(Bloomberg Opinion) -- As the U.S. deals with social unrest and the focus on fairness and equality grows, many public and private leaders have asked a simple question: “How can we do better?”
It’s a fair question, one which got me thinking about the public finance sector, long considered among the most diverse and inclusive areas in investment banking. While this sector has seen many positive developments over the 30-plus years since I started my career on Wall Street, there is clearly much work to do.
As of late, my phone has been ringing off the hook with calls from other chief executives wanting to know what they can do better when it comes to promoting diversity and inclusion. We have heard this narrative before, yet never with this great a sense of urgency. Some major banking institutions have gone beyond simple lip service and begun to hold leaders directly accountable for diversity goals and objectives.
Major cities such as New York, Chicago, Atlanta and Washington have been consistent leaders in not just a broad commitment to inclusion, but have gone the extra mile to ensure equality as well. They have made the deliberate choice of involving minority- and women-owned business enterprise banking firms, and other diverse professional-services firms, in leading and meaningful roles.
This is not just about offering small monetary compensation to appear inclusive. These cities further a broader mission of building trust, respect and reputation in these firms — in an industry where those characteristics mean everything. It has been through the responsibility shown by many entities in the public sector that we have started to see real change trickle into other areas of finance, such as corporate banking and the buy-side of the industry.
Institutions and organizations in other areas should be commended as well. They include sub-sectors such as transportation, water and sewer, housing and K-12 education. However, one sector has had a poor and often erratic record with regard to inclusion and diversity: higher education. It is a disappointing irony that an industry whose institutions have often been the most vocal promoters of tolerance, inclusion and diversity, should be one so lacking in the tangible promotion of those values within the financial industry.
The higher education sector has issued a record volume of debt since the Covid-19 shock began in March — over $12 billion. While some major universities and colleges have an open-door policy in terms of inclusion and equity for professional-services providers, others have been shockingly closed, seemingly inconsistent with their core mission.
For example, in the mighty Ivy League, only Penn, Princeton, Columbia and Cornell regularly have minority- and women-owned firms in their bond underwriting syndicates, along with other professional-services providers for bond transactions. Harvard, Yale, Brown and Dartmouth rarely, if ever, have such companies. Almost none have included minority law firms. We’ve seen much the same disappointment at other prestigious institutions, including the Massachusetts Institute of Technology, Johns Hopkins, the California Institute of Technology, Notre Dame and Boston College, to name a few.
Harvard says its mission is to educate its citizens into leaders of our society. Yale takes it one step further: Its mission is to educate leaders who serve "all sectors of society." I suspect Yale didn’t apply that principle to its $1.5 billion transaction priced in early June, one in which the school used no minority-led law firms and just three major firms — Barclays Plc., Goldman Sachs Group Inc. and JPMorgan Chase & Co. — for its underwriting syndicate. And remember, Yale is located in New Haven, Connecticut, a city where almost two-thirds of the residents are people of color.
But this is not just about the Ivy League or private schools. Ohio State has beaten Michigan eight straight years in football, and it appears that the Buckeyes beat the Wolverines in the inclusion area as well. Michigan issued almost $1 billion in debt recently and failed to include a single minority-owned law firm or underwriter. Whereas Ohio State recently executed a $187 million transaction that did include a minority underwriter — it joins fellow Big Ten members Northwestern and Purdue, which have also recently completed deals with minority- and women-owned businesses in their transaction teams. Unfortunately, Michigan State, Indiana, Nebraska and Penn State have not, and each executed transactions that exceeded $500 million.
We have seen similar inconsistencies out west. The University of Southern California, the University of California Regents, the Cal State System and the Universities of Washington and Colorado have been very inclusive. On the other hand, Stanford, Arizona, Arizona State, Oregon and Oregon State have lacked minority participation.
Elsewhere, major systems that should be commended for their inclusion policies include the University of Texas, Texas A&M and the Universities of Massachusetts and Connecticut. Institutions such as Temple, the University of Chicago and Kent State deserve solid marks as well.
Some of the least inclusive schools have been in southern states. Georgia Tech, Emory, Duke, North Carolina, North Carolina State, Vanderbilt and Wake Forest have not used minority firms. These are institutions which have never failed to be inclusive on the gridiron or hardwood, but this “inclusivity” would seemingly stop at professional services.
More broadly, in the municipal and not-for-profit sectors — which in many respects are not dissimilar from the nation as a whole — there has been much progress, but much work remains. Many of our municipal issuers understand this and have been inclusive and equitable, with positive results. New York City’s first deal after the onset of Covid-19 was senior-managed by a minority firm, to spectacular results. The State of Ohio recently did the same for an $800 million taxable and tax-exempt transaction that generated over $360 million in much-needed budgetary and cash-flow savings. Finally, many minority- and women-owned business enterprise firms have formed partnerships with large banks to provide additional liquidity to universities. The argument that an institution only uses so-called “credit banks” is no longer valid.
Minority- and women-owned firms have time and again shown the capability to provide outstanding execution on some of the largest and most complex financial transactions in the country. It is time that grand American institutions such as Harvard, Yale, Stanford, Duke, Michigan and the like give their coveted stamps of responsibility and trust to minority firms that can help universities build a capital structure worthy of their academic prowess.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Jim Reynolds is the chairman and chief executive of Loop Capital.
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