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. (go back), 84See J&J No-Action Letter, supra note 78. BlackRock, the worlds 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 proposals. BlackRock has 'broken ranks' with Wall Street by conducting a racial equity audit in the financial world, and Citigroup and Morgan Stanley have now followed suit, despite initially urging shareholders to reject the audit proposals. (citing Exchange Act Release No. Citigroup Inc. (Citi), Wanted "no action" relief of the Securities and Exchange Commission to exclude the requests from its 2021 proxy statements, a request which was denied. In this way legislatures and/or regulatory authorities have the ability to serve as the catalyst for change and wider-reaching adoption by forcing companies that might have been unlikely or slow to act on their own to adopt such policies. (go back), 46Best ESG Funds: High-Rated and Low-Cost Options, NerdWallet, Alana Benson, May 9, 2021, available at https://www.nerdwallet.com/article/investing/best-esg-funds. 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. [55], Some companies have independently engaged in Racial Equity Audits or similar internal reviews, usually in response to external pressures. And the same study found that white Airbnb hosts in Black neighborhoods earned an estimated $160 million, compared to only $48 million earned by Black hosts. This project will measure discrimination based on perception, using a privacy-centric methodology that determines the race someone might associate with a first name and profile photo. 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. (go back), 74Big US companies pushed to tally progress on racial justice, Yahoo! [141]. Civil rights. [22]. While the company opposed all seven, at least four of those resolutions, including the first racial equity audit proposal at the company, two proposals for reports on the human rights implications of certain surveillance products, and a lobbying disclosure proposal received substantial support of over 30 percent. No two companies are identical. [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. The tactic in question is civil rights audits, also known as racial equity audits, which are third-party assessments of a company's role in addressing systemic racism. [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), 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. 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. Others in the tech industry can dive deeper into Twitters tactics around building an inclusive workplace by reading the companys May 2020 Inclusion & Diversity Report. 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. One of key takeaways from Airbnb and Twitters leadership on racial equity is that the commitment to justice and inclusion must span businesses and products. 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. Airbnb. This post is based on an Olshan memorandum by Mr. Berenblat, Ms. Gonzalez-Sussman,Claudia B. Dubn, Rebecca L. Van Derlaske, Ian A. Engoron, and Sarah R. Matchett. 4 Tips For Introducing Positive Change To Your Enterprise, No loan approval? By offering such guidance, companies may find it easier to voluntarily implement Racial Equity Audit policies. 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. [105] Comptroller DiNapoli was joined by other Amazon shareholders [106] in requesting Amazons board of directors to commission a Racial Equity Audit that would analyze two main issues: (1) Amazons impacts on civil rights, equity, diversity, and inclusion, and (2) the impacts of those issues on Amazons business. [107] In response, Amazon sent a letter to the SEC seeking to exclude the proposal from its 2021 proxy materials. [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. Therefore, this analysis and project will not affect an individuals experience on the platform in any way. [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. And lastly, whether a company has sufficient mechanisms in place to monitor effectiveness. 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. [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. The findings will be used to examine and address disparities in how Black users and other people of color experience Airbnb, out of fear of mistreatment or due to discrimination and bias. The two leading proxy advisory firms, ISS and Glass Lewis & Co. LLC (Glass Lewis), have generally taken opposing views on Racial Equity Audits. Under Rule 14a-8(i)(10), a company is permitted to exclude a shareholder proposal if the company has already substantially implemented the proposal. . Airbnb has consistently engaged in fighting bias and discrimination on its platform since 2016, after its first civil rights audit, authored by Laura Murphy, former Director of the American Civil Liberties Unions Washington Legislative Office and President of Laura Murphy & Associates. Racial Equity Audit proposals are intended to provide an independent, objective review of the corporations' effectiveness at combating systemic racism, a review that would benefit all stakeholders, including shareholders. 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. Some companies are turning to law firms like Covington to do the work. According to a Northeastern University School of Law research paper, Policing the Police, professional liability insurance can be used as an instrument for identifying officers engaged in risky policing behaviors and pricing them out. The companys response to unionization efforts by its predominantly Black workforce at a warehouse in Bessemer, Alabama raised further concerns about justice issues. 