THE BLOG
08/04/2010 01:40 pm ET Updated May 25, 2011

The Financial Reform Bill May Get You "342-ed"

Normally I am all for increasing the number, power and scope of women in business by whatever means possible. But in this case, I am very uncomfortable with what our government has done. A little-known section in the Dodd-Frank financial reform bill does more in one stroke of the pen to create a massive public sector bureaucracy than almost any other piece of legislation in recent memory.

Section 342 of the Dodd-Frank bill mandates that each of the multitude of federal agencies named in the bill must set up an "Office of Minority and Women Inclusion" (who picked that name?!?). If you start counting, we're looking at somewhere around 30 OMWIs -- each staffed with its own director and an unknown number of subordinates. The task of this OMWI is ridiculously vague. As it's written in the bill, the OMWI is to "ensure, to the maximum extent possible, the fair inclusion and utilization of minorities, women, and minority-owned and women-owned businesses in all business and activities of the agency at all levels, including in procurement, insurance, and all types of contracts." This last bit is interesting because Section 342 goes on to say that not only does it apply to companies that do business with any of these federal agencies, but it also applies to any subcontractors who work for those companies - like their lawyers, brokers, accountants and asset managers.

Furthermore, and here's the kicker, the director of the OMWI has the power to assess how well a certain contractor or subcontractor is measuring up to the nebulous standards of ensuring fairness and inclusion of women and minorities. If that director determines that a certain firm falls short, she or he can recommend to the agency administrator that the business relationship with that firm be terminated.

So even though the Dodd-Frank bill was an attempt to rein in bad practices on Wall Street, it has the potential to derail many small businesses that had nothing to do with the underlying causes of the financial crisis in the first place. For example, let's say you're the head of a small credit union somewhere in North Dakota and you use the services of a local accounting firm to generate the financial reports required. You also use a local broker-dealer to do short-term investment of funds for the benefit of your credit union members. If either the accounting firm or the broker does not have the magic number (whatever it is) of women and minorities among its employee population, the OMWI within the National Credit Union Administration has the right to demand that the accounting firm or brokerage be fired. Keep in mind that North Dakota is an unusually homogeneous state; only 1.1 percent of its population is Black, 2.1 percent Hispanic and 5.6 percent Native American. Even more interesting is that less than half of those living in the "Roughrider State" are female!

While I applaud the efforts of our government to encourage firms to hire and utilize more women and minorities, I don't think that this is the proper way to go about it. I would rather see something more targeted, less bureaucratic and verifiable -- like a mandate that all firms that do business with the U.S. Government must have at least 35 percent women in senior management and on the Board of Directors. As the law is now, I can foresee many unintended consequences amid the laments of the many companies who will be "342ed" or fired because they didn't measure up to the OMWI's standards.