This is all while donating the greater of 1% of sales or 10% of profits to environmental activism, working to be 100% carbon neutral by 2025 and allowing employees to spend up to two fully-paid months of working time on supporting environmental conservation projects. Citi's Action for Racial Equity Initiative Invests $1 Billion to The decision to retain an independent . The Black Leaders Forum brought together senior leaders from Wealth Management for targeted conversations, development and actions to achieve success. [127], According to SEIU, BlackRock decided that the SEIU proposal is too important to wait until they are voted on at their shareholder meetings [128] and announced its plans to voluntarily conduct an independent racial audit of its operations. [109], Amazon argued the proposals call to review its impact on civil rights, equity, diversity and inclusion is a broad survey on the impact of the Companys policies, practices, products and services on societal issues, which implicates routine business issues, such as the products and services that the Company offers to its customers, the Companys business practices and operations, the Companys strategic decisions, and the Companys choice of technologies. [110] Similarly, according to Amazon, such an audit would necessarily implicate[] a multitude of ordinary business matters relating to the Companys day-to-day operations, which Amazon argued included decisions relating to, among other things, its charitable donations, hiring decisions, diversity and recruitment initiatives, customer relations, advertising, public relations and communications with its shareholders and the kinds of products it sold. [140] The legislation is sponsored by Rep. Joyce Beatty and co-sponsored by Reps. Nikema Williams and Jesus G. Garcia and is currently under committee review. Source: SEC Filings. 1, Reuters, Svea Herbst-Bayliss, Gary McWilliams, December 7, 2020, available at https://www.reuters.com/article/exxon-shareholders-engine-no-1/exxon-faces-proxy-fight-launched-by-new-activist-firm-engine-no-1-idUSKBN28H2IO. We believe our greatest asset is our people. In this case, failure to have a Racial Equity Audit policy or refusal to implement such a policy after shareholders have approved a proposal to implement one may become a criteria an advisory firm would consider in making a recommendation for or against the re-election of a companys chairperson of the governance committee and/or the re-election of other directors at the companys annual meeting. ESG initiatives, including Racial Equity Audits, are likely to continue to gain momentum during the coming proxy seasons. 34-40018, May 28, 1998, available at https://www.govinfo.gov/content/pkg/FR-1998-05-28/html/98-14121.htm. And lastly, whether a company has sufficient mechanisms in place to monitor effectiveness. (Adds details about Morgan Stanley in 11th and 12th paragraphs.) (go back), 84See J&J No-Action Letter, supra note 78. A complicated past The financial institutions in question have recently made diversity, inclusion, and racial equity a significant. State Street's support increased from 12.5 percent in 2021 to a bare majority of racial equity audit proposals (52.6 percent) in 2022. Global institutions, leading hedge funds and industry innovators turn to Morgan Stanley for sales, trading and market-making services. [2] Thirdcorporate governance, which considers how a company governs itself and holds itself accountable taking into account the structure and diversity of a companys board of directors, the separation between management and the board of directors, executive compensation, equal and fair pay amongst employees, and the extent to which a company or its management or board of directors are undertaking lobbying efforts, making political and charitable donations, or engaging in corruption or bribery. Why Racial Equity Audit Matters - LinkedIn Our latest initiative combines the resources and reach of Morgan Stanley with the knowledge and experience of our distinguished nonprofit partner organizations to help deliver positive, tangible impact on the challenges of stress, anxiety, and depression in children, adolescents and young people. ;Lxqh;gxFK wEYem-()f-Nf7z/!+{)[`J9Ng cZ|4pv>jw~&?wq ?NpJ>V7{b[tgsllQ.SjT-hN0 `cU According to this study, closing racial gaps would have generated an additional $16 trillion in economic output since [the year] 2000, and by closing the various gaps between Blacks and Whites, the U.S. could stand to gain an additional $5 trillion in economic activity over the next five years. [42] Racial Equity Audits could therefore prove to be a critical tool for companies looking to capture some of these unrealized gains. SEIU said in its resolution, which has since been withdrawn, that BlackRock as an investor opposed most shareholder proposals in. Beyond fund managers typical fiduciary duties to minimize risk and achieve positive returns, these fiduciaries are explicitly mandated