(go back), 86See J&J No-Action Letter, supra note 78. called upon to navigate the challenges presented by climate change, racial injustice, economic inequality, and numerous other issues that are fundamental to the success and sustainability of companies, financial markets, and our economy. [72] After the May 2020 killing of George Floyd, 66% of S&P 500 companies posted statements on their websites or social media accounts, 36% made financial contributions to racial justice organizations and 14% stated in their communications that Black Lives Matter. [73] While it has been observed that these companies were quick to issue statements supporting Black Lives Matter and promis[ed] to do more to be responsive to non-white consumers, employees and communities, [74] most companies on the receiving end of a Rule 14a-8 proposal to implement a Racial Equity Audit have actively resisted such proposal by seeking no-action relief from the SEC to exclude the proposal from their 2021 proxy statements, negotiating with proponents to withdraw their proposals, and, when the company had been unsuccessful with the foregoing, recommending that shareholders vote against the proposals. 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. Airbnb. [41] A study by a Citigroup, Inc. (Citi) global economist found that addressing racial disparities can have even broader macro benefits. Other external forces that may prompt public companies to adopt Racial Equity Audit policies are the SEC and the securities exchanges. (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). 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. [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 . In an attempt to re-educate tech workers about racism, Twitter is looking to integrate targeted anti-racism training into its curriculum. 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 (go back), 27Racial Equity Audit Proposal Q&A CtW Investment Group and the Service Employees International Union, available at https://static1.squarespace.com/static/5d374de8aae9940001c8ed59/t/605cdec4e6861277202f0b46/1616699076603/Racial+Equity+Audit+QA_CtW_SEIU+%28002%29.pdf. [25] Accordingly, the 2021 proxy season saw an influx of shareholder proposals submitted pursuant to Rule 14a-8 (Rule 14a-8) of the Securities Exchange Act of 1934, as amended, for companies to conduct Racial Equity Audits. [26] For example, following a racially-tinged incident at a Philadelphia Starbucks in 2018 where two African-American men who were waiting for a business meeting to begin were arrested, the company performed a Racial Equity Audit, which found that, among other things, racial sensitivity and the elimination of implicit biases are correlated to Starbucks core business plan of creating an inclusive and equitable working environment, as well as a welcoming third place between home and work for customers. [27] In addition, the W.K. 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), 98Wells Fargo & Company, Notice of Annual Meeting and Proxy Statement, Schedule 14A, filed with the SEC on March 16, 2021, available at https://www.sec.gov/Archives/edgar/data/72971/000119312521082907/d71313ddef14a.htm [hereinafter Wells Fargo Proxy Statement]. New York University School of Law. 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. (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/. 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. (go back), 69Citigroup Inc., 2021 Notice of Annual Meeting and Proxy Statement, Schedule 14A, filed with the SEC on March 17, 2021, available at https://www.sec.gov/Archives/edgar/data/831001/000120677421000735/citi3828191-def14a.htm [hereinafter Citigroup Proxy Statement]; see also CoreCivic Inc. Proposal, Service Employees International Union (SEIU), available at https://exchange.iccr.org/node/88686/text. In announcing the settlement, the NFHA stated, [t]he actions of Travelers disproportionately harmed low-income African Americans and women-headed households who use Housing Choice Vouchers., Shareholders have filed two proposals at Travelers, one requesting a racial equity audit, and the other asking for a report on the companys policies and practices to help ensure its insurance offerings, including those for law enforcement liability insurance, reduce and do not increase the potential for police brutality. 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]. 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. 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. Shareholders called for one at the company's investor meeting earlier this year, but the bank (like its peers) told . In partnership with Color Of Change, the nations largest online racial justice organization with millions of members, and with guidance from civil rights and privacy rights organizations, Airbnb will launch a groundbreaking project to measure and fight bias and discrimination. (go back), 88See JPMorgan No-Action LetterFebruary, supra note 77. Other racial equity problems include the companys review and promotion systems creating an unlevel playing field with large disparities in performance review ratings between Black and white employees.. (go back), 48Webinar, Pamela Coukos, Co-Founder of Working Ideal, supra note 23; supra note 27. 