Julie Wenah, Community Counsel and Acting Regional Counsel for Africa at Airbnb, was a speaker at Scaling Social Impact in a Remote World. (go back), 91See SEC, Division of Corporate Finance Staff Legal Bulletin No. [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). News, John Biers, May 22, 2011, available at https://news.yahoo.com/big-us-companies-pushed-tally-014418300.html. Will Corporations Deliver Value to All Stakeholders? Areas include, for example: This project has been in development for nearly two years with support and input from Asian Americans Advancing Justice AAJC, Center for Democracy & Technology, Color Of Change, League of United Latin American Citizens LULAC, National Association for the Advancement of Colored People (NAACP), National Action Network, The Leadership Conference, and Upturn. As discussed further below, several financial institutions, including Citi, JPMorgan Chase & Co. and Goldman have resisted shareholder proposals requesting Racial Equity Audits, stating that they would either fold such measures into their existing human rights assessments or that they didnt believe it was the appropriate time for such an endeavor. (go back), 105Id. More details are publicly available in a technical paper. [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. According to public policy analysts, racial violence and the COVID-19 pandemic sparked an increase in Rule 14a-8 shareholder proposals focused on racial justice. The racial equity audit proposal at Citigroup Inc. garnered 39% of shareholders' support, while the one at Amazon.com Inc. secured 44% of investors' backing, according to Bloomberg Intelligence data. ESG initiatives, including Racial Equity Audits, are likely to continue to gain momentum during the coming proxy seasons. Given current trends in ESG, public companies should stay informed on Racial Equity Audits and their adoption, crafting and implementation. 16, 1992)). 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. (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/. (go back), 122NYS Comptroller DiNapoli Statement on Major Support for Racial Equity Audit at Amazon, Office of the New York Comptroller, May 28, 2021, available at https://www.osc.state.ny.us/press/releases/2021/05/nys-comptroller-dinapoli-statement-major-support-racial-equity-audit-amazon. 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. [11], ESG considerations are becoming increasingly relevant to shareholder activists. The . Some, including Starbucks, Facebook and AirBnB, have already commissioned racial equity audits. [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. 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. [53] Advocates believe it is critical that the audit be conducted by an independent third party in order to ensure integrity and credibility throughout the process. 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. Silicon Valley has a long way to go to constructively engage with civil rights groups by proactively, not reactively, seeking out our expertise to build platforms that serve Black people instead of harming us. For many, the scrutiny is welcome. BlackRock, with $8.7 trillion of assets under management, said in a memo to employees Thursday that an external review of how its diversity, equity and inclusion policies impact stakeholders will. 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. (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. Home Depots PAC donated more than $450,000 in the 2019-20 election cycle, and more than $1.5 million in the past three cycles to the Members of Congress who objected to certifying the election results on January 6, 2021. [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. [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. [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. (go back), 85See Amazon No-Action Letter, supra note 83. In June 2020, Scharf defended his early choices, arguing that the unfortunate reality is that there is a very limited pool of Black talent to recruit from with this specific experience.. (go back), 40Delivering through Diversity, McKinsey, Vivian Hunt, Sara Prince, Sundiatu Dixon-Fyle and Lareina Yee, January 2018, available at https://www.mckinsey.com/~/media/mckinsey/business%20functions/organization/our%20insights/delivering%20through%20diversity/delivering-through-diversity_full-report.ashx. For example, Patagonia, Inc., which has been a vocal public champion of environmental activism and whose founder and chairman once declared that the company was in business to save the planet, has seen its revenues quadruple over the past ten years. Civil rights advocates and proponents of social justice have long touted the moral and ethical considerations of closing the racial divide in America. 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. Companies Negotiated with Shareholders to Withdraw the Racial Equity Audit Proposal. Public, third-party racial equity audits have supported companies like Facebook and Airbnb in acknowledging areas for improvement and beginning to put in place company infrastructure to prevent and mitigate harm. Kellogg Foundation has found that [b]y 2050, our country stands to realize an $8 trillion gain in GDP by closing the U.S. racial equity gap. [28]. 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. 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. [22]. And the same study found that white Airbnb hosts in Black neighborhoods earned an estimated $160 million, compared to only $48 million earned by Black hosts. . (go back), 84See J&J No-Action Letter, supra note 78. . Facebook, Inc. (Facebook) also conducted its own version of a Racial Equity Audit in 2018. The findings will inform the creation and updates of tools and policies to help combat racial discrimination and bias that Black users and other people of color have faced when using Airbnb. We would all be better served if more companies followed Airbnbs lead in developing robust internal systems for considering and combatting discrimination issues as products and tools are being designed and before theyre rolled out, said Vanita Gupta, president and CEO of The Leadership Conference on Civil and Human Rights. (go back), 29Webinar, Susan Baker, Director of Shareholder Advocacy, Trillium Asset Management, supra note 23. 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. 