Regulating change: A conversation from Table Stakes 2020

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Public policy can play an important role in influencing diversity and inclusion. In our Regulating Change panel at the 2020 Table Stakes Summit, Carta’s chief compliance officer, Suzanne Elovic, chatted with Pamela Gibbs, director of the SEC’s Office of Minority and Women Inclusion, to get her thoughts on how the private sector can contribute to these efforts, how the SEC thinks about streamlining access to capital for people and communities of color, and more.

Regulating change: A conversation from Table Stakes 2020 1

(This transcript has been edited and condensed for length and clarity. The views Pamela expresses in this interview are hers and doesn’t necessarily reflect those of the SEC or staff of the SEC.)

Becoming a chief diversity officer

Suzanne: Pam, welcome to Table Stakes–we’re thrilled to have you here. Many may not be as familiar with the SEC and how it relates to diversity and inclusion. Can you talk about the mission of your office and how it fits more largely into capital markets regulation?

Pamela: My office was set up primarily to address a concern of Congress: the financial crisis of 2008 adversely impacted women and minorities in the industry. To build back the industry, Dodd-Frank created targeted offices focused on minority and women representation.

I’m responsible for all matters relating to diversity at the SEC, including workforce diversity, supplier diversity, and diversity related to our regulating entities.

I also created another bucket that I think is the best way to advocate for diversity. This bucket deals with mission effectiveness—my goal is to integrate diversity and inclusion into the mission of our organization. So when you talk about capital formation in protecting the investor, that’s a core principle of what our mission is. We know investors come in all shapes and sizes and all people want access to capital. So recently we’ve really been addressing diversity in the aspects of capital formation.

Suzanne: That’s great. It’s really exciting to have a function like this embedded in a government agency that has such a large wingspan over capital markets in the United States. Can we hear a little bit about your background and how you came to the role you’re in? What drove you to take on a position like this?

Pamela: I grew up in a small place in Virginia called Fauquier County. At the time, Fauquier County was segregated. So I’ve experienced both segregation and integration, and I’ve always wanted to commit my career and life to equality and civil rights.

Fast forward many years to law school, where I attended Georgetown University, which has a great program in civil rights and equal employment law. From there, I did employment law and arbitration work, but I didn’t like firing people or denying people promotions. So I thought I’d do the more affirmative work. And that was to become a chief diversity officer.

After many years at the Department of Labor, I moved over to the Commodity Futures Trading Commission and headed their office, which became the diversity and inclusion office. And then I joined the SEC, where I’ve been for about 8.5 years.

So my path is probably a little bit different than other chief diversity officers. That’s like the hottest job in the market right now. We come in all shapes and sizes—my background is employment law, which I think is very important to do the work of diversity and inclusion. It is a passion of mine. I love doing what I’m doing, and I love to see the results of my advocacy.

10 years ago, we were advocating for diversity, but they’d give it either to an HR director or another VP. So the fact that there’s a high demand for chief diversity officers tells you we’re moving in the right direction.

The fact that there’s a high demand for chief diversity officers tells you we’re moving in the right direction.

Challenges and opportunities in the diversity space

Suzanne: What do you see in terms of the landscape? Where are the greatest challenges and opportunities to really make a difference in the diversity space?

Pamela: The SEC regulates over 25,000 entities, including registrants, broker dealers, investment advisors, exchanges, transfer agents, and self-regulatory agencies. One of the things that my office does is engage these entities around diversity and inclusion.

In the last three years, I’ve seen extreme positive movement in the diversity space. But the biggest movement has taken place this year. In addition to COVID-19, there was a pandemic around race—suddenly now you have everyone dealing with racial injustice and inequities.

I’m also seeing more chief diversity officers and more policies around diversity. I’m seeing more engagement around supply and diversity, more transparency, more disclosures—really positive steps. And maybe we’re not there with representation—and I’m not sure what “there” is—but we’re definitely moving in the right direction.