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. This is because issues relating to climate change and the environment, racial justice and diversity, human capital and governance may influence companies at large and shareholder investment flows. In 2016, this team launched the Airbnb Community Commitment, a prompt that asks Airbnb users to treat all people on the platform with respect, and without judgment or bias. Only those who accepted the commitment were allowed to continue using Airbnb. [112], In a webinar hosted by CtW, Comptroller DiNapoli explained the importance of racial equity at Amazon and why shareholders should vote in favor of the proposal, and argued that racial inequity is harming the United States economy. [113] DiNapoli argued that the pattern and magnitude of issues repeatedly facing the company demonstrate a need for a more in-depth review . where the board recommends that shareholders vote against the racial equity audit proposal. "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 . No two companies are identical. Shareholder Proposal of CtW Investment Group Securities Exchange Act of 1934Rule 14a-8, Gibson Dunn, January 25, 2021, available at https://www.sec.gov/divisions/corpfin/cf-noaction/14a-8/2021/nyscrfamazon012521-14a8-incoming.pdf [hereinafter Amazon No-Action Letter]; J&J No-Action Letter, supra note 78. (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. "The reason we started Airbnb was to connect people, to make sure that they feel like they belong in the communities they visit and the biggest obstacle to belonging is . (go back), 21Cal. 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. (go back), 80See J&J No-Action Letter, supra note 78. . Airbnb was born in 2007 when two Hosts welcomed three guests to their San Francisco home, and has since grown to over 4 million Hosts who havewelcomed 1.4 billionguest arrivals in almost every country across the globe. [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), 104Amazon.com, Inc., Notice of 2021 Annual Meeting of Shareholders and Proxy Statement, Schedule 14A, filed with the SEC on April 15, 2021, available at https://www.sec.gov/Archives/edgar/data/1018724/000110465921050333/tm2035374-1_def14a.htm [hereinafter Amazon Proxy Statement]. Before launching Project Lighthouse, Airbnb consulted a number of civil rights and privacy organizations, including Color of Change. Advertisement The report served as a withering rebuke of Facebook's handling of issues related to technology,. Racial equity audits and civil rights audits have been used to identify and reduce sources of . The Airbnb Newsroom is aimed at journalists. Airbnb Inc. became the . In addition to Starbucks, Airbnb and Facebook have completed audits. 20091 (August 16, 1983)). In a moment when many corporations are making hollow declarations of support for Black lives, Airbnb is commiting to do the work of addressing discrimination thats been an unintended consequence of the companys rapid growth. Home Depot indicated it was pausing all contributions after the events of January 6, but made no commitment to realign policies or permanently end support for election objectors. 2023 366 Technology. (go back), 109Id. 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. Second, whether any changes to existing programs or new measures or initiatives, would help a company become more equitable and inclusive. [61], Pursuant to Rule 14a-8, shareholders may submit proposals to be included in a companys proxy materials for its annual or special meetings of shareholders. (go back), 123Racial Equity Audit, SOC Investment Group, 2021, available at https://www.socinvestmentgroup.com/racial-equity-audit. 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. (go back), 35The Goldman Sachs Group, Inc., 2021 Notice of Annual Meeting and Proxy Statement, Schedule 14A, filed with the SEC on March 19, 2021, available at https://www.sec.gov/Archives/edgar/data/886982/000119312521087020/d88664ddef14a.htm [hereinafter Goldman Sachs Proxy Statement]. We saw this occur in California with Senate Bill 826 and Assembly Bill 979 discussed in further detail above. [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. [3], With the increasing prominence of ESG awareness, the market has also seen the rise of ESG-specific funds as a new form of investment vehicle. [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. (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). The Staff has stated that substantial implementation under the rule does not require the company to have implemented the proposal in full or exactly as proposed by the shareholder. [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. 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. Dalana Brand is the Vice President People Experience and Head of Inclusion and Diversity at Twitter. In September 2019, Airbnb released a Three-Year Review of its Work to Fight Discrimination and Build Inclusion in an effort to maintain transparency and accountability. [55], Some companies have independently engaged in Racial Equity Audits or similar internal reviews, usually in response to external pressures. . To start off the 2022 proxy season, the civil rights audit shareholder proposal at Apple, Inc. received support from 54 percent of shares voted, while at government services company Maximus, holders of 64 percent of shares voted in favor in early March. Murphy helped Airbnb and Facebook conduct racial audits in recent years. (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. These audits are conducted to analyze the effectiveness of diversity, equity and inclusion programs, the impacts of technology and products on racial minorities in communities and companies and the treatment of customers, and other civil rights and racial equity issues. The SEC considered the arguments described above to exclude the shareholder proposals on Racial Equity Audits, and, in each case, the SEC did not concur with the company that the shareholder proposal should be excluded. (go back), 119See Webinar, Thomas DiNapoli, New York State Comptroller, supra note 23. The project will start on June 30, 2020 and will be limited to U.S.