REMARKS BY CHAIRMAN ARTHUR LEVITT Jr. U.S. SECURITIES AND EXCHANGE COMMISSION "INCLUSION AND DIVERSITY ON WALL STREET" JANUARY 16, 1998 WALL STREET PROJECT//RAINBOW-PUSH COALITION Reverend Jackson; Chairman Greenspan; Dick Grasso; ladies and gentlemen: Today, as we recall the achievements of Rev. Martin Luther King Jr., we recommit ourselves to the ideals that he fought for: closer understanding among all people, and a greater sense of justice throughout our society. Dr. King recognized that national greatness requires moral goodness. He never lost his faith that those who had long been excluded would find their way into America's mainstream. But he knew that progress is neither easy nor automatic. "Human progress never rolls in on wheels of inevitability," he wrote. "It comes through the tireless efforts of men willing to be co-workers with God. And without this hard work, time itself becomes an ally of the forces of social stagnation. We must use time creatively, in the knowledge that the time is always ripe to do right." I've spent my professional life involved with Wall Street. My heart is here. . . . My friends are here. I respect the power of our markets, and I appreciate the enormous opportunities that those markets create every day. But the doors to those opportunities were once closed, to all but a very few. This was the case not only on Wall Street, but throughout America. In the course of our history, our society has been infected by many forms of social prejudice: racism, sexism, nativism, anti-Catholicism, anti-Semitism. In fact, until relatively recently in our nation's history, many of those who are attending this conference -- not just in the audience, but also at the podium -- would not have been welcome in some of our society's key institutions. It's amazing to imagine, looking back scarcely 50 years, that prejudice once prevented one of the nation's most gifted legal minds -- Louis Loss -- from getting a job as a Wall Street lawyer. As his obituary in the New York Times recalled, just last month, he chose a life in government and scholarship because he felt unwelcome on Wall Street. Yet as a professor at Harvard Law School, he went on to win renown as "the intellectual father of American securities law." I'm proud that Louis Loss found fulfillment as Associate General Counsel of the SEC -- and I'm deeply moved by his commitment to scholarship: He preferred to remain at Harvard rather than accept the SEC Chairmanship, when President Kennedy offered it to him. Yet it's astonishing to think that the social prejudice against his religious faith was so strong -- not so many years ago -- that it denied a man as brilliant as Louis Loss a chance to use his legal skills as he had originally hoped. Thankfully, over the years, voices of humanity have been raised, and have touched America's conscience. Voices that encouraged the nation to recognize -- and then to uproot -- the most public forms of prejudice. Among those humane voices, the voice of Dr. King stands out. He reminded us that moral right must accompany economic might. Dr. King's message still echoes across our country, and Americans still learn from his teachings. The New York Stock Exchange deserves great credit for focusing the attention of markets throughout the world on the Martin Luther King national holiday. The decision to close many of our nation's exchanges gives us all a chance to weigh our conduct, in the context of a population that grows increasingly diverse. We gather here to celebrate how far America has come along the road to equal opportunity, and to take stock of how far we still have to go -- particularly in the financial community. The truth, as we all know it, is that Wall Street serves America -- but it does not yet look like America. That's a reflection of a continuing social flaw that goes far beyond Wall Street. We have created the most virtuous, the most energetic, and the most prosperous nation in human history. In theory, we have created a color-blind, gender-blind, market-based democracy. In reality, we have not always included every color and both genders. In theory, the marketplace welcomes everyone who is driven by the spirit of enterprise -- and welcomes them on equal terms. In reality, however, we know that we haven't yet achieved the ideal of equal access: I clearly remember the first time that seats on the New York Stock Exchange went to an African-American man and to a woman. It wasn't until the 1960s and 1970s. That minimal action surely gives us no reason for complacency or self-congratulation. A commitment to policies of inclusion becomes ever more important as our population grows ever more diverse. We are all enriched by America's diversity -- a diversity of races, religions, languages, and ethnic backgrounds. We gain insight into the many threads of humanity that, woven together, create the fabric of a pluralistic society. Our society is not monochrome but multi-colored. And the leadership institutions of our society -- all of them -- should reflect that reality. Honoring America's diversity has rightly become a national priority. President Clinton and Vice President Gore have set an example for all of us by leading a government that "looks like America." In that spirit, the SEC is launching a new, nationwide initiative: In conjunction with our "town meetings" around the country, as we help educate investors about the markets, we will often convene "diversity roundtables." In many of the regions that we visit -- starting in Los Angeles, three weeks from now -- I'll chair a discussion among CEOs and senior executives of securities firms and local corporations, to discuss ways to promote diversity. Fostering diversity is, and will remain, a priority for the SEC -- both in corporate America and within our own agency. For our part, we realize, very pointedly, that we need to do better in diversifying our own staff. Among our other efforts, as we recruit legal talent for the SEC, we have recently intensified our diversity outreach to federal