you see the value that comes with that. It begins, I think, a trend or a momentum to understand more fully the business case that all of you fully embrace here. So what we have found is as we have done these things starting with baby steps and being more energetic as time went on to see the progress that our business made and to be able to tell people this is not only the right thing to do, this is a thing that is going to make you and to make the company more profitable and more successful. The key is delivering that message over and over again. Mr. Hollingsworth. Right. Well, I love that you see it as an advantage that you are with a utility company that touches so many different customers. One could see it as a disadvantage though, right? When I go to the supermarket I have a wide variety of options perhaps on every shelf and I can choose the products that match my values, companies that match my values, match my ethics, but I don't always have that same choice in utilities. So for you to be able to say, even as a utility, that it matters to you that you have the same culture of the people that you serve, I think that is a really unique position to take, and I think you guys should be applauded for the efforts that have already been undertaken with regard to that. Mr. Von Hoene. Thank you very much, Congressman. Mr. Hollingsworth. Absolutely. Ms. Budson, I know that you earlier spoke a little bit about some of the challenges that are associated with ensuring that we get everybody's talent into the workforce. This is something that I am passionate about as well, making sure that everyone has the ability to contribute to this economy, the ability to contribute to this country's future. I wonder if you might just pick out a few little areas where we are holding specifically women back from being able to engage in the workplace. Where are we losing them along the way, so to speak? In 90 seconds, hopefully you can solve that problem. Ms. Budson. Thank you. So sometimes we hear about women opting out and I would like to state that women don't opt out. Women get fed up, and there is a very significant difference. We need to create environments where all employees are able to fundamentally contribute. The most likely reason for a woman to leave her place of employment is because she doesn't feel valued. Mr. Hollingsworth. Right. Ms. Budson. More so even than what her income is in that organization. Mr. Hollingsworth. Right. Ms. Budson. And how do we communicate value? Within organizations we communicate value by pay. We communicate value by status. We communicate value by flexibility. We communicate value by what work we assign. And we communicate value by what are the narratives that our organizations share so that employees feel a specific sense of investment. And who within the company do we highlight and promote? Mr. Hollingsworth. Can I ask you a specific question about that? Ms. Budson. Yes. Mr. Hollingsworth. And I-- Ms. Budson. Please. Mr. Hollingsworth. This is a sensitive topic but I want to just parse something up. Are we not communicating to our female employees that we value them enough? Or are we not communicating it in the right way where they receive the message? What is going on there? Kind of bifurcate that a little bit for me in 20 seconds. Ms. Budson. I think the answer is yes. Mr. Hollingsworth. Okay. Ms. Budson. And particularly when we talk about women of color, and really this applies not just to women but for anyone who doesn't have high social capital in their organization. My colleagues' comments about sponsorship, mentorship, people being reached out to to have those unique assignments to join the team that is going to be defining whether someone can advance and looking more thoughtfully about-- Are we done? Mr. Hollingsworth. We are. Hopefully, someone else will let you continue it again. Madam Chairwoman, I appreciate you holding this hearing. Chairwoman Beatty. Thank you. The gentleman from Florida, Mr. Lawson, is recognized for 5 minutes. Mr. Lawson. Thank you, Madam Chairwoman, and welcome to the subcommittee, witnesses. When I go into financial institutions, especially banks and so forth, when you walk into the institution mostly the only thing you see is women. Some women of color and some women of non-color, but they are there. So my question would be who determines whether women will get promoted in those institutions? Is it the human relations person, human affairs person who interviews people before they come into the institution? And you just assume when you go into the financial institution when you see the women who are clerks and everything else there, you know that this must be a pretty good atmosphere. We don't know until later on that you find and see people who say, well, I don't get promotions, but if you go upstairs, then you will see up there then it is probably all men and so forth, but you don't see that when you come into the institution. Now, I am in the financial services industry and the insurance field and I know we have had a difficult time in getting women into management positions for many, many years, over the last 30 years in working with Northwestern Mutual and other companies who are beginning to look at it differently and see what can they do. But I want to know from the position of financial institutions and larger banks and so forth, how are they recruited and the perception that you have? And any