September 14, 2022, 1:19 p.m. EDT 3 Min Read. The survey was conducted online among 76 venture capitalists who are almost exclusively leads or co-investors, with an average equity check size of $2.65 million. [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). A report on the audit, prepared at reasonable cost and omitting confidential or proprietary information, should be publicly disclosed on BofAs website. (go back), 86See J&J No-Action Letter, supra note 78. (go back), 90See e.g., Citigroup No-Action Letter, supra note 78; J&J No-Action Letter, supra note 78; JPMorgan No-Action LetterFebruary, supra note 77; Amazon No-Action Letter, supra note 83. Companies Negotiated with Shareholders to Withdraw the Racial Equity Audit Proposal. 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 . [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. As discussed earlier, Starbucks undertook a Racial Equity Audit in 2018. See how you can make meaningful contributions as a student or recent graduate at Morgan Stanley. (go back), 74Big US companies pushed to tally progress on racial justice, Yahoo! Our insightful research, advisory and investing capabilities give us unique and broad perspective on sustainability topics. (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. We offer scalable investment products, foster innovative solutions and provide actionable insights across sustainability issues. (go back), 48Webinar, Pamela Coukos, Co-Founder of Working Ideal, supra note 23; supra note 27. Morgan Stanley (NYSE: MS) is a leading global financial services firm providing investment banking, securities, wealth management and investment management services. [12] Governance has long been a key focus of shareholder activists as corporate governance best practices, including accountability of a companys board of directors to its shareholders, robust disclosure on executive compensation and independence of a board of directors from management, have been found to have a readily apparent correlation with increased returns to shareholders. The $10 million Fund for Racial Equity builds upon more than $200 million Goldman Sachs has granted over the last decade to organizations serving . (go back), 83See Rule 14a-8 No-Action Letter re: Amazon.com, Inc. Global institutions, leading hedge funds and industry innovators turn to Morgan Stanley for sales, trading and market-making services. 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), 119See Webinar, Thomas DiNapoli, New York State Comptroller, supra note 23. Washington, D.C. Our Impact-Risk-Profitability (IRP) framework will guide us to deeper and more intentional impact. 30-10825; 34-89670; File No. SOC Investment Group (then known as CtW Investment Group) filed a proposal seeking a racial equity audit in Citi's proxy statement this year. (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]. [68] Several of the supporting statements for Racial Equity Audit proposals stated that: High-profile police killings of black peoplemost recently George Floydhave galvanized the movement for racial justice. [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. Get the latest insights, analyses and market trends in our newsletter, podcasts and videos. Speaking at the recent Corporate Secretary Forum, Rose Marie Glazer, senior vice president, corporate secretary and deputy general counsel at AIG, described the proposals as 'an . Rachel Wilson became the first head of cybersecurity for Morgan Stanley Wealth Management in the spring of 2017. Corp. Code 301.3, 301.4. [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]. (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/. 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. The two leading proxy advisory firms, ISS and Glass Lewis & Co. LLC (Glass Lewis), have generally taken opposing views on Racial Equity Audits. https://www.sec.gov/news/public-statement/lee-statement-review-climate-related-disclosure. 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. [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. The Future Generation Scholarship initiative will support 25 ethnic-minority and/or socially mobile students every year with a goal to kick-start their careers in financial services. 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. The most recent and prominent example of the intersection between shareholder activism and ESG was the 2021 proxy contest at Exxon. With this process, leaders can assess the extent to which equity is present in such areas as teacher . (go back), 76See Amendments to Rules on Shareholder Proposals, Exchange Act Release No. . 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. (go back), 95For a detailed discussion of BlackRocks decision to implement a Racial Equity Audit, see Section IV.A. May 2010 - Jul 20122 years 3 months. Supporting the progression of women into senior roles is a key strategic priority for Morgan Stanleys senior leadership worldwide. [30], The impact a Racial Equity Audit may have on a company may be felt in many ways. Recently, a former head of global diversity at Morgan Stanley, a Black woman, sued the bank for discrimination. 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. [120] Among these, the proposal for a Racial Equity Audit garnered the most support, with 44% of the votes cast on this proposal voting in favor. The lender pledged in 2020 to spend $1 billion over four years to combat racial and economic . We rely on our technologists around the world to create leading-edge, secure platforms for all our businesses. A 38 percent "yes" vote at Citi was particularly encouraging, given the fact that institutional investors typically follow the corporate board's recommendation. Stay abreast of the latest trends and developments. 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. (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), 64What You Need To Know About The 2021 Proxy Season, Forbes, Bhakti Mirchandani, June 28, 2021, available at https://www.forbes.com/sites/bhaktimirchandani/2021/06/28/what-you-need-to-know-about-the-2021-proxy-season/?sh=2e475fae7f5e. (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. Morgan Stanley helps people, institutions and governments raise, manage and distribute the capital they need to achieve their goals. (go back), 4ESG investing: Discover funds that reflect what matters most to you, The Vanguard Group, Inc., available at https://investor.vanguard.com/investing/esg/. However, not all companies have been as eager and willing to comply with these requests. 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. [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. A report on the audit, prepared at reasonable cost and . Our survey found progress in investor attitudes and actions, but more needs to be done to close the funding gap for women and multicultural entrepreneurs. David Ake) It followed his 2021 executive order . Beyond the moral case and business case for conducting Racial Equity Audits, and fighting systemic racism in general, is the democracy case espoused by social justice advocates [37] and that corporations can at times act more swiftly and have a more profound effect on current social issues than the government; therefore, these advocates argue that corporations have a responsibility to address issues affecting our democracy. Underpinning all that we do are five core values. 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. (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). [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. Most of the big banks have not been as interested in these types of transparent audits. 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. [11], ESG considerations are becoming increasingly relevant to shareholder activists. Our latest initiative combines the resources and reach of Morgan Stanley with the knowledge and experience of our distinguished nonprofit partner organizations to help deliver positive, tangible impact on the challenges of stress, anxiety, and depression in children, adolescents and young people. Internal Audits Role in Driving Diversity, Equity and Inclusion Amy Fread, CISA Senior Manager Deloitte & Touche LLP Korynne Bernard . Will Corporations Deliver Value to All Stakeholders? Read More. 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. 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. Morgan Stanley CtW Morgan Stanley Racial Equity Audit Proposal Julia Khan November 20, 2020 Morgan Stanley Click Here to Read the Letter in PDF Format. Racial Equity Audits may also find that a companys existing policies and practices are not sufficient to address or may be perpetuating systemic social issues. The proposals filed at BlackRock and Morgan Stanley were withdrawn after both firms agreed to undertake a diversity review. 16, 1992)). 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. (go back), 88See JPMorgan No-Action LetterFebruary, supra note 77. 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. By offering such guidance, companies may find it easier to voluntarily implement Racial Equity Audit policies. (go back), 9ESG DisclosureKeeping Pace with Developments Affecting Investors, Public Companies and the Capital Markets, U.S. Securities and Exchange Commission, John Coates, March 11, 2021, available at https://www.sec.gov/news/public-statement/coates-esg-disclosure-keeping-pace-031121. (go back), 91See SEC, Division of Corporate Finance Staff Legal Bulletin No. Recently, investors and companies have also begun to appreciate that positive financial returns are often associated with investing in initiatives working towards racial equality.