2017 DiversityInc Top 50 Announcement Event

Why Does the Fed Have So Little Supplier Diversity?

Compelled by a Freedom of Information Act request to release its supplier-diversity data, the Federal Reserve shows some disappointing numbers. See our interview with the man who forced the Fed to go public.

BARBARA FRANKEL: Hello, this is Barbara Frankel from DiversityInc and I’m here with Bill Cunningham of Creative Investment Research (CIR). We’re going to talk today about some interesting findings he has.

Can you first explain to our audience a little bit about who you are and what CIR is?

WILLIAM CUNNINGHAM: I’m a social investing adviser and I run a firm called Creative Investment Research. A social investing adviser is your generic investment adviser except that we look at social factors as they impact the value of stocks and bonds.

My firm is a specialist firm. We started out looking at and reviewing and rating banks that are owned by women and “minorities.” From there, we started to look at brokerage firms, investment advisers and other firms that are owned by women and “minorities.” We expanded from there to look at certain community-development types of issues. We created a number of community-development investments, and that led us to being concerned about ethics in the marketplace and the rule of loss. We commented and warned the SEC in 2003 and 2006 that our analysis led us to believe that the market was going to stumble badly down the road unless certain reforms were enacted.

Read Luke Visconti’s interview with SEC Commissioner Luis Aguilar.

FRANKEL: I know you recently put out some research that you did on the Federal Reserve Board. Why did you decide to do this and how difficult was it to get the information?

CUNNINGHAM: What we did was issue a FOIA, a Freedom of Information Act request, which is a formal request of a federal government agency for information. We were asking to get information from the Federal Reserve on their “minority” business contracting. How much money did they spend with women firms (WBEs), minority firms (MBEs) and others? We were really looking for information on their spending patterns or their support of minority-owned banks. We were basically trying to complete the data set that relates to their providing support for foreign banks, foreign corporations, domestic corporations out of the legislation and the initiatives that were surrounding the financial crisis.

We initially went in looking for information on minority-owned banks. What we found was that the Fed has not spent a lot of money with women- and minority-owned firms. In response to our Freedom of Information Act request, the Federal Reserve Board responded by providing data on their contract awards for the year 2010, broken out by ethnic and by gender designations. We were able to find out that, for example, in 2010, the Fed only spent 1.73 percent of their contracting dollars with minority-owned firms and 6.31 percent with women-owned firms. The total amount of money that they spent was reported at $113,109,000. This is only for the Board of Governors in Washington, D.C. This does not cover the entire Federal Reserve System.

We are trying to get a feel as to how much support they were giving to minority firms to compare that to the level of support that they provided to Goldman Sachs and Merrill Lynch and other financial institutions and corporations as a result of the financial crisis.

FRANKEL: Do you think they were initially very reluctant to give you this information?

CUNNINGHAM: They were. We’ve asked for this information many, many times over the course of the past 10 years. I should say that Creative Investment Research was founded in 1989, so we’ve been very familiar with this and very aggressive and consistent with respect to trying to get this type of data. They have, as I said, always been reluctant to release this data. The other set of data that they recently released concerned the ethnic and gender breakout of their workforce, so that surprised us too. That’s really unprecedented. They’ve never released information showing the exact makeup, again, from a gender and ethnic perspective of their workforce.

FRANKEL: I wanted to focus on their supplier-diversity results, which are considerably lower than The DiversityInc Top 50 Companies for Diversity or certainly our Top 10 Companies for Supplier Diversity. They are a little bit lower for women-owned businesses, but they’re extremely low for minority-owned businesses. Why do you think that is?

CUNNINGHAM: I think they haven’t been required to really take a look at trying to do business with minority-owned firms until now. As you know, it’s part of the Financial Reform Act otherwise known as Dodd-Frank. There is a requirement now that the Federal Financial Institution Regulatory Agencies create what are called Offices of Women and Minority Inclusion and that they seek to find ways to take on a cost-effective, high-performance basis and do more contracting with women and “minorities.”

