FlZ240l7_Dl4\'q3c`HBB0d)b@b7TpCR6>[Jn'EP*w"n<7R`/E/=O$H+tgu1wJwD$dAmX,E"AE W?,#( Our firm's commitment to sustainability informs our operations, governance, risk management, diversity efforts, philanthropy and research. https://www.sec.gov/divisions/corpfin/cf-noaction/14a-8/2021/nyscrfamazon012521-14a8-incoming.pdf, https://www.sec.gov/interps/legal/cfslb14b.htm, https://www.sec.gov/ix?doc=/Archives/edgar/data/1070985/000119312521165313/d184269d8k.htm, https://thehill.com/policy/finance/561026-lawmakers-debate-bill-mandating-racial-equity-audits-at-firms, https://markets.businessinsider.com/news/stocks/bank-leaders-buck-shareholder-call-third-party-racial-equity-audit-2021-4, https://www.sec.gov/Archives/edgar/data/72971/000119312521082907/d71313ddef14a.htm, https://news.bloomberglaw.com/banking-law/shareholder-advisory-firms-take-opposing-views-on-racial-audits?context=article-related, https://www.sec.gov/Archives/edgar/data/1018724/000110465921050333/tm2035374-1_def14a.htm, https://www.timesunion.com/news/article/Comptroller-DiNapoli-wants-audit-of-Amazon-s-15815322.php, https://www.sec.gov/divisions/corpfin/cf-noaction/14a-8/shareholder-proposal-no-action-responses.htm. 16, 1992)). The Firm's employees serve cl . [121] Comptroller DiNapoli described the vote as an immense success for a first-time proposal . [129] As a result, the shareholder proposal was withdrawn and SEIU announced that it was currently working with BlackRock to bring about needed change within the company and the financial services industry.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]. (go back), 27Racial Equity Audit Proposal Q&A CtW Investment Group and the Service Employees International Union, available at https://static1.squarespace.com/static/5d374de8aae9940001c8ed59/t/605cdec4e6861277202f0b46/1616699076603/Racial+Equity+Audit+QA_CtW_SEIU+%28002%29.pdf. New York, NY. Bank of America said last week that an audit is unnecessary given its progress on racial equality. (go back), 43Webinar, Vivian Gray, SEIU Pension Fund Trustee, supra note 23. [112], In a webinar hosted by CtW, Comptroller DiNapoli explained the importance of racial equity at Amazon and why shareholders should vote in favor of the proposal, and argued that racial inequity is harming the United States economy. [113] DiNapoli argued that the pattern and magnitude of issues repeatedly facing the company demonstrate a need for a more in-depth review . [11], ESG considerations are becoming increasingly relevant to shareholder activists. Recently, Morgan Stanley ( MS +0.65%) and CtW Investment Group reached an agreement for the bank to conduct an internal diversity review, and to meet shareholders on next steps before its 2022 annual meeting. Whether it be modern day redlining techniques related to mortgage loans, to excessive checking account fees, to most recently, Payday [sic] Protection Program distribution, communities of color have faced decades of discrimination as a result of the financial industrys policies and practices. A 38 percent "yes" vote at Citi was particularly encouraging, given the fact that institutional investors typically follow the corporate board's recommendation. Beyond the moral case and business case for conducting Racial Equity Audits, and fighting systemic racism in general, is the democracy case espoused by social justice advocates [37] and that corporations can at times act more swiftly and have a more profound effect on current social issues than the government; therefore, these advocates argue that corporations have a responsibility to address issues affecting our democracy. The goals provide a yardstick for school leaders to measure their progress and as a "lightning rod to galvanize change" (IDRA, 2006). 2023Morgan Stanley. The lender pledged in 2020 to spend $1 billion over four years to combat racial and economic . [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. (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). The activist investor nominated a slate of four director candidates with expertise operating energy companies and utilizing clean technology. Everything we do at Morgan Stanley is guided by our five core values: Do the right thing, put clients first, lead with exceptional ideas, commit to diversity and inclusion, and give back. 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. Most companies who may have been unsuccessful in seeking no-action relief from the SEC to exclude the proposal or in negotiating a resolution with a shareholder to withdraw the proposal have recommended that shareholders vote against the proposals. (go back), 50Webinar, Pamela Coukos, Co-Founder of Working Ideal, supra note 23; supra note 27. [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. And lastly, whether a company has sufficient mechanisms in place to monitor effectiveness. Stay abreast of the latest trends and developments. Proponents of Racial Equity Audits warn that such audits should be conducted in a robust manner by fully independent third parties, and that the subject companies take action to address deficiencies, shortcomings and concerns uncovered by the audits. [66], Similar Racial Equity Audit proposals were submitted by shareholders at several public companies during the 2021 proxy season with substantially the same resolution clause copied above, but with different issues highlighted. [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). (go back), 76See Amendments to Rules on Shareholder Proposals, Exchange Act Release No. McKensie Mack Group (MMG), a Black-led consultancy that centers around racial equity, released their Sacramento Area Council of Governments (SACOG) racial equity audit. [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). Dismissal and neglect of these concerns led to Engine No. 