Under Rule 14a-8(i)(10), a company is permitted to exclude a shareholder proposal if the company has already substantially implemented the proposal. 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. (go back), 30Webinar, Cyrus Mehri, Founding Partner of Mehri & Skalet, PLLC, supra note 23. What's more, BlackRock, Morgan Stanley, and Citigroup have conducted . ; 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. [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. 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. If a company lags behind in this quickly developing area, we believe shareholders may become more willing to launch shareholder campaigns focused on ESG issues, including demanding objective results through Racial Equity Audits. Companies that sought to exclude Racial Equity Audit proposals from their 2021 proxy statements by requesting no-action relief from the SEC argued that the exclusions set forth in sections (i)(3), (i)(7) or (i)(10) of Rule 14a-8 applied. Paul, Weiss has launched a new Civil Rights and Racial Equity Audit Practice, which is among the . Exxon has faced pressure from shareholders to shift practices to reduce greenhouse gas emissions. According to Forbes Magazine, the past proxy season set new records with at least 467 shareholder resolutions on environmental, social and governance (ESG) issues. [64]. All rights reserved. Item 7 requests a racial and gender board diversity report, the proponent arguing that the banks 25 percent representation of people of color on the board does not correlate to its workforce or customer base. 16, 1992)). From 2016 through today, over 1.3 million people have declined to agree to Airbnbs mandatory Community Commitment and Non-Discrimination Policy, and have therefore been denied use of the platform or had their accounts cancelled. And lastly, whether a company has sufficient mechanisms in place to monitor effectiveness. In 2016, Airbnb partnered with the Color of Change to launch a three year review of the company's platform and . The proponents argued that Home Depots political contributions appear to be misaligned with its public statements of its views and operational practices. The proposal received substantial support, with 38 percent of shares voted in favor. (go back), 10ESG Activism Becomes the Norm, ESG Activism, Insightia, 2021, available at 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. Racial Equity Audits are the practice of independently reviewing an organisation's policies and ascertaining how well they encourage and promote inclusion, diversity, and racial equality. According to Laura Murphy, a prominent civil rights leader and civil rights auditor, a civil rights audit is an independent, systematic examination of significant civil rights and racial equity issues that may exist in a company and provides a plan of action to address those issues in a thorough, deliberate, timely, and transparent manner. Companies and in turn shareholders face significant risks if civil rights problems are not remedied, including reputational, regulatory, and litigation risks. [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. Advertisement The report served as a withering rebuke of Facebook's handling of issues related to technology,. Alleged retaliation against employees who raise issues of discrimination. In 2016, Airbnb released its own audit into discrimination and bias on its service. In 2020 and 2021, at least 12 public companies received shareholder proposals to conduct a racial equity audit from pension funds and other shareholder supporters. . (go back), 37Webinar, Cyrus Mehri, Founding Partner of Mehri & Skalet, PLLC, supra note 23. The first major US company to undergo such third-party racial audit was Airbnb. (go back), 100Goldman Sachs Proxy Statement, supra note 35. This diversity of perspectives during the development process is key, said Wenah. 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. [24] However, many advocates believe that without objective means to identify areas of improvement and monitor companies progress, these commitments may be illusory and confirmation that these companies have in fact met their commitments could be difficult. Data collected through Project Lighthouse will help the company create tools and policies to combat bias against Black users and other people of color, Brian Chesky, Airbnb's CEO and co-founder, told USA TODAY. 