Recently, a former head of global diversity at Morgan Stanley, a Black woman, sued the bank for discrimination. (go back), 91See SEC, Division of Corporate Finance Staff Legal Bulletin No. At Morgan Stanley, giving back is a core valuea central part of our culture globally. [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. As a result, Engine No. identify and address racial and other inequities in the accounting profession. Meet one of our Financial Advisors and see how we can help you. Why did nearly all of the banks urge "no" votes on the audit proposals? Facebook, Inc. (Facebook) also conducted its own version of a Racial Equity Audit in 2018. endstream endobj 334 0 obj <>stream (go back), 84See J&J No-Action Letter, supra note 78. Goldman Sachs | Making Progress Towards Racial Equity LinkedIn Andrew Santini : I am very proud to announce that I have (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. The decision to retain an independent . A report on the audit, prepared at reasonable cost and . Morgan Stanley Launches the Institute for Inclusion Id. 5 Sustainable Investing Trends for Companies and Investors, 7 Investment Ideas That Could Drive Markets in 2023, Yes, You Can Be a Tech Innovator at Morgan Stanley, Learn more about Diversity and Inclusion at Morgan Stanley. Get the latest insights, analyses and market trends in our newsletter, podcasts and videos. September 14, 2022, 1:19 p.m. EDT 3 Min Read. (go back), 109Id. Most of the big banks have not been as interested in these types of transparent audits. 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]. Our culture of access and inclusion has built our legacy and shapes our future, helping to strengthen our business and bring value to clients. (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. The proposals filed at BlackRock and Morgan Stanley were withdrawn after both firms agreed to undertake a diversity review. Racial equity audits started catching on after the events of 2020 prompted a racial reckoning in the U.S. In the U.S. market there are now over 600 ESG funds and exchange-traded funds for investors to choose from with approximately $161 billion in assets under management (AUM), which is more than double the AUM of ESG funds in 2010. (go back), 107Amazon Proxy Statement, supra note 104. September 14, 2022, 1:19 p.m. EDT 3 Min Read. Morgan Stanley's HBCU Scholars program provides scholarships for students at three Historically Black Colleges and Universities. The move comes in a year when several US financial institutions have faced requests for racial equity audits amid growing investor scrutiny of diversity, equity and inclusion (DE&I) issues at US companies. [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. [115] The companys environmental impact has also been called out for allegedly disproportionately affecting minority communities. [13] Recently, however, activists have begun to realize that social and environmental issues can also impact their investments, in both negative and positive ways. JPMorgan analysts are projecting a pre-tax loss of $2.4 billion in 2023, $1.7 billion in 2024 and about $800 million in 2025."We still do not bake in pre-tax profitability in our model, which . [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. [21] Most shareholder activists are cognizant of the stance of institutional investors and proxy advisory firms on ESG issues and have increasingly incorporated ESG factors into their proxy campaigns. https://www.sec.gov/rules/final/34-40018.htm (citing Reebok Intl Ltd. (Mar. Morgan Stanley Adds Racial Equity Investing Tool Kit: Portfolio 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]. New York. [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. 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), 113See Webinar, Thomas DiNapoli, New York State Comptroller, supra note 23. Andrew Santini on LinkedIn: I am very proud to announce that I have Our work on racial equity focuses on our commitments as a business, as a responsible member of global and local communities, and as an inclusive workplace that values diversity. Concerns related to workforce diversity, treatment of minority workers, environmental justice in communities of color, surveillance, and civil rights are just some of the controversies that have troubled Amazon. [114] For example, current and former Amazon employees have accused the company of allowing racism to permeate its operations. Citi to conduct racial equity audit | Corporate Secretary The lender pledged in 2020 to spend $1 billion over four years to combat racial and economic . Wall Street Banks Reject Racial Equity Audits, While Professing BLM Support JPMorgan Chase CEO Jamie Dimon is urging shareholders to vote against a proposed review of the impact of bank policies and practices on racial inequality. (go back), 102Shareholder-Advisory Firms Take Opposing Views on Racial Audits, Bloomberg Law, Saijel Kishan, April 17, 2021, available at https://news.bloomberglaw.com/banking-law/shareholder-advisory-firms-take-opposing-views-on-racial-audits?context=article-related (quoting Glass Lewis). [49], Practitioners also stress the importance of auditors using the right methodology, including both quantitative and qualitative methods, and for such auditors to review not only information provided by the company but to gather its own information. (go back), 25Remarks by New York State Comptroller Thomas P. DiNapoli at SEIU Capital Stewardship Program and CtW Investment Group Webinar Entitled Racial Equity Audits: A Critical Tool for Shareholders, NYS Comptroller, Thomas P. DiNapoli, April 13, 2021, available at https://nyscomptroller.medium.com/remarks-by-new-york-state-comptroller-thomas-p-397b006d1d5c. ;Lxqh;gxFK wEYem-()f-Nf7z/!+{)[`J9Ng cZ|4pv>jw~&?wq ?NpJ>V7{b[tgsllQ.SjT-hN0 `cU [61], Pursuant to Rule 14a-8, shareholders may submit proposals to be included in a companys proxy materials for its annual or special meetings of shareholders. CtW dropped the Morgan Stanley proposal after the bank agreed to conduct a racial equity audit. I am very proud to announce that I have been named in Morgan Stanley's prestigious 2023 Pacesetter's Club, a group of the Firm's successful Financial Advisors. e.oe."_Lm9Qfj5MvZWNpe0i7 g_s\I`e0GBcEY\6:'vY [L7'$yz{\RUS?_hdHa8xZr$a`[v x0dG{-1weLg! A racial equity audit is the first step to safeguard against further harm and it's also the smart thing to do. (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]. [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). 