of you can comment on it. We can just go down the line and see what happens in human resources, because you don't see anyone in human resources. You just see the people out there working. So maybe you can comment on that. Yes, Ms. Trimble? Ms. Trimble. Thank you for that question and I would like to draw back on my human resources experience having been a human resources professional before working in the diversity and inclusion space. I do think it is a joint effort between the line business managers as well as the human resources department. You have your H.R. professionals who are outsourcing talent and finding talent to bring to hiring managers, however, many times that is where the challenges usually occur is when the hiring managers are making their final decisions. So in my experience has shown me that we really have to have a more intentional strategy for our hiring managers and those in those line positions to have more accountability measures for the types of decisions that they are making, particularly around talent as you look at promotions and job assignments and things of that nature. And understanding that there are some biases that are bleeding into this process and how do we address that. Everyone brings a bias to work with them. We know that. It is how you manage those biases that is going to make the difference. So I think that companies, particularly financial institutions, have to be much more intentional around addressing what those challenges are, addressing those barriers and making sure that they are being held accountable for the decisions that they are making. Mr. Lawson. Okay. Anyone else? Yes, sir, go ahead? Mr. Von Hoene. One point to amplify on that is this. It is not just the responsibility of the financial institutions to address the problem that you have articulated. It is the responsibility of their clients to do so as well. Are the clients looking at financial institutions and saying, we want a diverse body of leaders servicing our business? Because until that demand is made, the incentive internally in the financial institutions is much less than it is if the clients are saying, this is important to us. So this is a problem not just in financial services but for all businesses to address. And it is important that corporations step up to the plate and do so. Mr. Lawson. Would anyone else like to comment? Mr. Guzzo. Well, if I could add to it? I agree with everything that has been said, and I think there is an under- observed or under-accounted for phenomena often which is that in any one cycle of promotions in a year we might look at as an employer, what is the ratio of minorities to whites hired or promoted to the next level? There might be a small difference. Over time those small differences, if they are in the wrong directions, can really accumulate and turn into big differences. And I think the point here I am trying to make is that we need to understand the running record of an organization's actions, not point-in-time actions, to really manage the issue of upward mobility in organizations. Mr. Lawson. Yes, go ahead, Mr. Verrett. Mr. Verrett. Congressman Lawson, just to finish up, I also think we have to acknowledge that promotion processes are subjective. There are some objective elements to them, but at the end of the day every company has a group of people deciding the behavior, the performance, the results of a group of employees and deciding who gets advanced and who doesn't. It is a subjective process. To say the common retort that we simply want the best people. We are fine with diversity and inclusion as long as we find the best people. That is often only said when we are talking about women and people of color. It is assumed that the best people are hired when they are non-diverse and we simply have to just get rid of that old trope and decide that we are going to understand this as a subjective process and lean into all the data that is available. Mr. Lawson. Okay, thank you. And with that, I yield back, Madam Chairwoman. Chairwoman Beatty. The gentleman from Ohio, Mr. Gonzalez, is recognized for 5 minutes. Mr. Gonzalez of Ohio. Thank you, Madam Chairwoman. And thank you to all the witnesses for your testimony and participation today. One of the neatest things about my--I am new to Congress-- time in Congress so far is that when I go home and I talk about what we are doing in committee and I mentioned this subcommittee specifically, the Diversity and Inclusion Subcommittee, to the business community I get more interest and positive feedback than maybe anything that we are working on, quite frankly. And so I find that encouraging because to me what that shows is there is a real hunger for this in our society. I think we get it now. And then there is all kinds of progress we still need to make obviously but I have just been so encouraged by that and I just want to thank you all for being here. I am going to start with my fellow Buckeye grad, Mr. Guzzo. I see from your testimony that you are a fellow Buckeye grad and you laid out Mercer's four-pronged approach to helping companies implement a diversity and inclusion plan: one, strategic development; two, creating a roadmap; three, executing that roadmap; and four, measuring the success of the plan. Two questions. One, how is diversity defined in the company? And then also, how do you measure success? What does it look like? Mr. Guzzo. Right. So diversity has