with making investments into companies that aim to have a sustainable and societal impact in the world [46] based on ESG criteria or that meet stringent environmental, social and governance standards. [47] As the usefulness of Racial Equity Audits as a tool for ESG-conscious shareholders to measure a companys adherence to ESG prerogatives becomes more mainstream, it would be no surprise to see support for these audits grow. Resolutions were withdrawn at BlackRock, CoreCivic, Morgan Stanley and Amgen based on their commitments to conduct internal audits. Citigroup, Wells Fargo, Bank of America, Goldman Sachs, JP Morgan urge Our survey found progress in investor attitudes and actions, but more needs to be done to close the funding gap for women and multicultural entrepreneurs. (go back), 38See e.g., Opinion: Companies Have a Duty to Defend Democracy, NPR, Brett Bruen, July 7, 2020, available at https://www.npr.org/2020/07/07/887628306/opinion-companies-have-a-duty-to-defend-democracy (discussing corporations ability to be more responsive to critical issues to voters on the macro-level, such as gun control and climate change, as well as on a more personal level including Twitter, Uber and Blue Apron announc[ing that] they would give employees a paid day off when their country holds elections). [129] As a result, the shareholder proposal was withdrawn and SEIU announced that it was currently working with BlackRock to bring about needed change within the company and the financial services industry. [130] Commentators anticipate that BlackRocks commitment to a Racial Equity Audit could sway other financial services companies to follow in its footsteps. [131]. In 2020, partners at the Interfaith Center on Corporate Responsibility(ICCR) filed 12 resolutions calling for racial equity audits. [62] Under Rule 14a-8, a company is required to include a shareholder proposal and related supporting statement in its proxy statement and list the shareholder proposal on its proxy card to be voted on with the companys proposals if: (a) the shareholder satisfies specified eligibility and procedural requirements; and (b) the proposal is not excludable under Rule 14a-8(i). Last week, the duo achieved a significant win at BlackRock and Morgan Stanley when both agreed to undertake diversity reviews, prompting a withdrawal of the proposals. (go back), 78Rule 14a-8 No-Action Letter re: Stockholder Proposal to Citigroup Inc. from CtW Investments Group, Citigroup Inc., December 23, 2020, available at https://www.sec.gov/divisions/corpfin/cf-noaction/14a-8/2021/ctwcitigroup022621-14a8.pdf [hereinafter Citigroup No-Action Letter]; Rule 14a-8 No Action Letter re: Johnson & Johnson2021 Annual Meeting, Omission of Shareholder Proposal of Christopher and Anne Ellinger and co-filers, Skadden, Arps, Slate, Meagher & Flom LLP, December 16, 2020, available at https://www.sec.gov/divisions/corpfin/cf-noaction/14a-8/2021/ellingeretaljohnson021221-14a8.pdf [hereinafter J&J No-Action Letter]. Racial Equity Audits: A New ESG Initiative - The Harvard Law School A 38 percent "yes" vote at Citi was particularly encouraging, given the fact that institutional investors typically follow the corporate board's recommendation. JPMorgan's racial-equity audit falls short for some shareholders SOC Investment accused the bank and its auditor of approaching the process with a "narrow perspective," and said the report fails to look at any internal diversity, equity and inclusion issues. . [126] The resolution included in SEIUs proposal also noted that: A 2020 report on proxy voting found that BlackRock did not use its clout as a significant owner to advance racial justice. Shareholder activists have advocated for increased diversity in corporate boardrooms for a number of years. Amid a pandemic and social unrest, we gathered senior multicultural business leaders to focus on the challenges and opportunities of this indelible moment in history. Whether its hardware, software or age-old businesses, everything today is ripe for disruption. S7-11-19, available at https://www.sec.gov/rules/final/2020/33-10825.pdf; New Human Capital Disclosure Requirements, Harvard Law School Forum on Corporate Governance, Margaret Engel, February 6, 2021, available at https://corpgov.law.harvard.edu/2021/02/06/new-human-capital-disclosure-requirements/. [116] Comptroller DiNapoli expressed concern with Amazons alleged lack of transparency, stating that while the company has put policies in place to address this issue, it has not reported to investors the effectiveness or the process for completing its ongoing policy review. [117] In 2020, Amazon conducted its first human rights assessment, which it referenced to support its position that there was no need to conduct a Racial Equity Audit. [111] Despite the laundry list of examples Amazon cited in its No-Action Letter, the SEC did not concur that the proposal was excludable under Rule 14a-8(i)(7). [134] ISS will use the results