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[17], Improved ESG criteria is not a new area for activist investors. 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. Opinion | Wall Street Banks Reject Racial Equity Audits, While Morgan Stanley is a leading global financial services firm providing a wide range of investment banking, securities, investment management and wealth management services. Input from civil rights organizations, employees, and customers should be considered in determining the specific matters to be analyzed. 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. PDF Venture Capital and Racial Equality - Morgan Stanley (go back), 106Other shareholders joining the proposal were: (1) the Praxis Growth Index Fund; (2) CommonSpirit Health; (3) the Adrian Dominican Sisters; (4) Catherine Donnelly Foundation; (5) Monasterio Pan de Vida; (6) Reynders, McVeigh Capital Management, LLC; (7) the Congregation of the Sisters of St. Joseph of Peace; (8) the Sisters of the Holy Names of Jesus and Mary U.S.-Ontario Province Corporation; and (9) Newground Social Investment on behalf of the Robert H. and Elizabeth Fergus Foundation and Eric Menninga. Dismissal and neglect of these concerns led to Engine No. For 87 years, weve had a passion for whats possible. e.oe."_Lm9Qfj5MvZWNpe0i7 g_s\I`e0GBcEY\6:'vY [L7'$yz{\RUS?_hdHa8xZr$a`[v x0dG{-1weLg! 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. Multicultural and women entrepreneurs are the cutting-edge leaders of businesses that power markets. (go back), 66Bank of America Corporation, 2021 Notice of Annual Meeting and Proxy Statement, Schedule 14A, filed with the SEC on March 8, 2021, available at https://about.bankofamerica.com/annualmeeting/static/media/BAC_2021_ProxyStatement_ADA.612694a6.pdf. Civil rights advocates and proponents of social justice have long touted the moral and ethical considerations of closing the racial divide in America. [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. A career at Morgan Stanley means belonging to an ideas-driven culture that embraces new perspectives to solve complex problems. (go back), 93See J&J No-Action Letter, supra note 78. (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/. (go back), 81See Citigroup No-Action Letter, supra note 78. Our board of directors and senior executives hold the belief that capital can and should benefit all of society. We have global expertise in market analysis and in advisory and capital-raising services for corporations, institutions and governments. 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 . 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. We lead with exceptional ideas, prioritize diversity and inclusion and find meaningful ways to give backall to contribute to a future that benefits our clients and communities. (go back), 30Webinar, Cyrus Mehri, Founding Partner of Mehri & Skalet, PLLC, supra note 23. Wells Fargo agrees to racial equity audit | American Banker Racial Equity Audit SOC Investment Group Morgan Stanley and its former chief diversity officer, Marilyn Booker, reached a deal Friday to end the lawsuit Booker brought last year against the bank and two of its executives, alleging "race and gender discrimination, retaliation and unequal pay." Stay abreast of the latest trends and developments. (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). However, on August 6, 2021, the SEC approved new listing rules proposed by The Nasdaq Stock Market LLC (Nasdaq) requiring each Nasdaq-listed company to disclose certain information about the diversity of its board of directors and generally include a minimum number of members of its board of directors who are Diverse (as defined within the new listing rules). The lender pledged in 2020 to spend $1 billion over four years to combat racial and economic. In 2020 and 2021, at least 12 public companies received shareholder proposals to conduct a racial equity audit from pension funds and other shareholder proponents. Bank of America said last week that an audit is unnecessary given its progress on racial equality. Prior, he . Racial Equity Audits could emerge as a critical tool for companies to evaluate their current social impact and provide an objective method for investors to monitor their investments and potentially identify new companies that could benefit from increased social and economic engagement. 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. Equity in the Boardroom: How Asset Manager Voting Shaped Corporate [31] Following an audit, some companies have used the findings to develop a strategic plan to capitalize on opportunities to address racial equity moving forward. 