morgan stanley racial equity audit

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. By offering such guidance, companies may find it easier to voluntarily implement Racial Equity Audit policies. Why did nearly all of the banks urge "no" votes on the audit proposals? ;Lxqh;gxFK wEYem-()f-Nf7z/!+{)[`J9Ng cZ|4pv>jw~&?wq ?NpJ>V7{b[tgsllQ.SjT-hN0 `cU 1s unprecedented victory, with three of its director nominees being elected to Exxons board at its 2021 annual meetingsending a clear message that environmental concerns and proactive planning are deeply important to Exxons shareholders. Trilinc Global, November 4, 2013, available at https://www.trilincglobal.com/what-is-esg/. . [30], The impact a Racial Equity Audit may have on a company may be felt in many ways. The goals provide a yardstick for school leaders to measure their progress and as a "lightning rod to galvanize change" (IDRA, 2006). A complicated past The financial institutions in question have recently made diversity, inclusion, and racial equity a significant. Indeed, the House Financial Services Subcommittee on Diversity and Inclusion is currently reviewing legislation that would require banks to conduct Racial Equity Audits every two years in an effort to promote diversity and equity. (go back), 31Webinar, Susan Baker, Director of Shareholder Advocacy, Trillium Asset Management, supra note 23; supra note 27. We leverage the full resources of our firm to help individuals, families and institutions reach their financial goals. 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. Our work on racial equity focuses on our commitments as a business, as a responsible member of global and local communities, and as an inclusive workplace that values diversity. A report on the audit, prepared at reasonable cost and . . [50] Accordingly, auditors are encouraged to solicit information directly through surveys and interviews, and to review historical records and a companys performance against its peers. Wells Fargo announced it will commission a third-party racial equity audit Tuesday after years of advising shareholders to vote against one. Clear guidance from proxy advisory firms would also be beneficial to companies considering implementing Racial Equity Audit policies by offering indications on what parameters constitute best practices and how frequently these audits should occur. (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. (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. Given current trends in ESG, public companies should stay informed on Racial Equity Audits and their adoption, crafting and implementation. [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. Dismissal and neglect of these concerns led to Engine No. Ron S. Berenblat and Elizabeth R. Gonzalez-Sussman are partners at Olshan Frome Wolosky LLP. New York, NY. McKensie Mack Group (MMG), a Black-led consultancy that centers around racial equity, released their Sacramento Area Council of Governments (SACOG) racial equity audit. Across all our businesses, we offer keen insight on today's most critical issues. 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. 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. A racial equity audit is the first step to safeguard against further harm and it's also the smart thing to do. (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. [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. Input from civil rights organizations, employees, and customers should be considered in determining the specific matters to be analyzed. Amazon to conduct racial-equity audit led by former Attorney General [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. And lastly, whether a company has sufficient mechanisms in place to monitor effectiveness. (citing Exchange Act Release No. [34]. 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. [14], ISS and others have published a number of reports that have found that addressing social and environmental concerns correlates with companies either currently experiencing or having the potential to experience increased growth and profitability. Citi to conduct racial equity audit | IR Magazine (go back), 105Id. 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. At Morgan Stanley, we focus the expertise of the entire firmour advice, data, strategies and insightson creating solutions for our clients, large and small. [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. Companies Negotiated with Shareholders to Withdraw the Racial Equity Audit Proposal. Firstenvironmental criteria, which considers a companys actions as a steward of the environment, such as what steps a company is taking to address the depletion of the planets resources, pollution and greenhouse gas emissions, or the effects of climate change. [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. CK%@q)4rK!u\r94 !5@@yb#8u(:uI&UsRmndt>&. (go back), 86See J&J No-Action Letter, supra note 78. [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. [98] Wells Fargo also said it is making efforts toward expanding [its] diversity and inclusion commitments with a focus on hiring, promotions, and turnover, with increased accountability across all of those areas and [is] taking specific actions in support of these commitments. [99] The board of directors of Goldman recommended that shareholders vote against the shareholder proposal on a Racial Equity Audit, saying it has taken additional steps toward racial equity in the past year, including assessing its shortcomings and committing to hiring more analysts from historically Black colleges and universities, while maintaining [its] existing programs focused on other diverse populations. [100] Goldman also pointed out that it is [b]uilding upon more than $200 million of grants in minority communities and to minority-owned businesses over the past two decades and in 2020 [Goldman] created the Fund for Racial Equity to support the vital work of leading nonprofits that are addressing racial injustice, structural inequity and economic disparity, which has committed $10 million from GS Gives in addition to matching employee contributions to recipient organizations. [101]. 