But there are still challenges as you point out. We still have to address unconscious bias—the role that bias plays against both women and minorities (and any background that’s not quite the norm, like individuals with disabilities). I advocate really hard for our workforce to be inclusive of individuals with disabilities because they often get left out of the diversity discussion. We’ve made progress in the LGBT area as well, but there are still challenges. There are still microaggressions and biases in the workplace, and there are opportunities for all of us to make more progressive moves to enhance diversity and inclusion.

I advocate really hard for our workforce to be inclusive of individuals with disabilities because they often get left out of the diversity discussion.

Regulating change

Suzanne: One of the things that’s interesting to me about your role is on one hand, there’s an inward focus on how the SEC runs itself as an organization in the right ways that take into account some of the issues around diversity and inclusion.

On the other hand, as a regulatory body that oversees pretty much the entire capital markets of the United States, how much of your role is external facing—dealing with other companies and trying to promote change in that space where you don’t really have regulatory authority when it comes to diversity issues? And in parallel to that, what do you see in terms of the private markets—companies coming in and trying to hold themselves accountable and hold each other accountable?

Pamela: You’re right—these offices were created to address the internal workings of our own organizations. So it focuses on our internal workforce at all levels and supplier diversity.

The piece of my office that is growing and changing and becoming more important to the agency, though, is the external facing work. And that’s with our regulated entities, but also with my colleagues across the agency. We have four advisory committees that address policies and practices that may impact our investors, asset managers, and small businesses. We’ve worked heavily with those external committees to make sure the representation on those committees is diverse, but also that they have taken on issues that impact the minority investor or the underrepresented communities that we service.

That’s an emerging area of what I’m doing now, under the leadership of Jay Clayton. He is a big advocate for the Main Street investor. So we’re starting to see, even with offices, more advocates for small business.

Our office is uniquely qualified to address the barriers and challenges that minority and women-owned businesses face around access to capital. We do outreach to make sure that our events are inclusive to minority and women-owned businesses. I feel like we’re stable with workforce and supplier diversity. And now we’re beginning to understand the value-add to the agency around capital formation and being an investor advocate.

Suzanne: It’s a fascinating issue for the SEC to be at the forefront with the companies it regulates in a space that it can’t technically regulate but can certainly influence. Developing that area is going to be interesting and hopefully helpful for a lot of the companies you work with.

Pamela: Yeah, the statute that created my office, section 342 of the Dodd-Frank Act, basically gave us authority to develop standards and assess all regulated entities on diversity best practices, but it didn’t allow for enforcement authorities. So we still don’t have that. Everything we do with our regulated entities is voluntary. We have to get them to collaborate and be willing to share their information with us, but there’s no mandate. That’s where some people said that the statute fell short—we don’t have enforcement authority, nor is it part of our examination process.

Suzanne: Is there a way to publicize or publish best practices or standards you see that you think other companies should emulate? How should we as citizens and companies that are within the purview of the SEC think about what our obligations are and hold ourselves to those standards?

Pamela: Each year, my office publishes a report to Congress that addresses the regulated entities and outlines leading practices that we are seeing as a result of the voluntary disclosure to us. We are hopeful that next year, which will make year two of collecting this data from our entities, we can outline leading practices.

For example, we’re pleased to see that people are hiring chief diversity officers and thinking about supplier diversity—whether they’re supporting minority and women-owned businesses. So the first tool that any entity that comes in touch with the SEC or even other financial regulatory agencies could use is to benchmark themselves against their regulatory agency. So if it’s the SEC, I encourage people to look at our diversity assessment report. And even if you don’t submit our report—I hear from entities all the time they’re not ready to submit their report—you can use our report to build a diversity and inclusion program.

Upcoming plans and the new administration

Change comes from the top. I have been able to move more things and establish more programs and have more impact because the CEO of the SEC has supported diversity. At all times, your CEO must be your sponsor.

