https://www.sec.gov/divisions/corpfin/cf-noaction/14a-8/2021/nyscrfamazon012521-14a8-incoming.pdf, https://www.sec.gov/interps/legal/cfslb14b.htm, https://www.sec.gov/ix?doc=/Archives/edgar/data/1070985/000119312521165313/d184269d8k.htm, https://thehill.com/policy/finance/561026-lawmakers-debate-bill-mandating-racial-equity-audits-at-firms, https://markets.businessinsider.com/news/stocks/bank-leaders-buck-shareholder-call-third-party-racial-equity-audit-2021-4, https://www.sec.gov/Archives/edgar/data/72971/000119312521082907/d71313ddef14a.htm, https://news.bloomberglaw.com/banking-law/shareholder-advisory-firms-take-opposing-views-on-racial-audits?context=article-related, https://www.sec.gov/Archives/edgar/data/1018724/000110465921050333/tm2035374-1_def14a.htm, https://www.timesunion.com/news/article/Comptroller-DiNapoli-wants-audit-of-Amazon-s-15815322.php, https://www.sec.gov/divisions/corpfin/cf-noaction/14a-8/shareholder-proposal-no-action-responses.htm. In the meantime, on November 9, 2020, the Securities and Exchange Commission (SEC) announced the issuance of new final rules that expanded human capital management disclosure requirements applicable to SEC reporting companies. (go back), 120Amazon investors reject New York retirement funds call for a racial-equity audit, 10 other shareholder proposals, MarketWatch, Levi Sumagaysay, May 28, 2021, available at https://www.marketwatch.com/story/amazon-investors-reject-new-york-retirement-funds-call-for-a-racial-equity-audit-10-other-shareholder-proposals-11622242863. 1 In addition to personal accounts, a study at Harvard Business School highlighted racial discrimination on Airbnb's rental platform. Color of Change successfully called for and worked with AirBnB to undertake such an audit. Airbnb. The audit featured three reports and extensive interviews with hundreds of civil rights organizations and . (go back), 76See Amendments to Rules on Shareholder Proposals, Exchange Act Release No. 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in shareholder proposals related to Racial Equity Audits in the 2021 proxy season, all such proposals were either withdrawn or defeated. Some companies are turning to law firms like Covington to do the work. It will not happen overnight. There are three essential features of an effective racial equity audit: The audit should be independent, and conducted by a firm with civil rights expertise; There must be robust stakeholder engagement to uncover issues across a company's products and services, workforce practices, and corporate policies; and. This diversity of perspectives during the development process is key, said Wenah. Airbnb Inc., which faced a spate of backlash for charges of racial profiling of guests before initiating tougher standards, has bounced nearly 4,000 accounts from its home-sharing app this year for violating its nondiscrimination policy. A racial equity or civil rights audit is typically an independent analysis, usually conducted by a law firm and/or a consultant, that examines whether a company's policies, practices, products or services are equitable and non-discriminatory for key stakeholders, such as customers and employees 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. At some companies, investors have proposed civil rights audits, which are similar in nature, but distinct in scope, often covering issues broader than racial equity to intersect with gender and other protected classes. Civil rights. 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. The most wishlisted Design and Creative Space stays for inspiring retreats, Visit North Carolina and Airbnb relaunch partnership to boost rural tourism, Get to know your Host community in Europe: Meet Katerina from Greece. 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), 74Big US companies pushed to tally progress on racial justice, Yahoo! [17], Improved ESG criteria is not a new area for activist investors. S7-25-97, available at https://www.sec.gov/rules/final/34-40018.htm (citing Reebok Intl Ltd. (Mar. [123], While the financial institutions that have received Racial Equity Audit proposals have recently made philanthropic and strategic investments, along with other commitments to racial equity, CtW has stated that the only way to effectively address racial injustice and economic inequality is careful study of how the industrys products and services have contributed to this imbalance, [124] which includes analyzing mortgage issuances, the number of bank branches in minority neighborhoods or banking deserts and whether charitable contributions are fully aligned with . Report this profile Report Report. 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. At the start date, users who want to opt-out can do that by turning off the data use settings in their accounts Privacy & sharing page. 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. 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. And lastly, whether a company has sufficient mechanisms in place to monitor effectiveness. 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. [66], Similar Racial Equity Audit proposals were submitted by shareholders at several public companies during the 2021 proxy season with substantially the same resolution clause copied above, but with different issues highlighted. (go back), 48Webinar, Pamela Coukos, Co-Founder of Working Ideal, supra note 23; supra note 27. In this case, failure to have a Racial Equity Audit policy or refusal to implement such a policy after shareholders have approved a proposal to implement one may become a criteria an advisory firm would consider in making a recommendation for or against the re-election of a companys chairperson of the governance committee and/or the re-election of other directors at the companys annual meeting. [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. (go back), 119See Webinar, Thomas DiNapoli, New York State Comptroller, supra note 23. According to certain proponents, the point of a Racial Equity Audit is not necessarily to critique a companys current platforms and efforts. 