judicial clerks -- one of our country's best talent pools, and a group that already has a very strong diversity record. We are reinforcing our efforts in this area -- for we realize that every organization must seek broader constituencies, in order to seek greater diversity. As America re-invigorates its economy to meet the challenge of a global marketplace -- as we invest in raising the skill level of every individual -- we are investing in our nation's future productive capacity. Yet we don't have to look very far to see evidence that economic opportunity remains a distant dream for many Americans. We can do better. We can do a lot better -- including those of us in the financial community. We are the heirs of a great tradition, in which financial success has called forth social commitment. We need to open the door of opportunity more widely to members of minority groups. We need to invite a broader spectrum of Americans to participate in the markets. And we need to reach out to young people who might not otherwise consider careers in finance, to help broaden their professional options. I don't mean to overlook the industry's progress in encouraging diversity. But I'd be kidding you if I said we've done nearly enough. None of us should feel as if we can rest until there are more people who come from groups that have been excluded for too long -- African-Americans, Hispanics, Asians, women -- serving as branch managers, as heads of syndicate departments, as members of boards of directors. Here today, I'm proposing a stronger partnership between the securities industry -- the exchanges, the securities bar, the academic community -- and its regulators. I want all of us to aim higher -- to set an even better leadership example for the nation. Working together as never before, the financial community should push itself to "look more like America." I ask that all of us join together to encourage, teach, recruit, hire, mentor, retain, and promote members of minority communities. Of all the things we can do, nothing compares to education - - starting as early as possible. Reaching young minds, and starting them thinking about the nature of the marketplace, can help inspire a personal spirit of enterprise. That spirit will serve them well throughout their lives. As Wall Street knows better than almost any other industry, there are at least two types of "capital" in our modern economy: the financial capital of the marketplace, and the human capital of our people. By helping younger people develop a stronger base of learning and broader pathways for personal contacts, we can help them accumulate a storehouse of social knowledge, social networks and social mobility. As they draw on their expanded resources of "social capital," young people will be able to envision careers in the leadership echelons of our society -- perhaps in finance -- when they are ready to take their place as professionals and community leaders. We all must pledge to intensify our efforts. At the Commission, we intend to dedicate ourselves to progress across a wide range of diversity issues -- starting with the following specific concerns, and broadening our efforts as we move forward. In the following six areas, I'll cite some current "best practices" and suggest some new initiatives. I hope this framework will elicit even more ideas and offer direction for future action. * First: We should intensify economic education on the secondary-school level, especially in economically hard- pressed areas. Efforts like Merrill Lynch's "Scholarship Builder" program -- adopting hundreds of first-graders, and offering to pay their college expenses if they finish high school -- can help establish a lasting rapport with students in minority communities. Sandy Weill's "Academy of Finance" has helped strengthen curriculum development: Over the last 15 years, more than 10,000 students in 70 cities have graduated from, or are participating in, this program. An expanded effort might also include the broader distribution of the successful "Stock Market Game." Developed by the Securities Industry Association, that learning tool has already reached about 700,000 high-school and junior-high students. One community that has taken the lead in this program is Chicago, where every school now has access to the game. And financial firms can get directly involved by taking part in "career days" in the schools, telling students what finance is all about -- and telling students how they, too, can build successful careers. * Second: We need to broaden outreach to students on the undergraduate level -- seeking partnerships with such groups as the NAACP, the Urban League, and the American Association of University Women. Last spring, Commissioner Isaac Hunt and I were heartened to see a strong turnout at Catholic University in Washington, at a symposium sponsored by the D.C. Bar Association and the SEC. At that series of seminars, hundreds of students heard presentations about financial careers. Securities firms should also consider an expansion of internship programs like the industry-wide "Sponsors for Educational Opportunity." That effort links promising minority undergraduates, during the summer college vacation, with role models in the profession. * Third: We should create an industry-university partnership at the graduate-school level. This outreach and information effort should not stop with students at business schools, who are already on a track toward financial careers. Regulators and the industry alike might also step up recruiting among students in law schools, and those who are in advanced-degree programs in public service. We should include arts-and-sciences graduate programs, as well -- in Economics, History, engineering, and foreign languages -- whose students have academic skills that fit the changing needs of a global industry. For example, as we discuss the "Year 2000" computer problem, Wall Street is certainly seeing the importance of engineering skills in our information-driven age -- and computer