Suzanne: You’ve mentioned that Clayton has been a big supporter of these initiatives, but he’s announced that he’s going to depart. I imagine we’ll see quite a bit of a change in the SEC, which tends to happen every time the election results in different parties coming into power. How, if at all, do you see that impacting your strategic plan for the coming year or two? And can you talk about some of the highlights of what that plan looks like and some of the initiatives that you’re working on?

Pamela: This is a time of change for those of us who have spent their career in the federal government. It can be positive and negative. Chairman Jay Clayton has been a true advocate for diversity and inclusion.

Change comes from the top. I have been able to move more things and establish more programs and have more impact because the CEO of the SEC has supported diversity. At all times, your CEO must be your sponsor.

I’m nervous about what the next year will look like, but I trust that the SEC has a good framework. Any chair or chairman will come into the agency and hit the ground running.

We’ve put in place a good infrastructure around D&I—we have a strategic plan that deals with accountability, a connected culture, and mission effectiveness. I can’t imagine what will change under a new leadership team. So I remain encouraged that we will continue to grow our program in a way that embeds D&I into all aspects of organization. We were just starting to deal with diversity and inclusion for diverse asset managers, the small business advisory committee, and the investor advisory committee. But I’m hoping all of those things will continue under the next leadership, which would be expected sometime in 2021.

Suzanne: The commission and a lot of the government agencies are somewhat accustomed to switching back and forth between administrations and still being able to maintain at least some level of consistency in terms of approach, which is great.

I know you actually have a published diversity strategic plan that came out in 2019. What are some of the highlights of that and how is that progressing?

Pamela: One of the pieces we wanted the entities to share with us is their leading practice—whether or not they have a diversity and inclusion strategic plan.

I had never actually completed the self-assessment that I asked our entities to complete until maybe a year ago. I wanted to see whether the SEC had in place the same thing that we were asking our entities. And I discovered that we did not have a strategic plan.

A strategic plan has been so instrumental in getting the whole agency to 1) understand diversity and inclusion, 2) understand its importance, and 3) understand how it adds value to the organization.

And so we focused on those values—accountability and leadership accountability, creating a connected culture, how we deal with our mission, building a pipeline. That’s always critical. You have the here and now—how do I fill positions now with a diverse workforce. But oftentimes that also means that you have to build a pipeline for the future because as people move up the organization, sometimes they move out of an organization. So those are the really the key points that the strategic plan deals with.

It has been really instrumental in taking an agency that’s 4,500—which is relatively small—and getting us all on the same page around D&I. I tell Chairman Clayton all the time that I’m lucky to have him. Not everybody understands diversity and inclusion. People don’t really know what diversity means, and they’re so quick to go to just representation. It means more than that—do people have a sense of belonging in your organization? Do they feel like they’re connected to the mission to the organization? We see study after study report that organizations that are diverse and inclusive are higher performers, and there’s a greater return on your investment.

We see study after study report that organizations that are diverse and inclusive are higher performers, and there’s a greater return on your investment.

Leadership and diversity

One thing that I’ve found in being a diversity advocate is that people mimic the behavior of a CEO.

Suzanne: When I met you in Washington, one of the things you said that really resonated with me was how the CEO and the larger executive teams of these organizations should not just be cheerleaders, but should also live their message.

Pamela: I still believe that. One thing that I’ve found in being a diversity advocate is that people mimic the behavior of a CEO. Chairman Clayton came in with a diverse leadership team, and that sent a message that you could talk about it. He backed up his talk with the representation of leaders that he bought into the agency.

Suzanne: You’re 100% right. Especially in the private market context and in Silicon Valley, companies are really founder-led and there is a tremendous amount of emphasis and focus on emulating the founder and trying to learn from the founder. So those examples become even more important in our worlds and perhaps even in the larger corporate world.