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. [20] State governments have also codified ESG initiatives into lawCalifornia leading the charge with the passage of Senate Bill 826 and Assembly Bill 979, which require a certain percentage of directors on the boards of public companies headquartered in the state be composed of females and individuals from underrepresented communities. (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. (go back), 25Remarks by New York State Comptroller Thomas P. DiNapoli at SEIU Capital Stewardship Program and CtW Investment Group Webinar Entitled Racial Equity Audits: A Critical Tool for Shareholders, NYS Comptroller, Thomas P. DiNapoli, April 13, 2021, available at https://nyscomptroller.medium.com/remarks-by-new-york-state-comptroller-thomas-p-397b006d1d5c. (go back), 100Goldman Sachs Proxy Statement, supra note 35. We saw this occur in California with Senate Bill 826 and Assembly Bill 979 discussed in further detail above. ESG considerations can be broken down into three categories. Airbnb Inc. became the . (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]. [4] According to research from Institutional Shareholder Services (ISS), ESG Funds were among the largest winners in 2020, taking in a record $60 billion in net flows, nearly triple their 2019 total. [5]. On a more ongoing basis, Brands Inclusion and Diversity team facilitates discussions with the companys nine business resource groups, which represent various communities within Twitter. The data collected in the United States for Project Lighthouse will be handled in a way that protects peoples privacy and be used exclusively for anti-discrimination work. Google has blocked companies from using racial justice, Alphabets business practices are enabling racism and discrimination, posing legal, financial, and reputational risk., Shareholder proposal requesting additional reporting on lobbying, Item 9, Shareholder proposal requesting additional reporting on gender/racial pay, Item 11, Shareholder proposal requesting a report on customer due diligence, Item 5, Shareholder proposal requesting a report on customer use of certain technologies, Item 13, A Racial and Gender Board Diversity Report, Item 7, A report on Respecting Indigenous Peoples Rights, Item 8, Shareholder proposal relating to a racial equity audit, Item 7, Shareholder proposal relating to insuring law enforcement, Item 8, Shareholder proposal relating to lobbying, Item 4, Shareholder proposal regarding political contributions congruency analysis, Item 7, Shareholder proposal regarding gender and racial equity on the board of directors, Item 8, Shareholder proposal regarding racial equity audit, Item 10, Stockholder proposal regarding a lobbying report, Item 5, Stockholder proposal regarding a racial equity audit, Item 9, Stockholder proposal regarding a report on concealment clauses, Item 10, Stockholder proposal regarding a human rights assessment of data center siting, Item 13, Stockholder proposal regarding a report on data collection, privacy, and security, Item 14, Stockholder proposal regarding algorithm disclosures, Item 15, Stockholder proposal regarding misinformation and disinformation, Item 16, Stockholder proposal regarding a report on external costs of disinformation, Item 17, Stockholder proposal regarding a report on board diversity, Item 18, Stockholder proposal regarding the establishment of an Environmental Sustainability Board Committee, Item 19. [121] Comptroller DiNapoli described the vote as an immense success for a first-time proposal . [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. [2] Thirdcorporate governance, which considers how a company governs itself and holds itself accountable taking into account the structure and diversity of a companys board of directors, the separation between management and the board of directors, executive compensation, equal and fair pay amongst employees, and the extent to which a company or its management or board of directors are undertaking lobbying efforts, making political and charitable donations, or engaging in corruption or bribery. Given current trends in ESG, public companies should stay informed on Racial Equity Audits and their adoption, crafting and implementation. (go back), 109Id. (go back), 47The Best ESG Funds for Great Returns & Low Costs, Forbes, Rob Berger and Benjamin Curry, July 1, 2021, available at https://www.forbes.com/advisor/investing/best-esg-funds/. [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. The first major US company to undergo such third-party racial audit was Airbnb. The methodology is publicly available in a technical paper for other companies who want to detect and remediate bias and discrimination on their platforms. As a result, Engine No. In an attempt to re-educate tech workers about racism, Twitter is looking to integrate targeted anti-racism training into its curriculum. 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. Some businesses commit to racial equity audits to jumpstart internal reforms. 