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. 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. In November, SEIU's Capital Stewardship Program and. 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. [97] Wells Fargo Co. (Wells Fargo) said it is conducting a human rights impact assessment, and that it will update its Human Rights Statement to better align with the expectations of companies under the United Nations Guiding Principles on Business and Human Rights. (go back), 108Amazon No-Action Letter, supra note 83. Resolutions were withdrawn at BlackRock, CoreCivic, Morgan Stanley and Amgen based on their commitments to conduct internal audits. (go back), Posted by Ron S. Berenblat and Elizabeth R. Gonzalez-Sussman, Olshan Frome Wolosky LLP, on, Harvard Law School Forum on Corporate Governance, on Racial Equity Audits: A New ESG Initiative, The Illusory Promise of Stakeholder Governance. In general, Racial Equity Audit proposals ask the board of directors of a company to oversee such audits analyzing the companys business modelsfrom policies to products and servicesto determine whether they cause, reinforce or perpetuate discrimination. [67]. 1What is ESG?, ADEC Innovations ESG Solutions, available at https://www.esg.adec-innovations.com/about-us/faqs/what-is-esg/. [6] Since then, SEC leadership has signaled that more comprehensive ESG-related disclosure could be mandated in the near future, with SEC Commissioner Allison Herren Lee issuing statements earlier this year directing the Division of Corporation Finance to enhance its focus on climate-related disclosure in public company filings [7] and inviting input from investors, registrants, and other market participants on climate change disclosure. [8] Former Acting Director of the SECs Division of Corporation Finance John Coates also stated earlier in the year that the SEC should help lead the creation of an effective ESG disclosure system so companies can provide investors with information they need in a cost-effective manner. [9] Based on these statements, we believe there is a strong likelihood that the current SEC-mandated human capital management disclosures will soon be expanded to require additional disclosures covering environmental and other social initiatives and metrics, further supporting a view that ESG awareness, stewardship and reporting at public companies are here to stay. Prior, he . [123], While the financial institutions that have received Racial Equity Audit proposals have recently made philanthropic and strategic investments, along with other commitments to racial equity, CtW has stated that the only way to effectively address racial injustice and economic inequality is careful study of how the industrys products and services have contributed to this imbalance, [124] which includes analyzing mortgage issuances, the number of bank branches in minority neighborhoods or banking deserts and whether charitable contributions are fully aligned with . [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. [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. 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. . (go back), 85See Amazon No-Action Letter, supra note 83. (go back), 70Citigroup Proxy Statement, supra note 69; JPMorgan Chase & Co., 2021 Notice of Annual Meeting of Shareholders and Proxy Statement, Schedule 14A, filed with the SEC on April 7, 2021, available at https://www.sec.gov/Archives/edgar/data/0000019617/000001961721000275/a2021proxystatement.htm [hereinafter JPMorgan Proxy Statement]. Since our founding in 1935, Morgan Stanley has consistently delivered first-class business in a first-class way. Yesterday, the audit proposal also went to the vote at Wells Fargo, the result has not yet been disclosed. [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. As a firm, we can do more, and here are five steps were taking right now. Increased focusfrom companies, regulators, investors, and employeeson racial and ethnic discrimination has heightened scrutiny of public companies' DEI-related risks and opportunities, as have the COVID-19 pandemic and . [40] As illustrated in the study, companies with the highest degrees of ethnic/cultural diversity were 33% more likely to outperform their less diverse peers and companies with the most ethnically/culturally diverse boards of directors are 43% more likely to experience higher profits than their less diverse peers. Just like its environmental and corporate governance counterparts, addressing social concerns can be equally important to companies and investors alike as this can translate into, among other things, value additive results. We value our commitment to diverse perspectives and a culture of inclusion across the firm. From volatility and geopolitics to economic trends and investment outlooks, stay informed on the key developments shaping today's