different meanings to some extent at different employers. It always refers to issues of representation of people of color and women absolutely. Other aspects of diversity, age for example, might pop up as being really important in some employers' situations and not others. I think a lot of companies here will face age-youth diversity issues in the coming wave of retirement. So there are some differences but the basic identities are always there. And the measures of success have to do with two types of outcomes I would offer. One is what I will call workforce outcomes which is to say who is advancing? Who is getting their lion's share of pay when they do well to earn it? What are the outcomes experienced by the individual employee? And the other would be the business outcomes. There are indeed ways of deciphering and understanding the impact of diversity on business results, customer satisfaction, customer retention, dollars spent. Those are the measures. Mr. Gonzalez of Ohio. Thank you. And then Mr. Von Hoene, it is great to see all the effort that Exelon is doing. Obviously, it has been a huge benefit to the business but is also just the right thing to do. I ran a small business prior to coming to Congress. It was a start-up and I was so proud of what we were able to do on a diversity and inclusion front. We were a tech company, a small start-up competing against the Googles and Facebooks of the world who can devote a lot of resources and energy to these sorts of programs. As a startup sometimes it is a lot harder so we were very intentional about what we were doing, and I think we did a great job on that. But I would be curious for your thoughts or anybody's thoughts on the panel about how we can tailor what you all were doing or what you are doing to small businesses so that we can provide maybe guidance or a toolkit or whatever it is so that, you know, it is not just the big companies who can focus on this? Mr. Von Hoene. Well, you have correctly surmised, Congressman, that one size does not fit all and that programs that can be implemented in a large company are not viable programs for a smaller institution. But I think the same general principles apply and it is a recognition of the fact that there is a business advantage to doing so, as you obviously did in your business. In some ways, it would seem to me that a smaller company that is really devoted to this issue would have some advantages because the personal attention and the customization of the work to enable someone to come in and feel comfortable who has not historically been there at the company allows a sense of warmth and a sense of receptivity that would be valuable. But that depends on location, company, opportunities, and the like. Note there is no blueprint for this. Mr. Gonzalez of Ohio. Yes. What we found is it ended up being kind of a virtuous cycle where once we started and we got it going so that it kind of fed on itself in what was a really positive way. My last question, Ms. Budson, in the short time that I have, I just want to kind of have you parse through what you were talking about with my colleague, Mr. Hollingsworth. Can you speak a little bit more about when women drop out of the labor force, why is that? Just go a little bit deeper on that if you could? Ms. Budson. Yes, and I was talking a bit about particularly when women leave the company. Mr. Gonzalez of Ohio. Yes. Ms. Budson. What we find is regardless of what reason is either self-reported or presumed by the entity, that woman is working for a competitor within 18 months. Mr. Gonzalez of Ohio. Yes. Ms. Budson. So the key is how can businesses effectively both harness the current talent that they had where they have already made an investment. And note as a nation we have made an investment in educating women; 57 percent of college students today are female and we have this large number of women achieving MBAs. If we can't keep that talent in the workforce we are underleveraging an asset that in essence we have already paid into. And the same thing goes-- Mr. Gonzalez of Ohio. I think our time is up, but I absolutely thank you for your feedback. And I yield back. Ms. Budson. Thank you. Chairwoman Beatty. The gentlewoman from Massachusetts, Ms. Pressley, is recognized for 5 minutes. Ms. Pressley. Thank you, Madam Chairwoman. And I would like to thank Chairwoman Waters for creating this subcommittee. And I want to thank you, Chairwoman Beatty, for your leadership and your entire time. This is a historic happening that this subcommittee even exists and we thank you all for your participation today and your good work every day. Certainly, I am biased, but Ms. Budson made great contributions in the Massachusetts 7th and so it was wonderful to have you here today. The scope of my questioning, much of my line was asked because I wanted to sort of lean in on the gender parity front and the inclusion front, especially in light of a recent tour at the IMF where we learned that if we were to have a more inclusive economy and realize gender parity we could increase the GDP by some 35 percent. And that makes the business case, so this is both about benevolence and justice and also the bottom line. And it is unfortunate we have to keep making that case. I wanted to ask, how much of that is about policies and practices and metrics of accountability and how much of it is simply about leadership and will? And the other thing I wanted to ask