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. What's next: Citigroup said last week it will undergo a racial equity audit. . [16] Enhanced performance in these areas can lead to less scrutiny from environmental regulators, increased customer loyalty, more productive employees, reduced employee turnover, more lucrative business partnerships and increased profitability. [58] The audit produced three reports, which ultimately described how Facebook utilized the audit process to listen, plan and deliver on various consequential changes that will help advance the civil rights of its users in a number of categories and also recommended implementation of specific action items, including to (1) continue to onboard expertise, (2) build out the civil rights leaders team, (3) expand civil rights product review processes, (4) require civil rights perspectives in escalation of key content decisions and (5) prioritize civil rights. [59] The thoroughness of the audit and the response and subsequent actions taken by the company have led to the Facebook audit being heralded by many as a big success. The following proposals will be put to shareholders at its April 26, 2022 annual meeting, requesting: Historically, the insurance industry has engaged in racist practices impacting customers and potential customers from communities of color, including charging far higher premiums for auto insurance in Black neighborhoods as opposed to white neighborhoods; much lower payouts in homeowner insurance claims for Black neighborhoods; and instances of coverage denial for property owners who accept Section 8 vouchers. 16, 1992)). 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. [45]. Exxon has faced pressure from shareholders to shift practices to reduce greenhouse gas emissions. Using Racial Equity Audits, a company is given a comprehensive report on their standing regarding how they uphold said regulations. 16, 1992)). By offering such guidance, companies may find it easier to voluntarily implement Racial Equity Audit policies. (go back), 131BlackRock pledges to conduct a racial audit of its business, Fortune, Marco Quiroz-Gutierrez, April 6, 2021, available at https://fortune.com/2021/04/06/blackrock-racial-audit-corporate-diversity-inclusion-race-at-work/. In 2016, Airbnb released its own audit into discrimination and bias on its service. According to this study, closing racial gaps would have generated an additional $16 trillion in economic output since [the year] 2000, and by closing the various gaps between Blacks and Whites, the U.S. could stand to gain an additional $5 trillion in economic activity over the next five years. [42] Racial Equity Audits could therefore prove to be a critical tool for companies looking to capture some of these unrealized gains. The most recent and prominent example of the intersection between shareholder activism and ESG was the 2021 proxy contest at Exxon. "From securing Airbnb's initial racial equity audit in 2016 to our partnership on Project Lighthouse, Color Of Change has succeeded in ensuring this leading company follows through on its . Under Rule 14a-8(i)(10), a company is permitted to exclude a shareholder proposal if the company has already substantially implemented the proposal. 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. In doing so, these companies have argued that they have already taken measures to address racial justice, such as investing in Black entrepreneurs, expanding credit and working to boost diversity within their ranks. [75]. Racial equity audits started catching on after the events of 2020 prompted a racial reckoning in the U.S. [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. In 2017, Airbnb released a feature called Instant Book, which sought to combat prejudice by allowing guests to book an Airbnb listing without prior approval. [65] Certain of these racial justice proposals submitted by shareholders included proposals calling for Racial Equity Audits. [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. Our purpose is to create belonging, and even one incident is an affront to our values. It will not happen overnight. (go back), 56Facebooks Civil Rights AuditFinal Report, Facebook, July 8, 2020, available at https://about.fb.com/wp-content/uploads/2020/07/Civil-Rights-Audit-Final-Report.pdf. [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. (go back), 28The Business Case for Racial Equity, a Strategy for Growth, Ani Turner, W.K. (go back), 108Amazon No-Action Letter, supra note 83. As ESG issues garner more media attention and as younger generations move into the investing space, these issues and related disclosures may become increasingly important to consumers, investors and other stakeholders. where the board recommends that shareholders vote against the racial equity audit proposal. 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. Companies Negotiated with Shareholders to Withdraw the Racial Equity Audit Proposal. [63] If the company determines that it is not in the best interests of the company to include a Rule 14a-8 shareholder proposal in its proxy materials, it can (i) seek no-action relief from the SEC staff (the Staff) that, if granted, would allow the company to exclude the proposal without the threat of Staff recommendation of an enforcement action based on a procedural deficiency or a substantive exclusion under Rule 14a-8; (ii) take legal action in court to exclude the proposal; and/or (iii) negotiate with the proponent to withdraw the proposal. Companies should stay informed on Racial Equity audit is not necessarily airbnb racial equity audit critique a companys current platforms efforts... Some companies are turning to law firms like Covington to do the work Racial Equity Audits to internal! New York State Comptroller, supra note 27 citing Reebok Intl Ltd. ( Mar Racial..., supra note 23 whether a company is given a comprehensive report their... 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