from its Annual Benchmark Policy Survey as a key component of ISS annual policy development process to assess potential policy changes across regions and markets for 2022 and beyond. [135] While ISS has largely appeared hesitant to support Racial Equity Audits in the circumstances presented in the 2021 proxy season, the results from its Annual Benchmark Policy Survey could change its future guidance and recommendations on such audits. [10] On the other hand, it has been found that companies that affirmatively adopt meaningful approaches to these issues may not only help progress environmental and societal goals, but may also potentially see improved financial performance. FlZ240l7_Dl4\'q3c`HBB0d)b@b7TpCR6>[Jn'EP*w"n<7R`/E/=O$H+tgu1wJwD$dAmX,E"AE W?,#( Our board of directors and senior executives hold the belief that capital can and should benefit all of society. [108] Amazon argued that, regardless of the proposal being framed in the form of a request for a report, this did not change the fact that the subject matter of the proposed report is within [Amazons] ordinary business and thus excludable under Rule 14a-8(i)(7). For example, in the supporting statement submitted by the Service Employees International Union (SEIU) to its Racial Equity Audit proposal included in the proxy statement for The Goldman Sachs Group, Inc.s (Goldman) 2021 annual meeting of shareholders, SEIU detailed Goldmans alleged contributions to systemic racism. [43] Accordingly, it has been argued that working to ensure that systemic risk in the marketplace is proactively addressed via, for example, a Racial Equity Audit, is consistent with a fiduciarys duties. Proxy advisors split over racial equity requests at banking giants Why did nearly all of the banks urge "no" votes on the audit proposals? (go back), 107Amazon Proxy Statement, supra note 104. (go back), 88See JPMorgan No-Action LetterFebruary, supra note 77. [91] The Staff has recognized that exclusion is permitted pursuant to Rule 14a-8(i)(3) if the resolution contained in the proposal is so inherently vague or indefinite that neither the stockholders voting on the proposal, nor the company in implementing the proposal (if adopted), would be able to determine with any reasonable certainty exactly what actions or measures the proposal requires. [92] Johnson & Johnson, the only company to invoke Rule 14a-8(i)(3) during the 2021 proxy season to attempt to exclude a Racial Equity Audit proposal, argued that the proposal was impermissibly vague and indefinite because neither Johnson & Johnson nor shareholders would be able to determine with any reasonable certainty what actions or measures the proposal requires. [93]. According to CtW, this focus is based on the belief that: the finance industry has played a critical role in perpetuating unequal wealth distribution to communities of color. 16, 1992)). A career at Morgan Stanley means belonging to an ideas-driven culture that embraces new perspectives to solve complex problems. [142] Accordingly, as Racial Equity Audits become an increasingly important area for investors, it is possible that the SEC and the major exchanges may eventually require companies to make further diversity, equity and inclusion disclosures, which may include the existence and frequency of a companys Racial Equity Audits. %PDF-1.6 % Why did nearly all of the banks urge "no" votes on the audit proposals? . BlackRock opposed nearly all shareholder proposals directly addressing racial justice issues, including two proposals at Amazon seeking disclosure regarding hate-promoting products and effects of its facial recognition technology on people of color. For example, the SOC Investment Group, formerly known as the CtW Investment Group (CtW), a group that works with pension funds sponsored by unions affiliated with Change to Win, a federation of unions representing nearly 5.5 million members, submitted the following proposal to Bank of America Corporation for inclusion in its proxy statement: RESOLVED that shareholders of Bank of America Corporation (BofA) urge the Board of Directors to oversee a racial equity audit analyzing BofAs adverse impacts on nonwhite stakeholders and communities of color. We grieve with our colleagues, friends and families, and believe that we have the power to create long-lasting social, educational and economic change. Assumed . With offices in more than. The increasing focus on environmental, social and governance (ESG) considerations at public companies, including this years highly publicized proxy contest at Exxon Mobil Corporation (Exxon), has demonstrated the growing importance of understanding ESG and the implications it can have for investors and companies. [68] Several of the supporting statements for Racial Equity Audit proposals stated that: High-profile police killings of black peoplemost recently George Floydhave galvanized the movement for racial justice. Why Are Goldman Sachs And JPMorgan Looking To Avoid Racial Equity Audits? [53] Advocates believe it is critical that the audit be conducted by an independent third party in order to ensure integrity and credibility throughout the process. (go back), 108Amazon No-Action Letter, supra note 83. (go back), 102Shareholder-Advisory Firms Take Opposing Views on Racial Audits, Bloomberg Law, Saijel Kishan, April 17, 2021, available at https://news.bloomberglaw.com/banking-law/shareholder-advisory-firms-take-opposing-views-on-racial-audits?context=article-related (quoting Glass Lewis). [141]. 