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. Below is a chart listing the shareholder proposals submitted at various companies during the 2021 proxy season, the proponent, the regulatory basis to exclude the proposal invoked by the company and the SECs response to the companys request for exclusion. The big Wall Street banks have all talked a good line about supporting the Black Lives Matter movement. [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. At Morgan Stanley, advancing racial equity is about intentional, holistic change at the intersection of what we do, who we are and how we engage our communities. [13] Recently, however, activists have begun to realize that social and environmental issues can also impact their investments, in both negative and positive ways. Proxy advisors split over racial equity requests at banking giants h247T0Pw/+Q0,H/-K-0 Our culture of access and inclusion has built our legacy and shapes our future, helping to strengthen our business and bring value to clients. Risks to shareholder value associated with diversity, equity, and inclusion (DEI) remain a top engagement priority for Vanguard with our funds' portfolio companies. Racial equity audits started catching on after the events of 2020 prompted a racial reckoning in the U.S. 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. [48] New York State Comptroller Thomas F. DiNapoli, a staunch advocate of Racial Equity Audits, has stated that such an audit should ascertain at least three things: First, whether a companys policies, practices, and products are equitable and nondiscriminatory for employees, customers, and the communities in which they operate. As the area develops (and if more companies voluntarily implement these audits), Racial Equity Audits could become viewed as good corporate governance, particularly if top proxy advisory firms issue official guidance supporting the implementation of such audits. 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. . [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. Facebook, Inc. (Facebook) also conducted its own version of a Racial Equity Audit in 2018. Today, we're demonstrating . While the majority of investors perceive the funding landscape as balanced, their actual investments in multicultural and women-owned businesses are highly skewed. As discussed earlier, Starbucks undertook a Racial Equity Audit in 2018. (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. For the sixth consecutive time, Morgan Stanley Bank has been recognized with the highest rating from the Office of the Comptroller of the Currency for its work meeting the credit needs of the communities it serves. Racial Equity Auditing Proxy Voting For Racial Justice 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. JPMorgan's racial-equity audit falls short for some shareholders PAB News | Shareholders File Resolutions Calling for Companies to [i]f CEO Jeff Bezos shares (70,616,270 shares, 14%) were to be removed from those voting against it, the proposal received majority support. [122]. CtW and US labour union SEIU filed racial equity audit proposals at eight US financial giants this year. Andrew Santini LinkedIn: I am very proud to announce that I have (Adds details about Morgan Stanley in 11th and 12th paragraphs.) Specifically, SEIU stated that Goldman underwrites municipal bonds whose proceeds pay police brutality settlements. [35] Similarly, Trillium, on behalf of Christopher and Anne Ellinger, submitted a Racial Equity Audit proposal that was included in Johnson & Johnsons proxy statement for its 2021 annual meeting of shareholders, in which Trillium expressed concerns with claims that the company continues to market its talc-based baby powder to Black and Brown women after its talc supplier included the WHOs possibly carcinogenic label on shipments. [36] Proponents of Racial Equity Audits argue that a reassessment of internal policies and practices via such audits can identify the right levers to pull to begin to shrink these racial divides. 14B, September 15, 2004, available at https://www.sec.gov/interps/legal/cfslb14b.htm. [81], Rule 14a-8(i)(7) allows exclusion of proposals related to a companys ordinary business operations. A new Morgan Stanley program spearheaded by employees in its Fixed Income Division aims to create a more diverse and inclusive workplace for experienced hires. [22]. 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. 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. (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. (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. [11], ESG considerations are becoming increasingly relevant to shareholder activists. 