34-40018; IC-23200; File No. https://www.vox.com/recode/2021/2/26/22297554/amazon-race-black-diversity-inclusion, https://www.washingtonpost.com/technology/2021/03/01/amazon-race-discrimination-lawsuit/, https://www.washingtonpost.com/technology/2021/05/19/amazon-suit-race-gender-discrimination/, https://amazonemployees4climatejustice.medium.com/environmental-justice-and-amazons-carbon-footprint-9e10fab21138, https://www.nbcnews.com/tech/tech-news/amazon-shareholders-demand-end-pollution-hitting-people-color-hardest-n1268413, https://sustainability.aboutamazon.com/people/human-rights?workerCount=true&engagementProgram=true&productCategory=true, https://www.marketwatch.com/story/amazon-investors-reject-new-york-retirement-funds-call-for-a-racial-equity-audit-10-other-shareholder-proposals-11622242863, https://www.osc.state.ny.us/press/releases/2021/05/nys-comptroller-dinapoli-statement-major-support-racial-equity-audit-amazon, https://www.socinvestmentgroup.com/racial-equity-audit, https://static1.squarespace.com/static/5d374de8aae9940001c8ed59/t/60216432f41c694416fcceb5/1612801075053/BlackRock+2021+racial+equity+audit+proposal+final+%281%29.pdf, https://www.seiu.org/blog/2021/4/seiu-and-change-to-wins-investment-funds-pushing-for-racial-diversity-in-financial-institutions, https://news.bloombergtax.com/financial-accounting/blackrock-breaks-ranks-with-wall-street-in-performing-race-audit, https://fortune.com/2021/04/06/blackrock-racial-audit-corporate-diversity-inclusion-race-at-work/, https://insights.issgovernance.com/posts/iss-opens-global-annual-benchmark-policy-survey-and-separate-climate-survey/, https://www.congress.gov/bill/117th-congress/house-bill/2123/committees?r=61&s=1, https://www.olshanlaw.com/resources-alerts-Nasdaq-SEC-boardroom-diversity-rule.html. (go back), 73As You Sow: Racial Justice, available at https://www.asyousow.org/our-work/social-justice/racial-justice. Home Depots PAC donated more than $450,000 in the 2019-20 election cycle, and more than $1.5 million in the past three cycles to the Members of Congress who objected to certifying the election results on January 6, 2021. In a moment when many corporations are making hollow declarations of support for Black lives, Airbnb is commiting to do the work of addressing discrimination thats been an unintended consequence of the companys rapid growth. Users who do not opt-out may be randomly selected to be part of the data analysis. 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. (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. In addition to our ongoing diversity and anti-discrimination efforts, as we grapple with the effects of COVID-19, now more than ever we need to be a platform for economic empowerment that can help hosts, including Black residents, keep their homes and avoid displacement from their communities.. [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. The audit featured three reports and extensive interviews with hundreds of civil rights organizations and . where the board recommends that shareholders vote against the racial equity audit proposal. . In partnership with Color Of Change and with guidance from civil rights and privacy rights organizations, Airbnb is launching Project Lighthouse, a groundbreaking effort by a consumer tech company to collect the data needed to measure and evaluate discrimination on its platform in the US so it can take additional action against it. Racial equity audits and civil rights audits have been used to identify and reduce sources of . [33] The public announcement of the Racial Equity Audit and related diversity, equity and inclusion efforts appeared to not only rehabilitate Starbucks public image after the incident, but helped the company become the most popular restaurant stock on the S&P 500 with actively managed funds that are dedicated to ESG investing, according to RBC Capital Markets. In a world where we have seen data and technology used to foster discrimination, we are pleased to see Airbnb use them to fight bias on its platform. As Black Lives Matter uprisings continue to swell beyond the borders of the United States, the tech industry has been forced to reckon with racism within its own companies. Second, whether any changes to existing programs or new measures or initiatives, would help a company become more equitable and inclusive. The project will start on June 30, 2020 and will be limited to U.S.-based hosts and guests. What Makes Patagonia A World Leader in Sustainability, Medium, Tom & Jerry, January 13, 2021, available at https://medium.com/climate-conscious/what-makes-patagonia-a-world-leader-in-sustainability-486073f0daa. [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. Public, third-party racial equity audits have supported companies like Facebook and Airbnb in acknowledging areas for improvement and beginning to put in place company infrastructure to prevent and mitigate harm. Wenah herself has been working on this project for many years. And even they are far from perfect. According to Wenah, Airbnb lost 1.3 million users after launching the Community Commitment. Every day, Hosts offer unique stays and experiences that make it possible for guests to connect with communities in a more authentic way. Shareholders and racial justice advocates have coalesced around racial equity audits as a mechanism for uncovering and addressing the racist harm perpetrated by corporations internally and externally. 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. 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. In setting this precedent, it is important to understand that there are technology platforms that have already left irreversible marks on Black communities and communities of color around the country that need to be addressed. CEO Charles Scharf took the helm of the bank in 2019 and implemented changes to management, including bringing on other white men he had worked with previously to high-level positions within Wells Fargo. (go back), 112Shareholder Proposal No-Action Responses, SEC, Staffs Response, April 7, 2021, available at https://www.sec.gov/divisions/corpfin/cf-noaction/14a-8/shareholder-proposal-no-action-responses.htm; see also U.S. SEC blocks Amazon effort to stop shareholder votes on racial equity audit, Reuters, April 7, 2021, available at https://www.reuters.com/article/us-amazon-com-sec-vote/u-s-sec-blocks-amazon-effort-to-stop-shareholder-votes-on-racial-equity-audit-idUSKBN2BU38U. Racial Equity Audits may also find that a companys existing policies and practices are not sufficient to address or may be perpetuating systemic social issues. 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. 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