you, Ms. Budson, is specific to women. Are there variables outside of, since women are not independent contractors, that we should be addressing within the financial services industry, on-site childcare, things like that? Ms. Budson. Thank you, and it has been a pleasure working on these issues together for many, many years of diversity and inclusion. So when we look at the issue of leadership, a tremendous amount of this is about leadership. My colleagues on the panel have talked about how executive sponsorship can be instrumental and that tying it to metrics, tying it to compensation, tying it to numbers is invaluable. And in addition, this is one of the places where justice and good business intertwine sort of with a yield for everyone. We will see men's and women's wages rise together when we grow our economy. Having this greater attachment to the labor force is something where everyone can actually gain. And if we do it mindfully it gives us an opportunity to provide additional jobs in communities that haven't had them, to provide additional promotion and opportunity for those who have been passed over and overlooked who have earned them. And for us to look at how we can truly compete as a nation in what is a very global industry so that we are harnessing one of our key advantages, which is that we have this diversity. And to note as well that when we look at particularly women, women are making the majority of purchasing decisions when we are looking at banking, when we are looking at home buying, even when we are looking at cars. And I believe the statistic is that the largest purchasing power will be Latina women by the time we get to about 2040. Ms. Pressley. Okay. I am sorry. I am reclaiming my time because I am running out here. So you said that women leave not because they opt out but because they get fed up. So that speaks to the retention challenge around culture-- Ms. Budson. Yes. Ms. Pressley. Right? Inclusion can't just be a seat at the table. It is about the overall experience. Ms. Budson. Yes. Ms. Pressley. And so to that end, disproportionately the data supports, Mr. Guzzo, bridging the diversity gap that minorities are usually in the low level jobs. And so, one, how do we keep them there and prevent them from being most vulnerable to layoffs and general attrition? And also A.I. is very heavy on my mind right now because these will also be the folks most vulnerable to advances in technology. So if you could speak to that? So culture, retention and how do we protect the most vulnerable to layoffs? So-- Mr. Guzzo. So I think-- Ms. Pressley. In some ways it is conflated. Mr. Guzzo. You directed that to me, Congresswoman? Ms. Pressley. Yes. Mr. Guzzo. Great. So I think the vulnerability to layoffs is a really terrific issue for you to raise because I do think that there are segments of the population more vulnerable to the challenges of new technologies, A.I., et cetera. I don't think it is just at the entry level of work. I think it is at the professional level as well, particularly in financial services. So the skilled individual contributor, right? The person with his or her MBA, person of color, et cetera. If there are dispersed risks of technology disruption, some of us may be more prone or subject to those risks than others. And I think it needs, like, we don't have data on it. I think it is a real issue that we don't know yet the result. In terms of I think the retention for us, one of our big learnings is that what keeps people in the enterprise is very local. You need to discover it in your enterprise about what is working or not to keep the right people there. Ms. Pressley. I am sorry, just reclaiming my time. And so just for the record, do you believe we have insufficient data on the Federal level in this space? Mr. Guzzo. On the impact on the impending technology impact? Ms. Pressley. Yes. Mr. Guzzo. Yes, insufficient data. Ms. Pressley. Okay. All right. And Ms. Budson, I will have to follow up with you offline. It looks like I am running out, but I thank you for being here and I have read your statement for today and I will follow up. Thank you. Chairwoman Beatty. Thank you. And Ms. Budson, I hope we can note that you started first that time so I did not have to cut you off. The gentleman from Wisconsin, Mr. Steil, is recognized for 5 minutes. Mr. Steil. Thank you very much, and thank you, Madam Chairwoman, for holding today's hearing on what is a very important topic. I want to build on the comments that my colleague, Mr. Gonzalez, had, in particular as it relates to small businesses. Sometimes we hear about plans that work well for large businesses. And larger companies with big human resource departments and ample resources may find it sometimes easier to incorporate some of the strategies that we have been discussing today. However, I want to focus in a little bit on small businesses and how small businesses can take the strategies that we are discussing today, how they can implement them and also be successful. Can you give and kind of talk about how you advise small businesses that want to invest in diversity, and maybe start with you, Mr. Von Hoene? Mr. Von Hoene. Well, one of the things, we obviously run very large businesses, but we have a number of very small businesses who provide services, goods and services for us. And we are very interested in diversity in that field as well as our internal work. So what we do in