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. (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. [132] However, as Racial Equity Audits become more commonplace and enter the cultural norm, these proposals may begin to resonate with more stakeholders and be approved by shareholders as early as the next proxy season. Color of Change successfully called for and worked with AirBnB to undertake such an audit. 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. . [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. 30-10825; 34-89670; File No. The first major US company to undergo such third-party racial audit was Airbnb. 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. 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. ESG considerations can be broken down into three categories. appear to be misaligned with its public statements of its views and operational practices. (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. 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. [30], The impact a Racial Equity Audit may have on a company may be felt in many ways. AI could help you next time. [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]. 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. After a notice period, the data analysis will begin. (go back), 100Goldman Sachs Proxy Statement, supra note 35. 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. What that means for tech companies more broadly is that inclusion must be embedded in every fabric of the organization. Some concrete examples, offered Brand, are pay equity, supplier diversity, and employee resource groups. [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. Our partnership with Airbnb on this project has been years in the making, and has led to tangible policy developments to reduce discrimination that should serve as a model for Airbnbs peer tech companies, said Color Of Change President Rashad Robinson. 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. 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. (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]. Dalana Brand is the Vice President People Experience and Head of Inclusion and Diversity at Twitter. The chart below lists the proponents who submitted Racial Equity Audit proposals to public companies pursuant to Rule 14a-8 during the 2021 proxy season and the number of proposals they submitted: Source: ISS Corporate Solutions and SEC Filings, Boards of directors of public companies are [i]ncreasingly . [13] Recently, however, activists have begun to realize that social and environmental issues can also impact their investments, in both negative and positive ways. https://www.sec.gov/news/public-statement/lee-statement-review-climate-related-disclosure. (go back), 138See H.R.2123Diversity and Inclusion Data Accountability and Transparency Act, Congress Bill Tracker, available at https://www.congress.gov/bill/117th-congress/house-bill/2123/committees?r=61&s=1 (as of July 15, 2021). Shareholders have filed proposals relating to the impacts of the use of Amazons surveillance and facial recognition technology by governments and law enforcement bodies; its use of concealment clauses regarding harassment, discrimination, and other unlawful acts in the workplace; its lack of reporting on its lobbying activities; and its employees right to collective bargaining, among other issues. For example, a 2017 study found that across 72 predominantly Black New York City neighborhoods, Airbnb hosts were five times more likely to be white. Also speaking at sf.citis Scaling Social Impact event, she said: in an ideal world, if we were all showing up and doing [diversity and inclusion] work the right way, my role wouldnt exist. So much of feeling included, she continued, is about individual connections. (go back), 137Supra, Goldberg-Zelizer, note 96. Amazon, the second-largest employer in the US, faces numerous shareholder proposals attempting to address its lack of transparency relating to risks associated with internal and external racial justice issues. Cacace actively holds the position of Director of Anti-Discrimination & Equity Programs for Airbnb. [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). The following proposals will be put to shareholders at its May 25, 2022 annual meeting: Atlanta-based Home Depot, the largest home improvement retailer in North America, faced a shareholder proposal in 2021 that requested a political contributions congruency analysis. While the company opposed all seven, at least four of those resolutions, including the first racial equity audit proposal at the company, two proposals for reports on the human rights implications of certain surveillance products, and a lobbying disclosure proposal received substantial support of over 30 percent. [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. S7-25-97, available at https://www.sec.gov/rules/final/34-40018.htm (citing Reebok Intl Ltd. (Mar. (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. We have made significant progress in the last few years to address painful stories of individuals who had requests to book a listing rejected and other negative experiences because of their race. [55], Some companies have independently engaged in Racial Equity Audits or similar internal reviews, usually in response to external pressures. 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. The California legislature recognized the public desire to move towards greater diversity on public boards and codified set requirements. Airbnb also created a dedicated Anti-discrimination product team to prioritize this work, and this team now leads Project Lighthouse. 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. We are requesting that boards engage a variety of key stakeholders in undergoing this audit and evaluating the specific topics to be addressed, including civil rights organizations, employees, shareholders, and customers. (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. [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. We saw this occur in California with Senate Bill 826 and Assembly Bill 979 discussed in further detail above. [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]. 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. Recently, investors and companies have also begun to appreciate that positive financial returns are often associated with investing in initiatives working towards racial equality.

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