-based hosts and guests. (go back), 105Id. Following the audit at Facebook, the company . . Some, including Starbucks, Facebook and AirBnB, have already commissioned racial equity audits. Airbnb and Facebook have also completed racial equity audits in recent times. The perceived race information generated in this project will be aggregated and only be used to analyze past interactions on the platform, exclusively to develop anti-discrimination work. [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. News, John Biers, May 22, 2011, available at https://news.yahoo.com/big-us-companies-pushed-tally-014418300.html. [97] Wells Fargo Co. (Wells Fargo) said it is conducting a human rights impact assessment, and that it will update its Human Rights Statement to better align with the expectations of companies under the United Nations Guiding Principles on Business and Human Rights. The good news is that some tech companies have been promoting racial equity and justice long before these latest protests and the tragedies that inspired them. Civil rights advocates and proponents of social justice have long touted the moral and ethical considerations of closing the racial divide in America. [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). A fiduciarys duty is to act in the best interest of their beneficiaries and traditionally translates to acting to obtain the highest return on investment, but it can be equally important that fiduciaries seek to minimize risk. BlackRock has 'broken ranks' with Wall Street by conducting a racial equity audit in the financial world, and Citigroup and Morgan Stanley have now followed suit, despite initially urging shareholders to reject the audit proposals. It will not happen overnight. 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 1What is ESG?, ADEC Innovations ESG Solutions, available at https://www.esg.adec-innovations.com/about-us/faqs/what-is-esg/. (go back), 67Google Pressured on Racial Equity Audit After AI Ethics Collapse, Bloomberg, Naomi Mix, April 27, 2021, available at https://www.bloomberg.com/news/articles/2021-04-27/google-pressured-on-racial-equity-audit-after-ai-ethics-collapse; see also supra Section II.A. [129] As a result, the shareholder proposal was withdrawn and SEIU announced that it was currently working with BlackRock to bring about needed change within the company and the financial services industry. [130] Commentators anticipate that BlackRocks commitment to a Racial Equity Audit could sway other financial services companies to follow in its footsteps. [131]. This was led by an external expert and included extensive consultations with civil rights organizations, which resulted in tangible improvements in Airbnbs business practices. [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. [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. As companies aim for racial equity, Brand said its important to first acknowledge that racism exists and understand that it was intentionally built into corporations. 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. It must include a plan of action for resolution of issues identified, which should include responsibility and mechanisms for ongoing oversight and governance of racial equity related matters. 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. Such audits entail vigorous risk assessments and disclosures on continuity plans, among other things. After a notice period, the data analysis will begin. (go back), 83See Rule 14a-8 No-Action Letter re: Amazon.com, Inc. [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]. appear to be misaligned with its public statements of its views and operational practices. 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. 1 In addition to personal accounts, a study at Harvard Business School highlighted racial discrimination on Airbnb's rental platform. In 2016, Airbnb released its own audit into discrimination and bias on its service. 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. Airbnb has consistently engaged in fighting bias and discrimination on its platform since 2016, after its first civil rights audit, authored by Laura Murphy, former Director of the American Civil Liberties Union's Washington Legislative Office and President of Laura Murphy & Associates. What's more, BlackRock, Morgan Stanley, and Citigroup have conducted . 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. Every day, Hosts offer unique stays and experiences that make it possible for guests to connect with communities in a more authentic way. However, not all companies have been as eager and willing to comply with these requests. [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. In a recent review of federal mortgage data from 2020 by Bloomberg, the outlet found that Wells Fargo has the worst record among major lenders when it came to disparities in approvals of refinancings by Black homeowners, approving fewer than half of Black homeowners refinancing applications in 2020. We will continue to urge Airbnb to thoughtfully engage members of our communities in developing solutions to support long-time Black residents at risk of displacement from their neighborhoods.. [49], Practitioners also stress the importance of auditors using the right methodology, including both quantitative and qualitative methods, and for such auditors to review not only information provided by the company but to gather its own information.