that regard is we make sure that they understand how important this is to us, and we reward them accordingly for being successful in that area. So if you have done a good job in recruiting a diverse workforce in a small business you are more likely to have favor with Exelon in terms of rewarding work than you are if you haven't done so. Mr. Steil. Do you see challenges as you track that as it relates to kind of standard deviation with a smaller sample set in some of these smaller businesses as you are looking at how you are identifying success? Mr. Von Hoene. We do, but have a broad enough array of businesses. Mr. Steil. Okay. Mr. Von Hoene. We have hundreds and hundreds of businesses so we are able to be statistically, I think, accurate and statistically meaningful in connection with looking at that. Mr. Steil. I appreciate that. Does anybody else want to comment on the small business side? Mr. Verrett? And then I will come back across. Mr. Verrett. Thank you, Congressman. We have small business clients, start-up clients, backed by private equity and venture capital. And it is much easier to attract a broad array of talented individuals if, as the Congressman mentioned with his company, you start at the beginning with a diverse workforce. It is just much easier. Millennials, in particular, research shows are much more likely to work for diverse companies. They are choosing to work for diverse companies over companies that are non-diverse, as the most diverse generation in American history. And in my conversations with Silicon Valley startups they say, look, it is not our competitor down Sand Hill Road or in San Jose. It is in China. And we have to simply get the best talent with the best ideas to offset the next Googles and Facebook that are likely going to come from China. So this is about American competitiveness and building this from the ground up as an institutional value at the board level and at the executive level to maximize the ability to attract that genius executive, that genius professional that might be at an HBCU or a Latino-serving institution that might not be on the radar of another tech company. Mr. Steil. Thank you very much. Ms. Trimble? Ms. Trimble. Yes, thank you, Congressman. I think that my colleagues are absolutely right. I think that there are opportunities that small businesses have to be more flexible in applying their strategies. What I found in working and talking with Millennial workers and Gen X is that they are looking for more flexible environments. They are sometimes not as open to working in the complex, larger corporate structures. So I think that there is an opportunity to be able to bring these individuals in. And one of the advantages that entrepreneurs have is that they have the freedom and the flexibility to select their leadership team and so they can start with diverse pool. And we know that diverse people tend to hire more diverse people. So I think that those are ways that we can maybe encourage our small businesses to make sure that they are really living out their values and bringing in people that reflect their values. And I would also agree with Mr. Von Hoene that when corporations are doing business with these firms they need to ask those questions and hold them accountable for making sure that they are bringing diverse talent to represent their interests in their supply chain. Mr. Steil. Thank you. Ms. Budson? Ms. Budson. There are also many tools that small businesses can use that have virtually little or no cost: one, building partnerships with student organizations, talent management, and other firms that specialize or are known to do a good job in this area. Two, one can also do some things internally if you don't have a big human resource information system where once you have been recruiting from a very diverse talent pool to de-bias your processes, just covering the name removes a huge amount of bias. We like in our organization to also cover where somebody went to school, cover motherhood or fatherhood so that we are really just looking at those factors which are going to tell whether or not you are going to yield the talent that you need from the individual. And in addition, small organizations have the ability to go into the community in which they are located and to say this is a value. We mean it realistically and even sometimes just moving the interview site into the communities that you want to deeper engage sends the signal of seriousness and partnership. Mr. Steil. Thank you very much. And I yield back. Chairwoman Beatty. Thank you. The gentleman from Texas, Mr. Green, the Chair of our Subcommittee on Oversight and Investigations, is recognized for 5 minutes. Mr. Green. Thank you, Madam Chairwoman, and I compliment you and the ranking member on the fine job you are doing. I have three areas of inquiry. The first has to do with the performance metric that you mentioned, Mr. Verrett. I was monitoring this in my office. You indicated that if we can tie the acquisition of diversity to performance where is this currently working? Can you give me some major corporations where they are doing this? Mr. Verrett. Congressman, I believe Exelon-- Mr. Green. Well, we have this one. Mr. Verrett. --does this. Mr. Green. Yes. But can you give me another? We are proud to have them. I am just curious if you are aware of some others? Mr. Verrett. I believe the National Basketball Association also ties it to that