With this process, leaders can assess the extent to which equity is present in such areas as teacher . Rather, as argued by Trillium Asset Management (Trillium), a strong proponent of such audits, the point of an audit is to embrace the notion that if management is truly committed to make racial justice a critical element of its operations then in practice it can and should treat it like any other operations issue and audit it as such. [29] These proponents further argue that Racial Equity Audits should not be viewed as the end of a process for companies and/or shareholders looking to make a change; instead, they can be a stepping stone to assist companies in developing and identifying a strategic plan to advance their goals. Companies that dismiss these concerns or lag behind their peers in addressing ESG matters may find themselves in the crosshairs of investors and proxy advisory firms, or even state legislatures and federal agencies. Recently, a former head of global diversity at Morgan Stanley, a Black woman, sued the bank for discrimination. Analysis: Goldman Sachs faces hard sell for its consumer assets Amazon to conduct racial-equity audit led by former Attorney General Loretta Lynch. (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). Indeed, the House Financial Services Subcommittee on Diversity and Inclusion is currently reviewing legislation that would require banks to conduct Racial Equity Audits every two years in an effort to promote diversity and equity. Shareholder proposals come from a variety of proponents, including individual investors, labor unions, public pension funds, shareholder activists and institutional investors and such proposals often focus on the environment, corporate governance, executive compensation and social issues. Kellogg Foundation has found that [b]y 2050, our country stands to realize an $8 trillion gain in GDP by closing the U.S. racial equity gap. [28]. See how you can continue your career journey at Morgan Stanley. (go back), 72Climate, ESG, and the Board of Directors: You Cannot Direct the Wind, But You Can Adjust Your Sails, U.S. Securities and Exchange Commission, Commissioner Allison H. Lee, June 28, 2021, available at https://www.sec.gov/news/speech/lee-climate-esg-board-of-directors. (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. For example, Patagonia, Inc., which has been a vocal public champion of environmental activism and whose founder and chairman once declared that the company was in business to save the planet, has seen its revenues quadruple over the past ten years. h247T0Pw/+Q0,H/-K-0 Supporting the progression of women into senior roles is a key strategic priority for Morgan Stanleys senior leadership worldwide. (go back), 96See e.g., Goldman Sachs Proxy Statement, supra note 35 (We share the proponents focus on advancing racial equity.); Citigroup Proxy Statement, supra note 69 (While we disagree with the overall approach in this Proposal, we are completely aligned with its stated goal of addressing racial inequity in the financial sector.); see also Lawmakers debate bill mandating racial equity audits at firms, The Hill, Abigail Goldberg-Zelizer, June 30, 2021, available at https://thehill.com/policy/finance/561026-lawmakers-debate-bill-mandating-racial-equity-audits-at-firms; Shareholders want to hold corporate giants accountable for their commitments to racial equity and justice. In November, SEIU's Capital Stewardship Program and. [12] Governance has long been a key focus of shareholder activists as corporate governance best practices, including accountability of a companys board of directors to its shareholders, robust disclosure on executive compensation and independence of a board of directors from management, have been found to have a readily apparent correlation with increased returns to shareholders. Bank Leaders Buck Shareholder Call for Third-Party Racial Equity Audit [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. Global institutions, leading hedge funds and industry innovators turn to Morgan Stanley for sales, trading and market-making services. 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 . The decision to retain an independent . Our work on racial equity focuses on our commitments as a business, as a responsible member of global and local communities, and as an inclusive workplace that values diversity. 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. We offer scalable investment products, foster innovative solutions and provide actionable insights across sustainability issues. 