Bank of America Merrill Lynch will shell out $160 million to settle a discrimination suit filed by African-American brokers, but whether the payment will substantially alter industry recruiting and retention practices remains to be seen.
The case, filed in 2005, was brought on behalf of one employee and grew to represent as many as 1,200 class members who “persevered through some long odds in this case,” said Suzanne Bish, a lawyer for the plaintiffs.
The agreement was reached last week and is scheduled to be considered by a federal judge in Chicago on Sept. 3, Ms. Bish said in a phone interview.
“We are working toward a very positive resolution of a lawsuit filed in 2005 and enhancing opportunities for African-American financial advisers,” Bill Halldin, a Bank of America spokesman, wrote in an e-mail.
Bank of America, the second-biggest U.S. lender by assets, acquired Merrill Lynch & Co. Inc. for $33 billion in 2009. The bank plans to dissolve the unit as early as the fourth quarter while keeping the Merrill Lynch brand for its retail brokerage and investment bank, according to an Aug. 2 filing.
Merrill Lynch had about 14,000 financial adv-isers as of June 30, excluding those working at bank branches. Bank of America's entire staff was 257,158.
Recruiters were divided on whether the massive settlement might be enough to change hiring practices at Wall Street firms and foster greater recruiting and retention of minority brokers. Though charges of racial bias at major firms have been settled in court in the past, recruiters had a hard time naming any firms that have since made significant inroads in attracting minority brokers.
“Firms do mandate that they're always interested in raising their diversity numbers; it's an important thing for all firms, large and small,” said Mindy Diamond, president and chief executive of Diamond Consultants LLC. “I don't see [this settlement] as being a needle mover; I don't think it will mean a lot.”
She added she couldn't specifically name any firms that have been particularly successful at this.
One reason for the dearth of minority brokers is that firms currently are having a hard time bringing in any trainees at all, noted Danny Sarch, a recruiter at Leitner Sarch Consultants Ltd.
“The problem is that the industry isn't training new advisers. So if you're having a hard time bringing anyone in, then it's harder than ever to bring in minorities,” Mr. Sarch said. “It makes it hard for anyone to be successful.”
Nevertheless, the settlement may have a ripple effect among other firms in the financial services industry — which historically has been white and male.
“There are still pockets of racism and sexism, and this settlement brings it to the forefront and makes it a healthier place for everyone to work,” Mr. Sarch said.
James M. Finberg of Altshuler Berzon LLP, who had worked on an unrelated Morgan Stanley racial bias case that resulted in a $16 million settlement in 2008, noted that injunctive relief is the way to bring about change in hiring and retention at employers.
“The goal isn't just a one-shot check, but to fundamentally change the way things operate,” he said. “The numbers [of minority brokers] on Wall Street are appalling, and it appears the numbers of these advisers are a lot lower than the pool of people who should be qualified to do the job, if you look at minimum requirements in terms of education and experience.”
Mr. Finberg added: “It would seem there's room to improve recruiting, promotion and retention policies so that you have more diverse workforces.”
The largest previous racial bias settlements were $192.5 million by Coca-Cola Co. in 2001 and $176 million by Texaco Inc. in 1997, according to data compiled by Bloomberg News. The value of both those settlements included non-cash consideration.
The lead plaintiff in the BofA case, George McReynolds of Nashville, Tenn., still works for Merrill Lynch, Ms. Bish said. Mr. McReynolds and the firm maintained a professional attitude throughout the litigation based on a common “passion for their clients,” she said.
The central claim of the suit was that black brokers weren't given the same business opportunities as whites in participating on investment teams and in account distribution, Ms. Bish said. The formation of adviser teams is one of Merrill's most important business strategies, she said, and black advisers commonly were excluded from the teams, and the benefits and business resources they afforded, she contended.
Judge Robert Gettleman in U.S. District Court for the Northern District of Illinois in Chicago rejected the case as a class action three times before a federal appeals court approved it.
Ms. Bish said the black advisers won class certification by overcoming a hurdle set by a 2011 Supreme Court ruling that women suing Wal-Mart Stores Inc. for gender bias on behalf of 1.5 million co-workers failed to prove the company had a nationwide policy that led to gender discrimination.
The advisers' suit was based on claims that the discrimination was due to “very centralized control by Merrill Lynch,” Ms. Bish said.
After the February 2012 appeals court ruling, Mr. Gettleman issued an order certifying the class of “all African-Americans employed by Merrill Lynch at any time since July 10, 2004, as financial advisers or financial adviser trainees” in the U.S. retail brokerage unit of the firm's global private client division.
The New York Times reported the settlement earlier.
“Their goal in filing this was to try to make Wall Street a friendlier place, where their kids would have the same opportunities to do this job that they love so much,” Ms. Bish said. “Our clients are going to help Merrill and help Wall Street be a more open place for everyone.”
This story was supplemented with reporting from Bloomberg News.
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