Blacks still find Wall Street foreign territory

Rev. Martin Luther King Jr. in Washington, Aug. 28, 1963
CBS Photo Archive | Getty Images
Rev. Martin Luther King Jr. in Washington, Aug. 28, 1963

Fifty years to the day that Rev. Martin Luther King told a crowd of 250,000 in Washington that "the Negro … finds himself an exile in his own land," Wall Street is mostly a foreign country for black workers.

The difficult road that blacks still face in the heart of America's financial capital was underscored by news Wednesday that brokerage giant Merrill Lynch has agreed to pay $160 million to settle racial discrimination claims by black brokers.

Despite what would be the biggest race-discrimination lawsuit payout ever by a U.S. employer, King's dream remains just that for African-Americans trying to get hired, promoted and paid well in the financial industry.

A lawyer for the 700 brokers who sued the firm eight years ago said Merrill's alleged pattern of underhiring black brokers and practices of allocating customers that allegedly made it more difficult for those brokers to build business are not unique.

"They filed this lawsuit for all the right reasons," said Suzanne Bish of Chicago-based Stowell & Friedman. "To not only change Merrill Lynch, but also to change Wall Street. It was not an issue that was limited to the Merrill Lynch, the underemployment of African-Americans and revolving doors of African-Americans."

Her firm had previously filed and ultimately resolved a class-action lawsuit on behalf of female employees claiming sex discrimination by Merrill Lynch.

When Merrill broker George McReynolds retained Stowell & Friedman to sue for race discrimination, Bish said, "we were kind of stunned to realize the predicaments for African-American financial advisors was even worse."

Bill Halldin, a spokesman for Merrill Lynch, declined to comment when asked to confirm the settlement's being reached or the $160 million figure.

"We are working toward a very positive resolution of a lawsuit filed in 2005 and enhancing opportunities for African-American financial advisors," he said.

Wall Street, like many other elite workplaces, was largely barred to blacks for decades because of long-standing discrimination. The first black man to make a trade on the floor of the New York Stock Exchange—former New York Giant player Joseph Searles III—didn't do so until 1970. Since then, many more black men and women have been hired and promoted by Wall Street firms.

But observers said the Street's enduring culture has frustrated efforts to see employment levels and compensation for both women and blacks reflect their numbers in the population.

Although blacks account for about 14 percent of U.S. population, they held just 2.8 percent of senior positions in financial services companies, where white males held 64 percent of the top jobs.

A 2010 Government Accountability Office report found that "overall diversity at the management level in the financial services industry did not change substantially from 1993 through 2008, and diversity in senior positions remains limited."

"I believe there's still discrimination against African-Americans on Wall Street, just like we've seen with women," said Wall Street securities lawyer Jacob Zamansky. "There's a glass ceiling, and the compensation is not the same for them. It's still a white man's game. Women and blacks are not invited to the right level at firms and I think that's insidious.

"At this time, in 2013, we should not have discrimination after all this country's been through," he added.

Derek Sells, a New York lawyer who has handled a number of discrimination suits against Wall Street firms, said the racial bias his clients have experienced is not just limited to decisions of hiring, promotions and pay.

"There's quite a bit of discrimination that takes place on Wall Street," he said. "I've been involved in cases where racial epithets have been used. I've been involved in cases where nooses have been used ... racist jokes have been used, where individuals have been called racist names.

"It's still startling to see the number of overt acts that occur in the workplace, particularly when so much attention has been focused on workplace discrimination and harassment," Sells said.

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In a case Sells filed earlier this year, Dabotubo Horsfall, an African-American vice president at Morgan Stanley, claims he was not properly compensated for work he performed. The suit alleges that Horsfall was denied significant bonuses even after helping to close a $150 million deal, and it claims "blatant discriminatory treatment on account of his race."

A Morgan Stanley spokesman told CNBC, "Morgan Stanley does not tolerate discrimination based on race or any other factor."

Without speaking directly about the Horsfall case, Sells said the explanation from firms that he has sued for hiring and promotion discrimination is, " 'Well, they're not qualified.' It's always 'the performance is poor' or 'they're not meeting expectations.' "

Those justifications are sometimes undercut when he obtains access to records showing that his client was passed over in favor of white employees with fewer qualifications.

"When you see this pattern repeated over and over again, then you know things aren't as they should be," Sells said.

"In one sense the country has come a long way, obviously, when the president of the United States for a total of two terms is an African-American man," he said, but Wall Street remains an "old boy network to a large extent."

Danny Sarch, a financial executive headhunter at Leitner Sarch Consultants, said sensitivity to Wall Street's old boy tradition "is much greater than it was" in terms of making hiring advances with both blacks and women.

"'I'm not going to say it's universally perfect," he said, but "I've certainly seen more minorities in senior positions than there were."

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Sarch said that Wall Street is largely "still a meritocracy" and that people who earn their firms money tend to be justly rewarded, regardless of their race.

But to the extent that some people may still discriminate, "if these types of settlements"—referring to the Merrill Lynch case—"don't make you learn, then you're an idiot."

By CNBC's Dan Mangan. Follow him on Twitter @_DanMangan