333 0 obj <>stream The global presence that Morgan Stanley maintains is key to our clients' success, giving us keen insight across regions and markets, and allowing us to make a difference around the world. A report on the audit, prepared at reasonable cost and omitting confidential or proprietary information, should be publicly disclosed on BofAs website. The America First Legal Foundation is accusing the IRS of using "racial equity" for audits targeting White and Asian taxpayers. (go back), 18BlackRock Investment Stewardship, Proxy voting guidelines for U.S. securities, BlackRock, effective January 2021, available at https://www.blackrock.com/corporate/literature/fact-sheet/blk-responsible-investment-guidelines-us.pdf. (go back), 107Amazon Proxy Statement, supra note 104. Equity audits guide schools in conducting a critical review of their data to inform ways of addressing systemic inequities. Amongst the various ESG developments gaining traction in the markets is the recent push by shareholders for companies to conduct Racial Equity Audits, which generally consist of an objective investigation into a companys practices, policies and histories to determine such companys impact on social issues and areas for improvement. [63] If the company determines that it is not in the best interests of the company to include a Rule 14a-8 shareholder proposal in its proxy materials, it can (i) seek no-action relief from the SEC staff (the Staff) that, if granted, would allow the company to exclude the proposal without the threat of Staff recommendation of an enforcement action based on a procedural deficiency or a substantive exclusion under Rule 14a-8; (ii) take legal action in court to exclude the proposal; and/or (iii) negotiate with the proponent to withdraw the proposal. Stay abreast of the latest trends and developments. (go back), 115See, e.g., Bias, disrespect, and demotions: Black employees say Amazon has a race problem, Vox:Recode, Jason Del Rey, February 26, 2021, available at https://www.vox.com/recode/2021/2/26/22297554/amazon-race-black-diversity-inclusion; Black Amazon manager sues the e-commerce giant, accusing it of race and gender discrimination, Washington Post, Jay Greene, March 1, 2021, available at https://www.washingtonpost.com/technology/2021/03/01/amazon-race-discrimination-lawsuit/; Five women sue Amazon, accusing e-retailer of race and gender discrimination and retaliation, Washington Post, Jay Greene, May 19, 2021, available at https://www.washingtonpost.com/technology/2021/05/19/amazon-suit-race-gender-discrimination/. (go back), 83See Rule 14a-8 No-Action Letter re: Amazon.com, Inc. We value our commitment to diverse perspectives and a culture of inclusion across the firm. [104] The proposal was submitted by Comptroller DiNapoli, as trustee of New York States Common Retirement Fund for public employees, which owns shares in Amazon. Our accelerator promotes financial inclusion and provides access to capital for startups led by women and multicultural entrepreneurs. Facebook, Inc. (Facebook) also conducted its own version of a Racial Equity Audit in 2018. (go back), 36Johnson & Johnson, 2021 Notice of Annual Meeting & Proxy Statement, Schedule 14A, filed with the SEC on March 10, 2021, available at https://www.sec.gov/Archives/edgar/data/200406/000020040621000011/jnjproxy2021.htm [hereinafter J&J Proxy Statement]. Civil rights advocates and proponents of social justice have long touted the moral and ethical considerations of closing the racial divide in America. 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. We offer timely, integrated analysis of companies, sectors, markets and economies, helping clients with their most critical decisions. Source: SEC Filings. A racial equity audit is the first step to safeguard against further harm and it's also the smart thing to do. At Morgan Stanley, giving back is a core valuea central part of our culture globally. (go back), 28The Business Case for Racial Equity, a Strategy for Growth, Ani Turner, W.K. The activist investor nominated a slate of four director candidates with expertise operating energy companies and utilizing clean technology. The firm reached its decision following successful engagement with and withdrawal of a racial equity audit shareholder proposal by SOC Investment Group and SHARE. Resolutions were withdrawn at BlackRock, CoreCivic, Morgan Stanley and Amgen based on their commitments to conduct internal audits. 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 . This is because issues relating to climate change and the environment, racial justice and diversity, human capital and governance may influence companies at large and shareholder investment flows. [41] A study by a Citigroup, Inc. (Citi) global economist found that addressing racial disparities can have even broader macro benefits. Companies Negotiated with Shareholders to Withdraw the Racial Equity Audit Proposal.BlackRock, the world's largest asset management firm, and CoreCivic Inc. ("CoreCivic"), an operator of private prisons, have agreed to conduct independent Racial Equity Audits after receiving shareholder proposals for such audits, resulting in the proponents withdrawing their . 34-40018, May 28, 1998, available at https://www.govinfo.gov/content/pkg/FR-1998-05-28/html/98-14121.htm. In the U.S. market there are now over 600 ESG funds and exchange-traded funds for investors to choose from with approximately $161 billion in assets under management (AUM), which is more than double the AUM of ESG funds in 2010. What Counts as Race Discrimination? A Suit Against JPMorgan Is a Test The Sustainable Investments Institute reports that 28 shareholder proposals dealing with racial justice had been included in proxy statements filed with the SEC as of April 27, 2021. 