markets. [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. September 14, 2022, 1:19 p.m. EDT 3 Min Read. ; see also Comptroller DiNapoli Wants Audit of Amazons Racial Justice Practices, Times Union, Rick Karlin, December 21, 2020, available at https://www.timesunion.com/news/article/Comptroller-DiNapoli-wants-audit-of-Amazon-s-15815322.php. (go back), 118Id. According to Bloomberg, Glass Lewis has broadly said conducting the audits would help companies reduce risks of high-profile controversies that may result in customer and employee attrition, regulatory inquiries and significant fines, and that [g]iven broad societal changes, it is particularly important for consumer-facing companies, which depend on their customers trust and loyalty, to address issues of racial equity. [102] On the other hand, according to Bloomberg, ISS has stated that racial audits arent warranted because companies are taking sufficient meaningful actions to address racial inequities such as expanding opportunities for people and communities of color, as well as improving the diversity and inclusion of its workforces. [103] The following chart sets forth the recommendations ISS and Glass Lewis made with respect to each Racial Equity Audit proposal in the 2021 proxy season: Source: ISS Corporate Solutions and Proxy Insight, During the 2021 proxy season, Amazon.com, Inc. (Amazon) faced a shareholder proposal requesting the company to conduct a Racial Equity Audit. Exxon has faced pressure from shareholders to shift practices to reduce greenhouse gas emissions. According to public policy analysts, racial violence and the COVID-19 pandemic sparked an increase in Rule 14a-8 shareholder proposals focused on racial justice. Equity audits guide schools in conducting a critical review of their data to inform ways of addressing systemic inequities. 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. (go back), 104Amazon.com, Inc., Notice of 2021 Annual Meeting of Shareholders and Proxy Statement, Schedule 14A, filed with the SEC on April 15, 2021, available at https://www.sec.gov/Archives/edgar/data/1018724/000110465921050333/tm2035374-1_def14a.htm [hereinafter Amazon Proxy Statement]. . (go back), 4ESG investing: Discover funds that reflect what matters most to you, The Vanguard Group, Inc., available at https://investor.vanguard.com/investing/esg/. Our insightful research, advisory and investing capabilities give us unique and broad perspective on sustainability topics. 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), 20Proxy Voting Guidelines Benchmark Policy Recommendations, ISS, effective for meetings on or after February 1, 2021, available at https://www.issgovernance.com/file/policy/active/americas/US-Voting-Guidelines.pdf. [38] Racial Equity Audits can be designed to help identify if and where these issues exist within a company so that management can address them most effectively. Governance teams and boards have been warned to stay alert to the prospect of facing shareholder proposals in 2022 urging them to commission racial equity audits. [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]. Our work on racial equityfocuses on our commitments as a business, as a responsiblemember of global and local communities, and as an inclusive workplace that values diversity. [21] Most shareholder activists are cognizant of the stance of institutional investors and proxy advisory firms on ESG issues and have increasingly incorporated ESG factors into their proxy campaigns. 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. IS s+i-T"sl7fMIa0d4` #? 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. (Adds details about Morgan Stanley in 11th and 12th paragraphs.) (go back), 21Cal. I am very proud to announce that I have been named in Morgan Stanley's prestigious 2023 Pacesetter's Club, a group of the Firm's successful Financial Advisors. If this occurs, legislators and/or regulatory authorities may at some point in the future step in to close the gap between investor demand and practical implementation. Wells Fargo announced it will commission a third-party racial equity audit Tuesday after years of advising shareholders to vote against one. (go back), 34Starbucks Steps Up Its Racial Justice Outreach With $100 Million Pledge, Forbes, Kori Hale, January 20, 2021, available at https://www.forbes.com/sites/korihale/2021/01/20/starbucks-steps-up-its-racial-justice-outreach-with-100-million-pledge/?sh=53b94b63389c. [52] Practitioners also stress the importance of identifying and engaging the process owners (e.g., the Chief Executive Officer, Chief Legal Officer or Chief Diversity, Equity and Inclusion Officer) as the persons who will actually drive the implementation of recommended initiatives. [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. 