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. Further, companies wishing to stay ahead of the curve may start by critically and objectively looking at their current internal practices and policies relating to equity and inclusion and identifying areas in need of improvement. Racial equity audits of corporations originated within the racial justice movement recently. As an extra security precaution, this information will be deleted every 30 days. For example, such guidelines may provide for a minimum frequency of Racial Equity Audits and indicate parameters on what attributes an audit must possess to be considered sufficient. The Facebook audit began at the behest and encouragement of the civil rights community and some members of Congress, proceeded with Facebooks cooperation, and [was] intended to help the company identify, prioritize, and implement sustained and comprehensive improvements to the way it impacts civil rights. [56] The audit process included interviewing over 100 civil rights organizations, several hundred more advocates as well as members of Congress. 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. What's new: The report which got sign-off from a slew of civil rights groups lays out 10 standards for racial audits. Cacace actively holds the position of Director of Anti-Discrimination & Equity Programs for Airbnb. 2008 with the best of intentions, but were not fully conscious of racial bias when they designed the platform. [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. Companies Negotiated with Shareholders to Withdraw the Racial Equity Audit Proposal. (go back), 30Webinar, Cyrus Mehri, Founding Partner of Mehri & Skalet, PLLC, supra note 23. 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. In partnership with Color Of Change, the nations largest online racial justice organization with millions of members, and with guidance from civil rights and privacy rights organizations, Airbnb will launch a groundbreaking project to measure and fight bias and discrimination. [55], Some companies have independently engaged in Racial Equity Audits or similar internal reviews, usually in response to external pressures. (go back), 93See J&J No-Action Letter, supra note 78. [120] Among these, the proposal for a Racial Equity Audit garnered the most support, with 44% of the votes cast on this proposal voting in favor. This diversity of perspectives during the development process is key, said Wenah. As the ESG movement gains momentum, and as the new wave of investors who factor ESG concerns into their investment decisions gain a larger share of the market, companies are being advised to revisit their current policies and practices under the ESG lens. He agreed and was personally concerned that there was an unacceptable lack of urgency around Airbnb's previous attempts to address allegations of racial bias within the Airbnb community, and vowed that such unconsciousness would not Data privacy advocates and experts have provided guidance to help ensure this data is not associated with an individuals Airbnb account. Companies Sought No-Action Relief. 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. What's next: Citigroup said last week it will undergo a racial equity audit. According to Wenah, Airbnb lost 1.3 million users after launching the Community Commitment. You cannot fix bias without measuring it first, said Brian Chesky, Airbnb Co-Founder and CEO. For all companies, and especially tech companies, that means its time to get to work! (go back), 123Racial Equity Audit, SOC Investment Group, 2021, available at https://www.socinvestmentgroup.com/racial-equity-audit. (go back), 33On the Progress of its Efforts to Promote Civil Rights, Equity, Diversity, and Inclusion, Starbucks, February 24, 2020, available at https://stories.starbucks.com/uploads/2020/02/Starbucks-Civil-Rights-Assessment-2020-Update.pdf; supra note 27. 25 percent representation of people of color on the board, far higher premiums for auto insurance in Black neighborhoods as opposed to white neighborhoods, lower payouts in homeowner insurance claims for Black neighborhoods, identifying officers engaged in risky policing behaviors and pricing them out, largest home improvement retailer in North America. (go back), 43Webinar, Vivian Gray, SEIU Pension Fund Trustee, supra note 23. [32] For example, following the voluntary Racial Equity Audit conducted by Starbucks after the 2018 incident discussed above, the company began requiring implicit bias training for employees, setting public corporate diversity goals and implementing a number of other social initiatives. Racial Equity Audits and similar equity and inclusion initiatives that are not robust or designed with the aid of independent third party consultants may risk being perceived as mere window dressing and invite criticism from shareholders. 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), 5ESG Matters (Part II), ISS EVA, Dr. G. Kevin Spellman and David O. Nicholas, May 18, 2021, available at https://www.issgovernance.com/library/esg-matters-part-ii/. In its advertising products, Google has blocked companies from using racial justice terms like Black Lives Matter while allowing advertisers to search and place their content on tens of millions of videos tagged with white nationalist terms like White Power or White Lives Matter. The proponent of the racial equity audit proposal, Nathan Cummings Foundation, is concerned that many of Alphabets business practices are enabling racism and discrimination, posing legal, financial, and reputational risk.. Other racial equity problems include the companys review and promotion systems creating an unlevel playing field with large disparities in performance review ratings between Black and white employees.. (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]. [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). 