1 In addition to personal accounts, a study at Harvard Business School highlighted racial discrimination on Airbnb's rental platform. The perceived race information generated in this project will be aggregated and only be used to analyze past interactions on the platform, exclusively to develop anti-discrimination work. These companies have asserted that they disagree with the approach of Racial Equity Audit proposals, but are aligned with [their] stated goal of addressing racial inequity in the financial sector. [96], For example, the board of directors of Citi recommended a vote against the Racial Equity Audit proposal included in its 2021 proxy statement, noting that [a]s recently as September 2020, Citi released a 104 page report on the economic cost of Black inequality in the United States titled Closing the Racial Inequality Gaps, and said its efforts on these issues are available to the public. [94] In the financial industry, BlackRocks decision distinguishes it from other financial institutions that have asked shareholders to vote against similar audit proposals and/or have sought no-action relief from the SEC. [11], ESG considerations are becoming increasingly relevant to shareholder activists. (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. 14B, September 15, 2004, available at https://www.sec.gov/interps/legal/cfslb14b.htm. ESG considerations can be broken down into three categories. Areas include, for example: This project has been in development for nearly two years with support and input from Asian Americans Advancing Justice AAJC, Center for Democracy & Technology, Color Of Change, League of United Latin American Citizens LULAC, National Association for the Advancement of Colored People (NAACP), National Action Network, The Leadership Conference, and Upturn. Recently, investors and companies have also begun to appreciate that positive financial returns are often associated with investing in initiatives working towards racial equality. (go back), 98Wells Fargo & Company, Notice of Annual Meeting and Proxy Statement, Schedule 14A, filed with the SEC on March 16, 2021, available at https://www.sec.gov/Archives/edgar/data/72971/000119312521082907/d71313ddef14a.htm [hereinafter Wells Fargo Proxy Statement]. Airbnb. (go back), 107Amazon Proxy Statement, supra note 104. 1What is ESG?, ADEC Innovations ESG Solutions, available at https://www.esg.adec-innovations.com/about-us/faqs/what-is-esg/. A report on the audit, prepared at reasonable cost and omitting confidential or proprietary information, should be publicly disclosed on BofAs website. For all companies, and especially tech . Otherwise, these proponents posit, a lackluster or hastily conducted Racial Equity Audit or failure to take meaningful action in response to an audit may actually have the opposite effect for the implementing institutioninstead of insulating the company from potential proposals demanding Racial Equity Audits, faulty or perfunctory audits may instead create a target on the institutions back for ESG activists in the following years. Concerns related to workforce diversity, treatment of minority workers, environmental justice in communities of color, surveillance, and civil rights are just some of the controversies that have troubled Amazon. [114] For example, current and former Amazon employees have accused the company of allowing racism to permeate its operations. (go back), 17Supra note 5; see also What Is ESG? (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. 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. 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. (go back), 28The Business Case for Racial Equity, a Strategy for Growth, Ani Turner, W.K. What's next: Citigroup said last week it will undergo a racial equity audit. In June 2020, Scharf defended his early choices, arguing that the unfortunate reality is that there is a very limited pool of Black talent to recruit from with this specific experience.. [69], Proponents contend that Racial Equity Audits would help public companies identify, prioritize, remedy and avoid adverse impacts on nonwhite stakeholders and communities of color [70] and would help a companys board of directors assess such companys behavior through a racial equity lens in order to obtain a complete picture of how it contributes to, and could help dismantle, systemic racism. [71]. [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. (go back), 105Id. Wells Fargo, the third largest bank by assets in the US, along with seven other major financial institutions, received a shareholder proposal requesting the bank conduct a racial equity audit in 2021. These votes follow a 2021 season in which eight racial equity audit proposals were proposed at companies in the S&P 500, seven of which received more than 20 percent support. 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. These funds have explicit mandates to make ESG-focused investments, from mutual funds whose portfolio companies must score a high grade on ESG metrics to investment firms dedicated to ESG impact investing. For many, the scrutiny is welcome. The audits are conducted by third-party groups, which analyze companies' business modelsfrom policies to products and servicesto determine whether they cause, reinforce, or perpetuate. These audits are conducted to analyze the effectiveness of diversity, equity and inclusion programs, the impacts of technology and products on racial minorities in communities and companies and the treatment of customers, and other civil rights and racial equity issues. 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