30-10825; 34-89670; File No. A racial equity audit is the first step to safeguard against further harm and it's also the smart thing to do. The big Wall Street banks have all talked a good line about supporting the Black Lives Matter movement. The correlation between gender-balanced teams and improved decision-making, innovation and performance aligns with our core value Commit to Diversity and Inclusion. SEC interpretations of this rule provide that proposals that concern ordinary business matters but focus on significant social policy issues would not be excludable because the proposals would transcend the day-to-day business matters. [82] In seeking to exclude Racial Equity Audit proposals, companies argued that these audits concerned day-to-day aspects of their ordinary business operations, including: (i) product sales and advertising; [83] (ii) customer relationships; [84] (iii) the nature of the companys public relations, messaging, and communications with its shareholders and other constituents; [85] (iv) workforce management; [86] (v) relationships with suppliers; [87] (vi) community impacts; [88] or (vii) decisions regarding the products and services [the company] offers. [89] Furthermore, these companies contended that the proposals did not focus on a significant policy issue that transcended their ordinary business. 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. (go back), 7Statement on the Review of Climate-Related Disclosure, U.S. Securities and Exchange Commission, Acting Chair Allison H. Lee, February 24, 2021, available at https://www.sec.gov/news/public-statement/lee-statement-review-climate-related-disclosure. Given current trends in ESG, public companies should stay informed on Racial Equity Audits and their adoption, crafting and implementation. (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). Tagged: 2020, Regulatory letters Newer PostCtW letter to DoorDash dual class Older PostCtW Racial Equity letter to Morgan Stanley Back to Top 1900 L Street NW, Suite 900 Washington, DC 20036 Citigroup Inc. (Citi), sought "no action" relief from the Securities and Exchange Commission to exclude the requests from its 2021 proxy statements, which request was denied. urge the Board of Directors to oversee a racial equity audit analyzing JPMorgan's adverse impacts on nonwhite stakeholders and communities of color. Promoted to one of five voting members on the S&P Municipal Bond Index Committee, overseeing and ruling on policy and governance. To that end, they believe companies should clearly disclose and explain the processes and personnel roles within a Racial Equity Audit and undertake to publicly share the results of the audit. These three employees, alums of Historically Black Colleges and Universities, are helping the firm support the next generation of Black students through our Morgan Stanley HBCU Scholars Program. [118] However, Comptroller DiNapoli noted a human rights assessment is not the same as an independent racial equity audit, and shareholders should be weary of equating the two. [119], On May 26, 2021, Amazon shareholders rejected eleven shareholder proposals at the annual meeting. Get the latest insights, analyses and market trends in our newsletter, podcasts and videos. (go back), 22Supra note 10. Investing in underserved communities through our products, services, spending, business practices and thought leadership, Supporting underserved communities through philanthropy that drives more equitable outcomes, Attracting, developing and retaining individuals with diverse backgrounds and driving a culture of inclusion. 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. News, John Biers, May 22, 2011, available at https://news.yahoo.com/big-us-companies-pushed-tally-014418300.html. [95], Companies Recommended Voting Against Racial Equity Audit Proposals. May 2010 - Jul 20122 years 3 months. Risks to shareholder value associated with diversity, equity, and inclusion (DEI) remain a top engagement priority for Vanguard with our funds' portfolio companies. 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. Annie Palmer @annierpalmer. Multicultural and women entrepreneurs are the cutting-edge leaders of businesses that power markets. (go back), 8Public Input Welcomed on Climate Change Disclosures, U.S. Securities and Exchange Commission, Acting Chair Allison H. Lee, March 15, 2021, available at https://www.sec.gov/news/public-statement/lee-climate-change-disclosures. In light of the protests sparked by the murder of George Floyd in June 2020, the CtW Investment Group has requested systemically important financial institutions to conduct a racial equity audit that identifies, prioritizes, and remedies the adverse impacts of the bank's policies and practices on non-white stakeholders and communities of color. (citing Exchange Act Release No. The Staff has stated that substantial implementation under the rule does not require the company to have implemented the proposal in full or exactly as proposed by the shareholder. That movement, together with the disproportionate impacts of the COVID-19 pandemic have focused the attention of the media, the public and policy makers on systemic racism, racialized violence and inequities in employment, health care, and the criminal justice system. The decision to retain an independent . 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. On July 28, 2021, ISS launched its Annual Benchmark Policy Survey, which included requests for feedback on Racial Equity Audits. ESG considerations can be broken down into three categories. [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. (go back), 91See SEC, Division of Corporate Finance Staff Legal Bulletin No. We offer scalable investment products, foster innovative solutions and provide actionable insights across sustainability issues.
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