FASB and PCAOB Do a Poor Job on Diversity and Inclusion

I’ve spent a good portion of my career monitoring the accounting and auditing standard-setting world and Big 4 firms. So, I read with great interest the letter to the editor to Going Concern on whether the Big 4’s equity, diversity, and inclusion (EDI) efforts are corporate BS. It made me think about the FASB and the PCAOB and their apparent collective lack of diversity and inclusion efforts.

As I was thinking about this, on Dec. 4, 2020, outgoing SEC Chairman Jay Clayton told the Financial Times that the asset management industry “is not doing a good job” on diversity, which is hypocritical because the SEC has oversight of both the FASB and the PCAOB, where there is almost no diversity at the leadership level.

I wrote this letter after watching the AICPA Conference on Current SEC and PCAOB Developments earlier this week. I saw very little ethnic or racial diversity in FASB/PCAOB leaders who spoke at the conference. They were mostly while men and women of power.

FASB’s lack of diversity 

I recall two instances when one FASB board member dismissed diversity. That board member was Russell Golden, who would eventually become FASB chairman. He was asked the same question on two occasions: “Why is there no diversity at the board level?” On the first occasion, there was a small group around him attending a FASB-related advisory meeting in 2011, and his response was terse and he seemed irritated. The second occasion was at a large conference where Golden was speaking. His response was matter of fact without emotion. Both times his answer was the same: “The Financial Accounting Foundation and FASB board members spend a great deal of time vetting candidates and then hire the most qualified.”

I was just an observer to both conversations, but both times I was offended as I fall into the diversity category in terms of both racial and ethnic background. After those interactions, I walked away thinking two things:

1. The FASB and the FAF have no appreciation for diversity beyond hiring a few token white women (e.g., Hillary Salo, who is FASB’s new technical director and chair of the Emerging Issues Task Force); and
2. Having spent a great deal of time in Norwalk, CT, where the FAF and the FASB are based, it is a community of white privilege with little diversity, and that is reflected in the lack of racial and ethnic make-up of board members and many of its staff.

These two points support a reasonable inference: The FASB and the FAF do not believe there are diverse, qualified CPAs who can be board members. Case in point, when Golden recently retired as chairman of the FASB, he was replaced by Richard Jones of Ernst & Young, a white man.

If one doubts this, here are links to current and past FASB board members—almost completely white men and a few white women.

PCAOB’s lack of diversity

Now let’s look at the PCAOB. It is led by Chairman William D. Duhnke III and board members J. Robert Brown Jr., Duane DesParte, Rebekah Goshorn Jurata, and Megan Zeitsman. Here is a link to past chairmen and board members at the PCAOB. Judge for yourself about whether there is or has been racial and ethnic diversity at the PCAOB board level. The indisputable answer is no.

As someone who falls in the EDI category, I do not expect the FASB or the PCAOB to hire board members merely based upon their racial or ethnic background as that would be offensive to me. They must be qualified. However, there are many qualified partners in the large public accounting firms and chief accounting officers of public companies who are in the EDI category. Those people could easily match or exceed the talents of Richard Jones and his fellow board members and William D. Duhnke III and his fellow board members. As noted above, a reasonable inference and the most seemingly logical inference to draw is that neither the FASB nor the PCAOB place importance on EDI.

As I watched day one of the 2020 SEC/PCAOB conference earlier this week, ironically, I noticed that the conference’s opening and welcome was made by retired Deloitte National Office partner Tracey Golden, who is chair of the AICPA board and Russell’s wife. Her remarks included a few weak, trembling sentences about EDI and how the AICPA supports EDI, and she noted the initiative for EDI came from colleges and universities. In other words, Tracey admitted that EDI did not originate from Corporate America, the AICPA, the FASB, the PCAOB, or the SEC.

Richard Jones, who is the furthest from an EDI leader, spoke on day two about FASB’s progress on technical issues but made no mention of EDI. All those who paid lip service to EDI at the conference were likely afraid of being behind the times. Had the riots not occurred this summer demanding, among other things, EDI initiatives, the subject may have been entirely ignored.

There is no excuse for the lack of diversity in the leadership of the senior accounting and auditing standard-setting organizations in the U.S. William Sloane Coffin Jr., a lifelong peace activist, said: “Diversity may be the hardest thing for a society to live with, and perhaps the most dangerous thing for a society to be without.” The person who wrote the letter to the editor about EDI and whether it is Big 4 corporate bullshit may be right in that it seems to be a total con done merely for the illusion of being a good corporate citizen while at the same time being good for business.

Now to Jay Clayton. The SEC commissioners, the Board of Governors of the Federal Reserve System, and the secretary of the Treasury appoint PCAOB board members. In fact, they just made a wholesale change in board members without any apparent ethnic or racial diversity replacements. Where does Clayton get off on calling out other organizations about lack of diversity when the SEC has oversight of the FASB and the PCAOB and has great influence over board members chosen for those institutions? Clayton was a king-maker in that respect during his tenure as chairman.

It is 2020, not 1960. Jay Clayton, if you are pointing fingers at other institutions about lack of diversity, maybe we should point fingers back at you as apparently you did nothing to make the leadership of the FASB or the PCAOB more diverse in the last four years. For those of us in the EDI category, maybe it should be the middle finger we point back at you, the FAF, the FASB, the PCAOB, and the king-makers at the SEC.

Anonymous CPA

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