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. SOC Investment Group (then known as CtW Investment Group) filed a proposal seeking a racial equity audit in Citi's proxy statement this year. While we witnessed an increase in shareholder proposals related to Racial Equity Audits in the 2021 proxy season, all such proposals were either withdrawn or defeated. [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]. A Racial Equity Audit is, at its core, an independent, objective and holistic analysis of a companys policies, practices, products, services and efforts to combat systemic racism in order to end discrimination within or exhibited by the company with respect to its customers, suppliers or other stakeholders. (go back), 120Amazon investors reject New York retirement funds call for a racial-equity audit, 10 other shareholder proposals, MarketWatch, Levi Sumagaysay, May 28, 2021, available at https://www.marketwatch.com/story/amazon-investors-reject-new-york-retirement-funds-call-for-a-racial-equity-audit-10-other-shareholder-proposals-11622242863. ESG initiatives, including Racial Equity Audits, are likely to continue to gain momentum during the coming proxy seasons. Recently, investors and companies have also begun to appreciate that positive financial returns are often associated with investing in initiatives working towards racial equality. PDF S Arps Slate Meagher Flom Llp - Sec We have the experience and agility to partner with clients from individual investors to global CEOs. A Racial Equity Audit is, at its core, an independent, objective and holistic analysis of a company's policies, practices, products, services and efforts to combat systemic racism in order to end discrimination within or exhibited by the company with respect to its customers, suppliers or other stakeholders. Racial Equity: Advancing Change | Morgan Stanley It received the backing of 38.6 percent of votes cast during the company's AGM in April. [98] Wells Fargo also said it is making efforts toward expanding [its] diversity and inclusion commitments with a focus on hiring, promotions, and turnover, with increased accountability across all of those areas and [is] taking specific actions in support of these commitments. [99] The board of directors of Goldman recommended that shareholders vote against the shareholder proposal on a Racial Equity Audit, saying it has taken additional steps toward racial equity in the past year, including assessing its shortcomings and committing to hiring more analysts from historically Black colleges and universities, while maintaining [its] existing programs focused on other diverse populations. [100] Goldman also pointed out that it is [b]uilding upon more than $200 million of grants in minority communities and to minority-owned businesses over the past two decades and in 2020 [Goldman] created the Fund for Racial Equity to support the vital work of leading nonprofits that are addressing racial injustice, structural inequity and economic disparity, which has committed $10 million from GS Gives in addition to matching employee contributions to recipient organizations. [101]. . Racial equity audit votes At least 19 proposals calling for a racial equity audit at S&P 500 companies garnered an average of 44% support among shareholders last year, an increase from. (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. Votes on the Proposals at JP Morgan & Chase, Goldman Sachs and State Street will take place in the next few weeks. Kellogg Foundation, available at: https://www.wkkf.org/resource-directory/resources/2018/07/business-case-for-racial-equity (Closing the gap means lessening, and ultimately eliminating, disparities and opportunity differentials that limit the human potential and the economic contributions of people of color.); see also Economist Found $16 Trillion When She Tallied Cost of Racial Bias, Bloomberg, Saijel Kishan, October 20, 2020, available at https://www.bloomberg.com/news/articles/2020-10-20/racism-and-inequity-have-cost-the-u-s-16-trillion-wall-street-economist-says. ; see also Human Rights, Amazon, available at https://sustainability.aboutamazon.com/people/human-rights?workerCount=true&engagementProgram=true&productCategory=true. (go back), 73As You Sow: Racial Justice, available at https://www.asyousow.org/our-work/social-justice/racial-justice. JPMorgan's racial-equity audit falls short for some shareholders (go back), 65All things (not) being equal, IR Magazine, Ben Maiden, Summer 2021, available at https://content.irmagazine.com/story/ir-magazine-summer-2021.pdf. [61], Pursuant to Rule 14a-8, shareholders may submit proposals to be included in a companys proxy materials for its annual or special meetings of shareholders. [1] Secondsocial criteria, which considers how a company engages with all of its stakeholders (including employees, customers and suppliers) rather than just shareholders, including the treatment and diversity of its employees on the frontline, management and boardroom levels, the effects of a company on the surrounding community, and whether a company is working with suppliers who share similar socially desirable values. [141]. BlackRock breaks Wall Street ranks