333 0 obj <>stream The survey was conducted online among 76 venture capitalists who are almost exclusively leads or co-investors, with an average equity check size of $2.65 million. (go back), 94CoreCivic, Inc., Form 8-K, filed with the SEC on May 18, 2021, available at https://www.sec.gov/ix?doc=/Archives/edgar/data/1070985/000119312521165313/d184269d8k.htm. [11], ESG considerations are becoming increasingly relevant to shareholder activists. Bank Leaders Buck Shareholder Call for Third-Party Racial Equity Audit We help people, businesses and institutions build, preserve and manage wealth so they can pursue their financial goals. Id. JPMorgan Chase Releases $30 Billion Racial Equity Commitment Audit Report Vanguard's Insights on Shareholder Proposals Concerning Diversity (go back), 76See Amendments to Rules on Shareholder Proposals, Exchange Act Release No. Promoted to one of five voting members on the S&P Municipal Bond Index Committee, overseeing and ruling on policy and governance. ESG considerations can be broken down into three categories. Wells Fargo plans to conduct a racial equity audit, asking an outside law firm to assess the bank's workforce diversity and determine how its business practices are affecting communities of color. [136] As the general publics views evolve on ESG issues, public pressure for certain actionsin this case, increased diversity in public boardroomsoften influence not just shareholder advocacy but legislative action. BlackRock Breaks Wall Street Ranks With Planned Racial Audit Other external forces that may prompt public companies to adopt Racial Equity Audit policies are the SEC and the securities exchanges. Goldman Sachs | Making Progress Towards Racial Equity David Ake) It followed his 2021 executive order . BlackRock Breaks Wall Street Ranks With Planned Racial Audit Our culture of access and inclusion has built our legacy and shapes our future, helping to strengthen our business and bring value to clients. Currently, neither the SEC nor the major U.S. securities exchanges mandate publicly traded companies to make disclosures regarding Racial Equity Audit initiatives. While Professing BLM Support, Wall Street Banks Reject Racial Equity Audits Shareholders at JPMorgan Chase and State Street hold their meetings this week. The SEC considered the arguments described above to exclude the shareholder proposals on Racial Equity Audits, and, in each case, the SEC did not concur with the company that the shareholder proposal should be excluded. h247T0Pw/+Q0,H/-K-0 An example of a project with high-impact priority elements is The Villages of East River. Shareholders target 'white man's world' with record - POLITICO To contact the reporter on this story: urge the Board of Directors to oversee a racial equity audit analyzing JPMorgan's adverse impacts on nonwhite stakeholders and communities of color. Importantly, the proposals encourage an internal and external review, looking at human capital management but also the products and services companies offer, along with their philanthropic and political contributions. (go back), 77Rule 14a-8 No Action Letter re: JPMorgan Chase & Co.2021 Annual Meeting, Supplemental Letter dated January 11, 2021, Relating to Shareholder Proposal Submitted by CtW Investment Group, Skadden, Arps, Slate, Meagher & Flom LLP, February 16, 2021, available at https://www.sec.gov/divisions/corpfin/cf-noaction/14a-8/2021/ctwjpmorgan032621-14a8.pdf [hereinafter JPMorgan No-Action LetterFebruary]. Civil rights advocates and proponents of social justice have long touted the moral and ethical considerations of closing the racial divide in America. Companies Sought No-Action Relief. In a recent letter to employees, Blackrock announced that they would conduct an. (go back), 93See J&J No-Action Letter, supra note 78. Since our founding in 1935, Morgan Stanley has consistently delivered first-class business in a first-class way. 2022 Annual Impact Report (go back), 128SEIU and Change to Wins investment funds pushing for racial diversity in financial institutions, available at https://www.seiu.org/blog/2021/4/seiu-and-change-to-wins-investment-funds-pushing-for-racial-diversity-in-financial-institutions. Risks to shareholder value associated with diversity, equity, and inclusion (DEI) remain a top engagement priority for Vanguard with our funds' portfolio companies. Patagonias environmental mission hasnt just been good for the planet