FINRA Could Learn From Jay-Z's Demand for Diversity in Arbitration

You might not think that rapper and entrepreneur Jay-Z’s ongoing dispute with a brand agency in arbitration would have much to do with the securities industry. After all, the dispute centers on trademark and contract issues that are a long way from unsuitable investments and broker fraud. However, a parallel action taken by Jay-Z that calls into question the fairness of the arbitration forum in which the dispute is being heard has direct bearing on criticisms recently leveled against the FINRA arbitration forum.

Not Enough Minorities on Arbitration Panels

Late last year, Jay-Z asked the State Supreme Court of New York to halt arbitration proceedings involving his former brand agency because from his perspective and the perspective of his legal team there were simply not enough African-Americans available in the American Arbitration Association to make the proceedings fair and just. The rapper also insisted that such racial inequalities are made more glaring by the fact that due to binding arbitrations agreements, participation in the arbitration forum is mandatory.

70% of FINRA Arbitrator Pool Are Male

FINRA has recently faced similar criticism of the suspicious old, white, and male composition of its arbitrator pool. Specifically, of the more than 7,700 arbitrators available through FINRA, around 70% of them are male and most are white. While those numbers have been improving over the past few years thanks to efforts by FINRA toward reform, there is still a long way to go. Jay-Z’s case could be make not just in relation to African-American arbitrators, but also women and LGBT persons. All of these minorities are far too under-represented in the arbitrator pools of both the AAA and FINRA.

While an arbitration panel was never intended to replicate the “jury of peers” that constitutes a jury in a court of law, it is hard to imagine that entrepreneurs and investors alike will get a fair hearing from a panel composed of those who completely unlike them in terms of race, gender, and age. Indeed, juries are painstakingly selected with an eye toward these very characteristics because they have such a powerful determining factor on the outcome of trials.

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