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. (go back), 137Supra, Goldberg-Zelizer, note 96. UPDATE: According to a preliminary tally, 39 percent of JPMorgan shareholders voted in support of the racial equity audit proposal on May 18. (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. May 2010 - Jul 20122 years 3 months. JPMorgan's racial-equity audit falls short for some shareholders SOC Investment accused the bank and its auditor of approaching the process with a "narrow perspective," and said the report fails to look at any internal diversity, equity and inclusion issues. What Counts as Race Discrimination? A Suit Against JPMorgan Is a Test (go back), 21Cal. [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). . ARTICLE: Racial Equity Audits: A New ESG Initiative Poised to Gain hW[oSI+B"!vThKA}4J~-c2)75x>qfg\ Z2X$gp-78Yz|Z8X|^^_&fdrrv1s*Cj=Wo/y>?NW&xUJKW Shareholders at JPMorgan Chase and State Street hold their meetings this week. Recently, Morgan Stanley and CtW Investment Group reached an agreement for the bank to conduct an internal diversity review . (go back), 84See J&J No-Action Letter, supra note 78. 5 Sustainable Investing Trends for Companies and Investors, 7 Investment Ideas That Could Drive Markets in 2023, Yes, You Can Be a Tech Innovator at Morgan Stanley, Learn more about Diversity and Inclusion at Morgan Stanley. (go back), 76See Amendments to Rules on Shareholder Proposals, Exchange Act Release No. The lender pledged in 2020 to spend $1 billion over four years to combat racial and economic inequality. Racial Equity Audits: A New ESG Initiative - The Harvard Law School We grieve with our colleagues, friends and families, and believe that we have the power to create long-lasting social, educational and economic change. 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. [139] The draft legislation would also require banks to investigate what ties they may have to slavery and disclose steps such institution would take to reconcile profits it may have received from slavery. Id. Citigroup, Wells Fargo, Bank of America, Goldman Sachs, JP Morgan urge 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. [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. [76] To demonstrate that they had substantially implemented the audit proposals, companies argued they had (i) made pledges and commitments towards racial justice initiatives and made such information publicly available; [77] (ii) issued ESG and/or diversity focused reports; [78] (iii) issued press releases and public disclosures addressing racial inequality; [79] (iv) implemented initiatives to advance racial equity; [80] or (v) financially committed to racial justice initiatives and causes. [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. No major proxy advisory firm has issued official voting guidance on the implementation of Racial Equity Auditsand the two largest advisory firms, ISS and Glass Lewis, have been split on their support for shareholder proposals requesting such audits. We rely on our technologists around the world to create leading-edge, secure platforms for all our businesses. [44] Advocates of Racial Equity Audits believe that they are essentially intended to be implemented in furtherance of risk management and risk tolerance, criteria that fiduciaries may choose to measure in order to protect their investments. Amid a pandemic and social unrest, we gathered senior multicultural business leaders to focus on the challenges and opportunities of this indelible moment in history. [127], According to SEIU, BlackRock decided that the SEIU proposal is too important to wait until they are voted on at their shareholder meetings [128] and announced its plans to voluntarily conduct an independent racial audit of its operations. Morgan Stanley is differentiated by the caliber of our diverse team. (go back), 116See How Amazons Emissions are Hurting Communities of Color, Amazon Employees for Climate Justice, May 26, 2020, available at https://amazonemployees4climatejustice.medium.com/environmental-justice-and-amazons-carbon-footprint-9e10fab21138; Amazon workers demand end to pollution hitting people of color hardest, NBC News, April Gleiser and Leticia Miranda, May 24, 2021, available at https://www.nbcnews.com/tech/tech-news/amazon-shareholders-demand-end-pollution-hitting-people-color-hardest-n1268413. 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), 113See Webinar, Thomas DiNapoli, New York State Comptroller, supra note 23. 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. 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. Underpinning all that we do are five core values. The proxy advisory firms level of guidance may take varying formsat the low end, proxy advisory firms may increase a companys ESG or corporate governance score for having in the past or recently conducted a Racial Equity Audit. [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. Citi's Action for Racial Equity Initiative Invests $1 Billion to September 14, 2022, 1:19 p.m. EDT 3 Min Read. (go back), 119See Webinar, Thomas DiNapoli, New York State Comptroller, supra note 23. Source: SEC Filings. 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. See how we can help you work toward your goalseven as they evolve over years or generations. CtW dropped the Morgan Stanley proposal after the bank agreed to conduct a racial equity audit.