its also boosted the bottom line, Business Insider, Richard Feloni, December 21, 2018, available at https://www.businessinsider.com/patagonia-mission-environmentalism-good-for-business-2018-12. While Professing BLM Support, Wall Street Banks Reject Racial Equity Audits (go back), 32Webinar, Pamela Coukos, Co-Founder of Working IDEAL, supra note 23. The firm's $10 million grant will help expand financial literacy, workforce development and access to capital programs in communities where the civil rights organization operates. (go back), 66Bank of America Corporation, 2021 Notice of Annual Meeting and Proxy Statement, Schedule 14A, filed with the SEC on March 8, 2021, available at https://about.bankofamerica.com/annualmeeting/static/media/BAC_2021_ProxyStatement_ADA.612694a6.pdf. The proposals filed at BlackRock and Morgan Stanley were withdrawn after both firms agreed to undertake a diversity review. We anticipate greater interest in Racial Equity Audits and similar initiatives in the upcoming proxy season and accordingly believe companies will be pushed to critically and objectively examine their current internal practices and policies relating to equity and inclusion to identify areas in need of improvement. BlackRock, with $8.7 trillion of assets under management, said in a memo to employees Thursday that an external review of how its diversity, equity and inclusion policies impact stakeholders will. CtW and US labour union SEIU filed racial equity audit proposals at eight US financial giants this year. Bank of America said last week that an audit is unnecessary given its progress on racial equality. [23] In the aftermath of the killing of George Floyd in May 2020 and the subsequent civil rights movement and unrest, many companies announced a number of initiatives and measures to address social justice issues, including committing financial resources and reviewing their own policies and practices. See how you can continue your career journey at Morgan Stanley. Every company has a different mix of products, operations and services; therefore, according to practitioners in the area, it is important for participants in a Racial Equity Audit to identify the scope of the audit and benchmarks prior to conducting the audit. [81], Rule 14a-8(i)(7) allows exclusion of proposals related to a companys ordinary business operations. hj0_`%A (?BY*JFwiPRNB` H&@& cTL2Vc$`p 1q) 19IB9HA$..Ey?/ANWez][{{iK.5&QZ"]EF'v?}^L7u?F$9 r4-{2`|4E@$VH`&JxCz9 [15] As discussed in more detail below, a companys performance on ESG factors, such as investment into renewable energy, promotion of employee health and safety and contributions to the local community, are pressing issues that can either benefit or adversely affect a companys perception in the public eye, operational execution and bottom line. The move comes in a year when several US financial institutions have faced requests for racial equity audits amid growing investor scrutiny of diversity, equity and inclusion (DE&I) issues at US companies. Goldman Sachs And JPMorgan Look To Avoid Racial Equity Audits Dismissal and neglect of these concerns led to Engine No. [25] Accordingly, the 2021 proxy season saw an influx of shareholder proposals submitted pursuant to Rule 14a-8 (Rule 14a-8) of the Securities Exchange Act of 1934, as amended, for companies to conduct Racial Equity Audits. (go back), 90See e.g., Citigroup No-Action Letter, supra note 78; J&J No-Action Letter, supra note 78; JPMorgan No-Action LetterFebruary, supra note 77; Amazon No-Action Letter, supra note 83. However, on August 6, 2021, the SEC approved new listing rules proposed by The Nasdaq Stock Market LLC (Nasdaq) requiring each Nasdaq-listed company to disclose certain information about the diversity of its board of directors and generally include a minimum number of members of its board of directors who are Diverse (as defined within the new listing rules). (go back), 75Goldman, Citi Stave Off Investor Calls for Racial Audits (1), Bloomberg Law, Saijel Kishan and Jeff Green, April 29, 2021, available at https://news.bloomberglaw.com/banking-law/goldman-citi-stave-off-investor-calls-for-racial-audits-1. S7-25-97, available at https://www.sec.gov/rules/final/34-40018.htm (citing Reebok Intl Ltd. (Mar. Companies Negotiated with Shareholders to Withdraw the Racial Equity Audit Proposal. Exxon faces proxy fight launched by new activist firm Engine No. The chart below lists the proponents who submitted Racial Equity Audit proposals to public companies pursuant to Rule 14a-8 during the 2021 proxy season and the number of proposals they submitted: Source: ISS Corporate Solutions and SEC Filings, Boards of directors of public companies are [i]ncreasingly . Amundi Asset Management, Northern Trust Investments, and PIMCO were leaders in supporting racial equity audit proposals, voting in favor of 100 percent of proposals.Morgan Stanley, UBS, Legal & General .
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