CtW dropped the Morgan Stanley proposal after the bank agreed to conduct a racial equity audit. (go back), 5ESG Matters (Part II), ISS EVA, Dr. G. Kevin Spellman and David O. Nicholas, May 18, 2021, available at https://www.issgovernance.com/library/esg-matters-part-ii/. We believe our greatest asset is our people. What Makes Patagonia A World Leader in Sustainability, Medium, Tom & Jerry, January 13, 2021, available at https://medium.com/climate-conscious/what-makes-patagonia-a-world-leader-in-sustainability-486073f0daa. Amid a pandemic and social unrest, we gathered senior multicultural business leaders to focus on the challenges and opportunities of this indelible moment in history. (go back), 37Webinar, Cyrus Mehri, Founding Partner of Mehri & Skalet, PLLC, supra note 23. [11], ESG considerations are becoming increasingly relevant to shareholder activists. The $1.9 trillion-asset bank has hired the law firm Covington & Burling to conduct the review and plans . The lender pledged in 2020 to spend $1 billion over four years to combat racial and economic inequality. 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. At Morgan Stanley, we put our beliefs to work. Below is a chart listing the shareholder proposals submitted at various companies during the 2021 proxy season, the proponent, the regulatory basis to exclude the proposal invoked by the company and the SECs response to the companys request for exclusion. (go back), 118Id. (go back), 102Shareholder-Advisory Firms Take Opposing Views on Racial Audits, Bloomberg Law, Saijel Kishan, April 17, 2021, available at https://news.bloomberglaw.com/banking-law/shareholder-advisory-firms-take-opposing-views-on-racial-audits?context=article-related (quoting Glass Lewis). (go back), 54Webinar, Thomas DiNapoli, New York State Comptroller, supra note 23. As the ESG movement gains momentum, and as the new wave of investors who factor ESG concerns into their investment decisions gain a larger share of the market, companies are being advised to revisit their current policies and practices under the ESG lens. Image Two Black employees at JPMorgan said race was a constant undertone in their . 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. In 2020, we created the Goldman Sachs Fund for Racial Equity to support the vital work of leading organizations addressing racial injustice, structural inequity and economic disparity. Morgan Stanley (NYSE: MS) is a leading global financial services firm providing investment banking, securities, wealth management and investment management services. (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. State Street's support increased from 12.5 percent in 2021 to a bare majority of racial equity audit proposals (52.6 percent) in 2022. 34-40018; IC-23200; File No. We have the experience and agility to partner with clients from individual investors to global CEOs. For example, the SOC Investment Group, formerly known as the CtW Investment Group (CtW), a group that works with pension funds sponsored by unions affiliated with Change to Win, a federation of unions representing nearly 5.5 million members, submitted the following proposal to Bank of America Corporation for inclusion in its proxy statement: RESOLVED that shareholders of Bank of America Corporation (BofA) urge the Board of Directors to oversee a racial equity audit analyzing BofAs adverse impacts on nonwhite stakeholders and communities of color. Whether it be modern day redlining techniques related to mortgage loans, to excessive checking account fees, to most recently, Payday [sic] Protection Program distribution, communities of color have faced decades of discrimination as a result of the financial industrys policies and practices. (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]. ESG considerations can be broken down into three categories. Morgan Stanley is also donating $5 million . As the area develops (and if more companies voluntarily implement these audits), Racial Equity Audits could become viewed as good corporate governance, particularly if top proxy advisory firms issue official guidance supporting the implementation of such audits. (go back), 24Heres What Companies Are Promising to Do to Fight Racism, The New York Times, Gillian Friedman, August 23, 2020, available at https://www.nytimes.com/article/companies-racism-george-floyd-protests.html. [142] Accordingly, as Racial Equity Audits become an increasingly important area for investors, it is possible that the SEC and the major exchanges may eventually require companies to make further diversity, equity and inclusion disclosures, which may include the existence and frequency of a companys Racial Equity Audits. Our insightful research, advisory and investing capabilities give us unique and broad perspective on sustainability topics. New York State Common Retirement Fund et al. [52] Practitioners also stress the importance of identifying and engaging the process owners (e.g., the Chief Executive Officer, Chief Legal Officer or Chief Diversity, Equity and Inclusion Officer) as the persons who will actually drive the implementation of recommended initiatives. [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. We all want to do something to try to change the course we find ourselves on. (go back), 65All things (not) being equal, IR Magazine, Ben Maiden, Summer 2021, available at https://content.irmagazine.com/story/ir-magazine-summer-2021.pdf. 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. We lead with exceptional ideas, prioritize diversity and inclusion and find meaningful ways to give backall to contribute to a future that benefits our clients and communities. (go back), 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. Washington, D.C. Our Impact-Risk-Profitability (IRP) framework will guide us to deeper and more intentional impact. With offices in more than. Yesterday, the audit proposal also went to the vote at Wells Fargo, the result has not yet been disclosed. (go back), 125Rule 14a-8 No Action Letter, CtW Investment Group, November 12, 2020, available at https://www.sec.gov/divisions/corpfin/cf-noaction/14a-8/2021/ctwjpmorgan032621-14a8.pdf. 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 . (go back), 80See J&J No-Action Letter, supra note 78. Equity audits guide schools in conducting a critical review of their data to inform ways of addressing systemic inequities. [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. Morgan Stanley helps people, institutions and governments raise, manage and distribute the capital they need to achieve their goals. Rachel Wilson became the first head of cybersecurity for Morgan Stanley Wealth Management in the spring of 2017. Importantly, the proposals encourage an internal and external review, looking at human capital management but also the products and services companies offer, along with their philanthropic and political contributions. Bank of America said last week that an audit is unnecessary given its progress on racial equality. 94 . [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. 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. Today, we're demonstrating . 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. [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. The proxy advisory firms level of guidance may take varying formsat the low end, proxy advisory firms may increase a companys ESG or corporate governance score for having in the past or recently conducted a Racial Equity Audit. https://www.sec.gov/news/public-statement/lee-statement-review-climate-related-disclosure. 1What is ESG?, ADEC Innovations ESG Solutions, available at https://www.esg.adec-innovations.com/about-us/faqs/what-is-esg/. 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. BlackRocks response to the Racial Equity Audit proposal that SEIU submitted for inclusion in its proxy statement was an outlier among the other financial and asset management firms that faced similar proposals. [45]. 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. [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. . 34-40018, May 28, 1998, available at https://www.govinfo.gov/content/pkg/FR-1998-05-28/html/98-14121.htm. Civil rights. We have shown our commitment to these principles when we set and disclosed our representation goals and shared the results of our pay equity analysis. A report on the audit, prepared at reasonable cost and omitting confidential or proprietary information, should be publicly disclosed on BofAs website. [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.