as well. There are other sports leagues that do that. And how that is manifest is you don't have to tie it to a specific, measurable goal per se. Most companies are reticent to do that. The general counsel will come in and say that is illegal, that is a quota. You can't do that. If you tie it to the efforts made, what efforts have you made to make sure your division has people of color and women up for promotion? What efforts have you made to tie executive search firms like mine to make sure they are really submitting diverse slates of candidates? If you force executives to actually show their efforts you will find that most companies' executives will get in line if their compensation is tied to it. In some companies executive compensation can be 10 times the base compensation. You can get a base salary of $350,000 and a bonus of $3 million. And so tying it to executive compensation makes it measurable and make sure it is monitored. Mr. Green. Thank you. And I think you have spoken well. I am just curious about actual companies that are employing this technique. Yes, Ms. Trimble? Ms. Trimble. Thank you, Congressman. I would like to say that actually my previous company where I was working, our automotive global leader, that was actually one of the ways we were actually able to make traction is by tying it to executive compensation and creating scorecards and dashboards for our executive leaders so that we could monitor their progress, measure their progress. And frankly what I found is that there was a spirit of competitiveness. So once we started visualizing this amongst the leadership team, no one wanted to be at the bottom of that list. So those are ways that we were actually able to see traction, to actually get progress is when we implemented a formal scorecard they were held accountable to and tied it to their performance metrics. Mr. Green. Next area, you mentioned the NBA and professional sports they do require that the talent pool, the final three, perhaps, will have at least one person who would represent diversity in it. How successful is this in business? Yes? Mr. Verrett. I would just say as somebody who was the keeper of the Rooney Rule at the NFL, the Rooney Rule is an extraordinarily effective tool to get diversity moving in your organization. But it is not a complete solution. It is part of a series of solutions. A better solution related to that is to make sure that you have diversity on the interview team to make sure that bias doesn't creep into the questions, bias doesn't creep into the order in which candidates are interviewed, into archetyping about what the ideal candidate is, which might have a bias of gender or race or age or orientation subtly built into it. So the Rooney Rule is effective and many of our clients are utilizing the Rooney Rule to make sure they have diversity. But I also think we should be mindful. Research shows that if you only have one person of color or one woman on the slate, the research shows that it is almost a guarantee that that person is not going to get selected for the role because they become the outlier. So organizations are now requiring two people of color or two women on the slate to make sure that there is sufficient-- Mr. Green. I have little time and I do want to ask this last question. With reference to the culture in an office, a good many offices are concerned about bringing people in who just won't fit into the culture, don't play poker on Friday nights, not avid sports fanatics, if you will. How do you deal with that? Mr. Von Hoene. Well, I think all companies, Congressman, do have that challenge wherever they are on the diversity and inclusion spectrum. One of the things that I did with the people who work for me at one point in time who were officers of the company was, I said, let us keep track of who you go to breakfast with, who you go to dinner with, and who you go to lunch with, and let us look at the end of the year and see whether you have distributed your personal sponsorship and mentorship in an even-handed way. So we have to do those things that try to break that, but that is a journey that requires an enormous amount of ongoing effort. And to the degree that we can measure our success in that, it is very valuable. Mr. Green. Thank you, Madam Chairwoman. And I thank the witnesses as well. Chairwoman Beatty. Thank you, Mr. Chairman. I would like to thank our witnesses for their testimony today. And without objection, I would like to enter into the record letters from the African-American Credit Union National Association addressed to this entire subcommittee, thanking us for holding this important hearing. Without objection, it is so ordered. Additionally, I would like to enter into the record an article by Alex Gorsky, CEO of Johnson & Johnson, and Chair of the Business Roundtable Governance Committee. Without objection, it is so ordered. The Chair notes that some Members may have additional questions for this panel, which they may wish to submit in writing. Without objection, the hearing record will remain open for 5 legislative days for Members to submit written questions to these witnesses and to place their responses in the record. Also, without objection, Members will have 5 legislative days to submit extraneous materials to the Chair for inclusion in the record. This hearing is now adjourned. [Whereupon, at 3:35 p.m., the hearing was adjourned.] A P P E N D I X May 1, 2019