Mallory Factor has written a worrisome account of Section 342 of the Wall Street Reform and Consumer Protection Act:

Dodd-Frank requires at least 29 federal bureaus to open Offices of Minority & Women Inclusion, involving ten branches of the Treasury Department, the Federal Reserve and its 12 regional banks, the Securities & Exchange Commission and the Federal Deposit Insurance Corp. The new diversity offices will implement rules to ensure “the fair inclusion and utilization” of minorities and women in all firms doing business with each agency. The offices will terminate contracts with any service provider that fails to meet these as yet undetermined standards. Just running these offices is estimated to cost over $58 million annually, says David Patten in a recent story on Newsmax.com.
These new offices will also assess the “diversity policies and practices” at all entities that fall under their regulatory eye, including banks, broker-dealers, registered investment advisors and now hedge funds. Along with more than 40,000 financial services firms, another 10,000-plus businesses, including accounting and law firms that do business with these government offices, will be subject to this new diversity oversight of their hiring.

I can’t speak to how these provisions will work in practice, and it’s at least possible that the real-world impact will be minimal. But to achieve productivity gains, firms need to engage in a trial-and-error process that will often involve the firing of workers for reasons that fall short of incontrovertible failings that can be proven in a court of law. Anything that throws sand in the works of this process seems likely to yield negative results.