Capital markets and diversity

Suzanne: Let’s talk a little bit about capital formation and how we think about what that means, especially in the private markets. How does the SEC think about streamlining measures to facilitate access to capital for people and communities of color?

Pamela: The SEC has grown in this area. In 2016, Congress established the Office of the Advocate for Small Business Capital Formation. Prior to 2016, there was no one in the agency that really focused on capital formation for minority and women-owned businesses or small businesses. And so a new position was created. And my good colleague, Martha Miller, is the first advocate. She came on board in 2019.

This whole new function has allowed the agency to really focus on minority and women-owned businesses. That office has done a lot of outreach to hear people’s concerns—what are the barriers that minority and women-owned businesses face raising capital—and they make recommendations and policies on how to improve regulations and policies that may adversely impact the underrepresented communities.

Our Atlanta and LA regional offices recently combined to host a panel on women of color. There were four venture capitalists—women of color that talked about access to capital and how the SEC could do a better job of making things more user-friendly. So that’s one way we gather facts, but I like to encourage people to participate in our public meetings, participate in their advisory committees, listen, and provide your input to these committees. If you are a small minority or women-owned business, that’s the only way that we can actually know how our policies impact on your ability to raise capital.

Suzanne: Thinking more along the lines of capital formation, are there specific friction points you see in place today that either policymakers or we in the industry should be working to address?

Pamela: If I put on my SEC hat and take off my D&I hat, I think a friction point that will exist forever is too little or too much regulation—and how that impacts the investor.

That’s a common theme I’ve heard throughout my tenure at the SEC, and I presume it will continue once I leave the SEC. Some people complain it’s too much. Like the accredited investor definition—that went through probably three different scenarios. And I think the last one was updated recently to get to what people think is a great definition of an accredited investor. So that’s always going to be the rub, particularly when you’re dealing with a regulatory agency.

Suzanne: Yeah. That’s the challenge—how can we as privately held companies be more transparent in ways that could potentially protect investors and allow for a different type or level of sophistication to come into the private markets.

Pamela: Even on the corporation finance side, the publicly traded companies, it’s how much disclosure? Is it enough disclosure? Is it too much disclosure? That’s a friction I believe the SEC has taken consistently into account.

Participate in our public meetings. Participate in your advisory committees. Listen and provide your input to these committees.

Fixing the pipeline

Suzanne: Looking inward a little bit to the SEC and your efforts there, are there practices you’ve identified that really seem to work in terms of increasing the pipeline of diverse candidates? Especially in senior level roles where—as we see in today’s Table Stakes report—there are just fewer women. And so the disbursement of equity at those levels is far below that of men. Curious to get your thoughts on how we can get more women and underrepresented minorities into senior level roles and what works in terms of developing that pipeline.

Pamela: One of the things I try to get managers to understand is the pipeline is not going to get you what you need today. Here’s what I’ve found works: 1) Your CEO has to be a sponsor of D&I and has to lead by example. 2) You have to do targeted outreach and recruitment. And sometimes that means enlisting a search firm that can help you identify minorities and women. They can fill those higher level jobs. Or you have to search for them. 

When I started, I think we were around 21% women. Now, women represent 47% of our workforce. And they represent that at the senior level also. We’ve increased our minority representation up to around 25%. And it comes from being strategic and targeted.

Parallel to doing your search is creating a pipeline. Sometimes people get frustrated talking about pipelines because they’re long-term. When an organization says they want to focus on building a pipeline, that says to some employees you’re not willing to address the issue right now.

If you need diverse talent, that’s where the chief diversity officer comes into play. They can help you network and partner with organizations whose sole goal is to find the people you’re looking for.

Your pipeline has to be operational. I get together with the senior leaders and we think about how many senior positions are coming up this year. We identify them. And then we develop strategies, we attend meetings, we do meet and greets. We have more restrictions than other companies, so we have a harder sell to get diverse, talented women and minorities to come in and value public service. I think everyone should spend a little time in their regulatory agency as part of their career. It’s a value add. And often people that come don’t leave because it’s a great place to work.