with planned racial audit Why Racial Equity Audit Matters - LinkedIn PDF Sunday | March 12, 2023 8:00 a.m. 12:00 p.m. CT (go back), 100Goldman Sachs Proxy Statement, supra note 35. BlackRock Breaks Wall Street Ranks With Planned Racial Audit https://www.sec.gov/news/public-statement/lee-climate-change-disclosures, https://www.sec.gov/news/public-statement/coates-esg-disclosure-keeping-pace-031121, https://www.activistinsight.com/wp-content/uploads/dlm_uploads/2021/06/InsightiaESGActivism-1.pdf?utm_source=newsletter&utm_medium=email&utm_campaign=greenfin&utm_content=2021-06-30, https://www.trilincglobal.com/what-is-esg/, https://www.businessinsider.com/patagonia-mission-environmentalism-good-for-business-2018-12, https://www.blackrock.com/corporate/literature/fact-sheet/blk-responsible-investment-guidelines-us.pdf, https://www.issgovernance.com/file/policy/active/americas/US-Voting-Guidelines.pdf, https://www.reuters.com/article/exxon-shareholders-engine-no-1/exxon-faces-proxy-fight-launched-by-new-activist-firm-engine-no-1-idUSKBN28H2IO, https://www.socinvestmentgroup.com/critical-tool-for-shareholders, https://www.bloomberg.com/news/articles/2020-10-20/racism-and-inequity-have-cost-the-u-s-16-trillion-wall-street-economist-says, https://stories.starbucks.com/uploads/2020/02/Starbucks-Civil-Rights-Assessment-2020-Update.pdf, https://www.forbes.com/sites/korihale/2021/01/20/starbucks-steps-up-its-racial-justice-outreach-with-100-million-pledge/?sh=53b94b63389c, https://www.npr.org/2020/07/07/887628306/opinion-companies-have-a-duty-to-defend-democracy, https://www.mckinsey.com/~/media/mckinsey/business%20functions/organization/our%20insights/delivering%20through%20diversity/delivering-through-diversity_full-report.ashx, https://www.nerdwallet.com/article/investing/best-esg-funds, https://about.fb.com/wp-content/uploads/2020/07/Civil-Rights-Audit-Final-Report.pdf, https://www.forbes.com/sites/bhaktimirchandani/2021/06/28/what-you-need-to-know-about-the-2021-proxy-season/?sh=2e475fae7f5e, https://content.irmagazine.com/story/ir-magazine-summer-2021.pdf, https://about.bankofamerica.com/annualmeeting/static/media/BAC_2021_ProxyStatement_ADA.612694a6.pdf, https://www.sec.gov/Archives/edgar/data/831001/000120677421000735/citi3828191-def14a.htm, https://exchange.iccr.org/node/88686/text, https://www.sec.gov/Archives/edgar/data/0000019617/000001961721000275/a2021proxystatement.htm, https://www.sec.gov/news/speech/lee-climate-esg-board-of-directors, https://www.asyousow.org/our-work/social-justice/racial-justice, https://news.yahoo.com/big-us-companies-pushed-tally-014418300.html, https://news.bloomberglaw.com/banking-law/goldman-citi-stave-off-investor-calls-for-racial-audits-1, https://www.govinfo.gov/content/pkg/FR-1998-05-28/html/98-14121.htm, https://www.sec.gov/divisions/corpfin/cf-noaction/14a-8/2021/ctwcitigroup022621-14a8.pdf. [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. A report on the audit, prepared at reasonable cost and . (go back), 25Remarks by New York State Comptroller Thomas P. DiNapoli at SEIU Capital Stewardship Program and CtW Investment Group Webinar Entitled Racial Equity Audits: A Critical Tool for Shareholders, NYS Comptroller, Thomas P. DiNapoli, April 13, 2021, available at https://nyscomptroller.medium.com/remarks-by-new-york-state-comptroller-thomas-p-397b006d1d5c. (go back), 79See Citigroup No-Action Letter, supra note 78; JPMorgan No-Action LetterFebruary, supra note 77. 16, 1992)). Wall Street Banks Reject Racial Equity Audits, While Professing BLM Support JPMorgan Chase CEO Jamie Dimon is urging shareholders to vote against a proposed review of the impact of bank policies and practices on racial inequality. Racial Equity Audits: A New ESG Initiative Poised To Gain - Mondaq In 2020, we created the Goldman Sachs Fund for Racial Equity to support the vital work of leading organizations addressing racial injustice, structural inequity and economic disparity. 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. [18] Concurrently with shareholder activists nominating an increasing number of diverse director candidates, the voting policies of many institutional investors, such as BlackRock, Inc. (BlackRock), have been updated to reflect a desire to enhance boardroom diversity, [19] as have the voting guidelines of many prominent proxy advisory firms, such as ISS. News, John Biers, May 22, 2011, available at https://news.yahoo.com/big-us-companies-pushed-tally-014418300.html. NEW YORK-- ( BUSINESS WIRE )--Citi and the Citi Foundation announced today the Action for Racial Equity initiative has already invested $1 billion in strategic initiatives to help close the. 30-10825; 34-89670; File No. Exxon faces proxy fight launched by new activist firm Engine No. 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. We deliver active investment strategies across public and private markets and custom solutions to institutional and individual investors. Morgan Stanley has committed to an internal review of its workforce and leadership, according to CtW, which also said the bank has agreed to talk about what it will do to ensure equity for.
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