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. The lender pledged in 2020 to spend $1 billion over four years to combat racial and economic . endstream endobj 336 0 obj <>stream (go back), 117See Webinar, Thomas DiNapoli, New York State Comptroller, supra note 23. (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. Global institutions, leading hedge funds and industry innovators turn to Morgan Stanley for sales, trading and market-making services. Even with an increase in the number of shareholder proposals requesting Racial Equity Audits, it is possible that companies may not adopt them as quickly or as widely as the public and/or certain legislative bodies would prefer. Companies Negotiated with Shareholders to Withdraw the Racial Equity Audit Proposal.BlackRock, the world's 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 . 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. 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. (go back), 79See Citigroup No-Action Letter, supra note 78; JPMorgan No-Action LetterFebruary, supra note 77. PAB News | Shareholders File Resolutions Calling for Companies to It received the backing of 38.6 percent of votes cast during the company's AGM in April. Bank of America said last week that an audit is unnecessary given its progress on racial equality. 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. Wells Fargo agrees to racial equity audit | National Mortgage News (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/. [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]. 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. The racial equity audit would include a review of existing documents regarding program information and evaluation, member surveys, human resource policies and procedures, marketing materials, GIA website, and other pertinent documents in order to develop a more comprehensive picture of the organizational climate in relation to its goal of . 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. Stay abreast of the latest trends and developments. (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. A Racial Equity Audit is, at its core, an independent, objective and holistic analysis of a company's policies, practices, products, services and efforts to combat systemic racism in order to end discrimination within or exhibited by the company with respect to its customers, suppliers or other stakeholders. JPMorgan Chase Releases $30 Billion Racial Equity Commitment Audit Report . Legislative or regulatory requirements are not without their own risks, and compliance with any such minimum standards would not be fool proof to insulate a company from potential ESG proposals and proxy campaigns. (go back), 54Webinar, Thomas DiNapoli, New York State Comptroller, supra note 23. At the higher end, proxy advisory firms may offer official guidelines on what they believe are minimum actions a company should take with respect to Racial Equity Audits in order to receive the advisors support. 1 launched a proxy campaign in December 2020 to effect change on Exxons board of directors. 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. [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. (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. [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]. 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]. Racial Equity Audits: The New ESG Frontier On July 28, 2021, ISS launched its Annual Benchmark Policy Survey, which included requests for feedback on Racial Equity Audits. The audit was led by Laura W. Murphy, a civil rights advocate, with help from a civil rights law firm. (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). (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]. While Professing BLM Support, Wall Street Banks Reject Racial Equity Audits 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. Companies advised to be alert to racial equity audit proposals 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. 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. In 2007, the firm's co-founder, a former Goldman Sachs and Morgan Stanley banker named Divesh Makan, told a wealth management magazine that he'd even organized clients' parties and helped . What Counts as Race Discrimination? A Suit Against JPMorgan Is a Test However, not all companies have been as eager and willing to comply with these requests. (go back), 78Rule 14a-8 No-Action Letter re: Stockholder Proposal to Citigroup Inc. from CtW Investments Group, Citigroup Inc., December 23, 2020, available at https://www.sec.gov/divisions/corpfin/cf-noaction/14a-8/2021/ctwcitigroup022621-14a8.pdf [hereinafter Citigroup No-Action Letter]; Rule 14a-8 No Action Letter re: Johnson & Johnson2021 Annual Meeting, Omission of Shareholder Proposal of Christopher and Anne Ellinger and co-filers, Skadden, Arps, Slate, Meagher & Flom LLP, December 16, 2020, available at https://www.sec.gov/divisions/corpfin/cf-noaction/14a-8/2021/ellingeretaljohnson021221-14a8.pdf [hereinafter J&J No-Action Letter]. Racial Equity Audits: A New ESG Initiative Poised To Gain - Mondaq This 202-unit, scattered-site property comprising 16 buildings is located in the predominantly Black neighborhoods of Wards 7 and 8 of . Id. Racial equity audit votes At least 19 proposals calling for a racial equity audit at S&P 500 companies garnered an average of 44% support among shareholders last year, an increase from. 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. To contact the reporter on this story: 333 0 obj <>stream Annie Palmer @annierpalmer. (go back), 137Supra, Goldberg-Zelizer, note 96. [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.