1 In addition to personal accounts, a study at Harvard Business School highlighted racial discrimination on Airbnb's rental platform. 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. (go back), 28The Business Case for Racial Equity, a Strategy for Growth, Ani Turner, W.K. In recent years, Color of Change and other civil rights groups have successfully pushed for independent racial equity audits at Facebook and Airbnb. 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. [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. (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. [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. [137] The proposed Diversity and Inclusion Data Accountability and Transparency Act would require such audits by independent third parties of the subject companies policies and practices pertaining to civil rights, equity, diversity and inclusion. [138] The initial debates on the draft legislation also considered adding to the draft bill penalties for non-compliance, including fines of up to $20,000 a day for failure to engage in such audits. (go back), 79See Citigroup No-Action Letter, supra note 78; JPMorgan No-Action LetterFebruary, supra note 77. The following proposals will be put to shareholders at its May 19, 2022 annual meeting: The following proposals will be put to shareholders at its June 1, 2022 annual meeting: Alphabet, the parent company of Google and YouTube, faces nine shareholder proposals this year on issues relating to diversity, racism, lobbying activity, and platform use problems facing the company. [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. (go back), 126BlackRock Audit Proposal, available at https://static1.squarespace.com/static/5d374de8aae9940001c8ed59/t/60216432f41c694416fcceb5/1612801075053/BlackRock+2021+racial+equity+audit+proposal+final+%281%29.pdf. According to the proponents, issues relating to racial equity and the companys corporate practices are longstanding, and include multiple lawsuits relating to employment and lending discrimination. (go back), 21Cal. 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. (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. 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 can focus on various aspects of a companys business, including the treatment of customers at a companys physical locations, the diversity of senior management, the targeting of products, and even political contributions. The most recent and prominent example of the intersection between shareholder activism and ESG was the 2021 proxy contest at Exxon. Not only are Racial Equity Audits designed to help inform investors about their current and future investments from a social and financial perspective, but are also intended to help companies craft their policies and practices to achieve their social justice goals. (go back), 24Heres What Companies Are Promising to Do to Fight Racism, The New York Times, Gillian Friedman, August 23, 2020, available at https://www.nytimes.com/article/companies-racism-george-floyd-protests.html. 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. [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. (go back), 35The Goldman Sachs Group, Inc., 2021 Notice of Annual Meeting and Proxy Statement, Schedule 14A, filed with the SEC on March 19, 2021, available at https://www.sec.gov/Archives/edgar/data/886982/000119312521087020/d88664ddef14a.htm [hereinafter Goldman Sachs Proxy Statement]. Therefore, this analysis and project will not affect an individuals experience on the platform in any way. 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. . Only the Anti-discrimination team, Security team, and research partner will have access to this information. (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]. (go back), 29Webinar, Susan Baker, Director of Shareholder Advocacy, Trillium Asset Management, supra note 23. 1What is ESG?, ADEC Innovations ESG Solutions, available at https://www.esg.adec-innovations.com/about-us/faqs/what-is-esg/. . Civil rights advocates notched a victory this week by securing a commitment from e-commerce giant Amazon to conduct a racial equity audit, a step they say is crucial toward ensuring that. 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. And even they are far from perfect. 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. [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), 50Webinar, Pamela Coukos, Co-Founder of Working Ideal, supra note 23; supra note 27. [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]. Exxon faces proxy fight launched by new activist firm Engine No. 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. (go back), 134 ISS Opens Global Annual Benchmark Policy Survey and Separate Climate Survey, ISS, July 28, 2021, available at https://insights.issgovernance.com/posts/iss-opens-global-annual-benchmark-policy-survey-and-separate-climate-survey/. Every day, Hosts offer unique stays and experiences that make it possible for guests to connect with communities in a more authentic way. 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. (go back), 95For a detailed discussion of BlackRocks decision to implement a Racial Equity Audit, see Section IV.A. This project was designed with guidance from data privacy experts and advocates, including the Center for Democracy & Technology, Dr. Latanya Sweeney and The Data Privacy Lab at Harvard, and Upturn. A National Labor Relations Board complaint alleged that the company enforced its dress code selectively and disparately against workers that displayed the slogan and engaged in other related protected concerted activities.. Among the many ESG developments bubbling to the forefront of the markets in recent years is the desire of investors to see companies address social justice concerns. 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. [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.