Fixing the wage and equity gaps

Suzanne: There’s been a lot of focus on the wage gap—we’ve seen all kinds of studies and know it’s an area of concern. But as you know, one of the things we’ve been trying to do through Table Stakes is really focus on the equity gap, which is even more stark and has potentially critical consequences. How do we get policy makers to focus on this issue? And is this something that you think the SEC either sees coming on its agenda or should have on its agenda? And to what extent, if at all, do you think we in the private markets could be collaborators on that?

Pamela: We’ve dealt with wage and gender parities for a long time, and that still exists in many, many industries. One of the things we are exploring is how the pandemic is impacting some groups greater than other groups. It’s been a powerful year for diversity at the SEC. We’re starting to look at the inequities in asset management. The asset management advisory committee started to explore utilization of diverse asset managers in thinking about it as a way of closing the wealth gap.

At the SEC, I think we are starting to recognize that ultimately our policies and rules could have a disparate impact on underrepresented communities. And if you look at it like that, in addition to doing a cost benefit analysis, you also have to think about what communities are adversely impacted.

A good one is the accredited investor rule. That’s the one that has drawn the most feedback because some people see it as a wealth gap closer. Most of this is not regulated by the SEC, but I think being a good steward over investors and wanting to protect all investors, we’re beginning to explore this wealth gap and how the SEC’s policies impact different communities. We’re not just looking at workforce diversity and representation, but really the product—how does our product negatively impact some communities.

Suzanne: Yeah. We see the wealth gap ever widening in this country. And one of the contributors to that is this disparity between employees who are compensated with equity and those who are not. Doordash went public today at 80% up from the IPO price—that probably made a lot of millionaires. So there is an inordinate opportunity to close the wealth gap if we can figure out the right way to think about more equal access to investment opportunities.

Pamela: And I think the fact that the SEC is even beginning to explore investor education is encouraging because one of the things that Chairman Clayton was excellent about is taking us from protecting Wall Street to protecting the Main Street investor. And that was a very relatable thing to many of us that are employed by the SEC. We began to see how it affected our families and friends because they are all Main Street investors. If we think about it from that lens, I think we can get there a little bit faster.

SEC’s Women of Color Entrepreneurial Program

Women of color have additional barriers that confront them on a day-to-day basis. Not just representation in the financial services industry or being leaders in the financial services industry, but also the ability to raise capital.

Suzanne: Could you speak about the SEC’s Women of Color Entrepreneurial Program?

Pamela: The Women of Color Entrepreneurial Program was a great program that the Atlanta and LA regional offices hosted as a platform to shine a spotlight on the best people.

We often deal with the minority investor, but we never really pull out of that women, black women, women of color. And I think what we’ve heard this year is that women of color have additional barriers that confront them on a day-to-day basis. Not just representation in the financial services industry or being leaders in the financial services industry, but also the ability to raise capital. So we thought it was important to focus on women of color because most people don’t know that there are tons of women of color that are venture capitalists out there raising and starting their own company. Hearing these women speak in detail about their stories—how they got to where they are, challenges that they’ve had, experience crowdfunding and raising capital, barriers, how the SEC could do a better job of making its rules and policies more user friendly—is just fascinating.

Suzanne: I really appreciate you participating today, Pam. I think it’s such an important perspective coming from the SEC. We really look forward to working with you and I encourage all those listening to reach out and find ways to get involved with the initiatives the SEC is running.

DISCLOSURE: This communication is on behalf of eShares Inc., d/b/a Carta, Inc. (“Carta”). This communication is not to be construed as legal, financial, accounting or tax advice and is for informational purposes only. This communication is not intended as a recommendation, offer or solicitation for the purchase or sale of any security. Carta does not assume any liability for reliance on the information provided herein.

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