specialists need to know of the career opportunities for them in finance. * Fourth: Beyond the campuses, we must strengthen the focus on minorities in the programs for mid-career hiring and recruitment. Many mid-career professionals are seeking ways to refine their already seasoned skills, and they need to know that their choices include finance. There's an added bonus, too: A minority-group member in mid-career is likely to have a network of professional friends and colleagues who may also be interested in developing a career in finance. * Fifth: Within the financial community, we must strengthen mentoring programs, to encourage recently hired professionals to stay and build a "critical mass" of minority participation. It's not good enough merely to recruit talented people, only to have them leave because they feel they receive little support. The "sink or swim" practice that often transitions brokers from salaried trainees to commissioned professionals must be modified to ensure a greater retention rate among members of minority groups. In addition to improving mentoring, firms need to create an incentive structure for executives that makes improved diversity a top priority. One promising experiment is under way at some of Wall Street's leading firms: Merrill Lynch links some top managers' annual bonuses to their results in promoting diversity, and every manager at Salomon Smith Barney has a specific portion of his-or-her annual bonus linked directly to diversity. * Sixth: The exchanges can play a more vigilant watchdog role in monitoring "best practices." The exchanges, working with securities firms, should consider setting up high-level panels to monitor the career development of minorities and women. A good model is the program administered by the Association of the Bar of the City of New York, which has enlisted many of New York's most influential law firms to help track the hiring and advancement of minority lawyers. Again, these are ideas for where we might begin. But wherever the practical effort begins, the moral responsibility resides with us. There's a compelling philosophical case for greater diversity. But let's also remember that there are strong business-minded reasons for diversity, too. In this case, as in so many others, good corporate citizenship is also sensible business practice. Reaching out to new communities is an opportunity to create new customers -- even as it means empowerment for millions of Americans whose needs have been neglected. Energizing the untapped financial power of those under- served Americans -- with assets estimated at more than $400 billion in the African-American community alone -- will help stimulate new sectors of our economy. The Securities Industry Association has put together impressive data about the economic potential in under-invested communities. So "diversity" isn't just a soft-hearted buzz-word. It's a hard-headed business word. Energetic corporate leadership will help expand the circle of opportunity to include even more Americans. Good corporate citizenship can give business a chance to market their products in new communities, to new customers, through an increasingly diversified work force. Wall Street can continue to prosper, even as it helps break down the barriers of social exclusion. That's what I call a "win-win" approach. Diversity is a form of civic enrichment. Prejudice, by contrast, impoverishes us as a society, and deters our nation from fulfilling its potential. The financial markets wield not just economic power, which they deploy on behalf of America's investors. The markets also wield moral power, which they deploy on behalf of America's interests. And surely there are few greater national interests than racial harmony, social stability, and economic opportunity. Diversity is all about offering people opportunity. It is not about fixed numerical quotas; it is not about preferential treatment for anyone. It means giving everyone a fair chance to use his-or-her talents to their fullest. It means giving every individual a reasonable shot at realizing the American dream. That's the promise of our market system. Thanks to the creativity of our marketplace, millions of Americans -- across the spectrum of our society -- are now enjoying a standard of living that they scarcely could have dreamed of, just a few years ago. But a thriving marketplace is not an end in itself. It is a means to an end: It is the way to create a more just, more harmonious society -- to liberate the human spirit and to lift our national vision. Dr. King encouraged us to recognize that ideal of greater justice. Dr. King devoted his life to building such a harmonious society. Dr. King knew that progress is possible -- and he knew that inertia is inexcusable. Dr. King knew that America must lift its vision. And he knew that America has the heart and the will to meet this moral imperative. Let us honor Dr. King's legacy -- not just with our words, but with our work. Let us be pro-active rather than reactive, as we move toward a color-blind, gender-blind, market-based democracy. Let us work to build an industry where diversity characterizes every area -- the syndicate and operations departments, as well as the municipal underwriting department. Let us use mentoring as a standard, rather than as a novelty. Let us never take the path of least resistance by accepting the status quo. Let us never fall back on old excuses about "not being able to find qualified people." Let us never tire in our search for human talent. Let us make it happen. Let us be able to look back, five years from now, and be able to say -- in truth -- that we have provided not just the capital to enrich our nation's wealth, but the energy to enrich our society's spirit. By working together to broaden opportunity for all our people, we can live up to the high moral standard that Dr. King taught us. And, in that way, we can truly honor Dr. King's memory -- not just on the holiday that's celebrated in his honor, but every day. Thank you very much.