I just think that the Fed has been insular, isolated from these types of requirements in the past. They haven’t had any desire really to reach out or to extend their efforts or to do anything innovative in this space at all. With the new law, they understand that there are new requirements that become active in this space. Their response to our FOIA request was a recognition that they have not done as well as they could have and probably the best strategy is just to get the data out there, and [also] that this type of data will become available down the road as the Fed comes under Dodd-Frank, Section 342, the Offices of Women and Minority Inclusion. It provides a baseline for them to grow.

The other thing I will say is that one of the reasons why the Fed’s numbers are so low for minority firms in particular is probably consistent with what the Fed buys and the kinds of things that they buy. We’re probably talking about a lot of economic analysis, economic consulting at a very high level at the Fed. This data covers the waterfront, so it covers pens and papers and paperclips, but it also covers high-end consulting economic analysis that they might get. I’d say they’ve been negligent, really, in looking for ways to work with women-owned and minority-owned firms. Now given 342, they have an additional incentive to become more active.

FRANKEL: What happens to them if they don’t comply?

CUNNINGHAM: What happens under Section 342 [is] the director of the Office of Women and Minority Inclusion can look at all contracts that had been granted by the agency and he or she can recommend to the agency head, in this case, Ben Bernanke, that certain contracts be canceled due to the fact that certain vendors may not have been as responsive or as flexible or as encouraging, if you will, of increased participation of women and “minorities.” That’s one thing.

Secondly, this data will have to be reported to the Congress, and the Congress will, hopefully, take a look at this data and, given the diverse and diversifying structure of the country, call the Fed officials … and question them about why their performance is so low. As we all know, once that happens, I’m certain that these entities and these officials will get very active.

FRANKEL: Good. It’ll be interesting to see that. You’re going to keep paying attention to this?

CUNNINGHAM: Yes. This is something that we had been focusing on for years and years, and given Dodd-Frank, Section 342, and given some of the other things that we are doing, we’re going to be tracking this very carefully. Not only for the Fed, but also for the Department of the Treasury, the FDIC, OCC, the whole alphabet soup of federal agencies that are covered by Dodd-Frank, Section 342.

FRANKEL: I think that what we’ll do is check in with you again in a couple of months. When do you think you’d be monitoring this?

CUNNINGHAM: One of the things that the Fed is doing and the other agencies are doing as they set up these new offices [is] they are releasing a lot of information. As you know, we’ve held a number of webinars on Section 342; we’ve set up a group on LinkedIn, Office of Women and Minority Inclusion, and a group on Google, [and] every time we get information like this, we post it to those groups so that the broader community of women and minority contractors and businesses and women and “minorities” in general are informed as to the status and the nature of the performance of the agency. Every time something comes out, we are posting it to our groups and posting it to the web.

FRANKEL: Good. Thank you. Anything you want to add?

CUNNINGHAM: I think just that this bears watching on the part of women and “minorities” and certainly women- and minority-owned firms. We estimate that there is $136 million in new contracting opportunities that are going to result from this law. Nothing will result if people aren’t advocating on their own behalf. This is something that bears watching.

FRANKEL: We’ll watch it and we’ll be in touch with you and we know that you’ll be watching it.

Read more on supplier-diversity best practices at BestPractices.DiversityInc.com.


  • Great interview, I also find it interesting that the DOL refers to adults with disabilities as the largest minority group in America, yet they are not listed by the SBA as a minority group for supplier diversity.

  • You talked about the Fed’s numbers of contracts with women and minorities, but never presented the numbers. You didn’t even tell us where we could go see them online. What was the point of a FoIA request, if you aren’t going to free the information? I’m sorry, but I’m disappointed.

  • Not surprised at all. That’s how the Fed “manages” their problems: instead of tackling them they try to hide them. In your article you mention the data you have seen was only related to the Board in DC not to the 12 regional Reserve Banks. It is safe to assume that the 12 districts are in much worse shape than the Board. Just think comparing Diversity in Washington DC versus Kansas City or Richmond for example.
    Good work, your analysis is very useful. Should have also included data on workforce diversity and the shock would have been worse.

  • Thanks for the article. A bigger question (one which could be tough for your mag) is…why are corporations NOT doing more in the way of Supplier Diversity? That’s REALLY where the economic development for specifically minority communities will come from..

  • While disappointing, this is not surprising.
    Thanks for sharing the article.

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