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. [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). Bank Leaders Buck Shareholder Call for Third-Party Racial Equity Audit Morgan Stanley Chairman and CEO James Gorman discusses the impact of the pandemic on minority-owned financial institutions with Carver Federal Savings Bank CEO Michael Pugh. CtW dropped the Morgan Stanley proposal after the bank agreed to conduct a racial equity audit. This report is based on a survey conducted on behalf of Morgan Stanley by Brunswick Group between August 5 and 8, 2020, in the U.S. [65] Certain of these racial justice proposals submitted by shareholders included proposals calling for Racial Equity Audits. The banks are fighting back., Markets Insider, Marguerite Ward, April 7, 2021, available at https://markets.businessinsider.com/news/stocks/bank-leaders-buck-shareholder-call-third-party-racial-equity-audit-2021-4 (We believe our progress on the issue of racial equality, and our regular reporting of that progress, make the proposals requested audit unnecessary, a Bank of America spokesperson told Insider.). Civil rights advocates and proponents of social justice have long touted the moral and ethical considerations of closing the racial divide in America. In SEC filings,. 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. (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. [118] However, Comptroller DiNapoli noted a human rights assessment is not the same as an independent racial equity audit, and shareholders should be weary of equating the two. [119], On May 26, 2021, Amazon shareholders rejected eleven shareholder proposals at the annual meeting. Morgan Stanley initially urged its shareholders to reject the audit . According to certain proponents, the point of a Racial Equity Audit is not necessarily to critique a companys current platforms and efforts. 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. Under Rule 14a-8(i)(10), a company is permitted to exclude a shareholder proposal if the company has already substantially implemented the proposal. [11], ESG considerations are becoming increasingly relevant to shareholder activists. Analysis: Goldman Sachs faces hard sell for its consumer assets Rachel Wilson became the first head of cybersecurity for Morgan Stanley Wealth Management in the spring of 2017. Recently, Morgan Stanley and CtW Investment Group reached an agreement for the bank to conduct an internal diversity review . Citi's Action for Racial Equity Initiative Invests $1 Billion to Underpinning all that we do are five core values. 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. The investigation will be conducted by attorneys at Covington & Burling, according to an external blog post on Citi's website. Morgan Stanley and BlackRock, facing shareholder pressure, agreed to similar audits earlier this year. (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. Companies that dismiss these concerns or lag behind their peers in addressing ESG matters may find themselves in the crosshairs of investors and proxy advisory firms, or even state legislatures and federal agencies. (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. Read More. 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. In light of the protests sparked by the murder of George Floyd in June 2020, the CtW Investment Group has requested systemically important financial institutions to conduct a racial equity audit that identifies, prioritizes, and remedies the adverse impacts of the bank's policies and practices on non-white stakeholders and communities of color. Morgan Stanley did not respond to a request for comment. [127], According to SEIU, BlackRock decided that the SEIU proposal is too important to wait until they are voted on at their shareholder meetings [128] and announced its plans to voluntarily conduct an independent racial audit of its operations. 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. [55], Some companies have independently engaged in Racial Equity Audits or similar internal reviews, usually in response to external pressures. Specifically, SEIU stated that Goldman underwrites municipal bonds whose proceeds pay police brutality settlements. [35] Similarly, Trillium, on behalf of Christopher and Anne Ellinger, submitted a Racial Equity Audit proposal that was included in Johnson & Johnsons proxy statement for its 2021 annual meeting of shareholders, in which Trillium expressed concerns with claims that the company continues to market its talc-based baby powder to Black and Brown women after its talc supplier included the WHOs possibly carcinogenic label on shipments. [36] Proponents of Racial Equity Audits argue that a reassessment of internal policies and practices via such audits can identify the right levers to pull to begin to shrink these racial divides. [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. Citi announced the move in a blog post last Friday afternoon. Bank of America said last week that an audit is unnecessary given its progress on racial equality. (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. [116] Comptroller DiNapoli expressed concern with Amazons alleged lack of transparency, stating that while the company has put policies in place to address this issue, it has not reported to investors the effectiveness or the process for completing its ongoing policy review. [117] In 2020, Amazon conducted its first human rights assessment, which it referenced to support its position that there was no need to conduct a Racial Equity Audit. 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 . See how you can make meaningful contributions as a student or recent graduate at Morgan Stanley. Investing in underserved communities through our products, services, spending, business practices and thought leadership, Supporting underserved communities through philanthropy that drives more equitable outcomes, Attracting, developing and retaining individuals with diverse backgrounds and driving a culture of inclusion. PDF Sunday | March 12, 2023 8:00 a.m. 12:00 p.m. CT (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. 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. (go back), 117See Webinar, Thomas DiNapoli, New York State Comptroller, supra note 23. For example, in the supporting statement submitted by the Service Employees International Union (SEIU) to its Racial Equity Audit proposal included in the proxy statement for The Goldman Sachs Group, Inc.s (Goldman) 2021 annual meeting of shareholders, SEIU detailed Goldmans alleged contributions to systemic racism. 1 launched a proxy campaign in December 2020 to effect change on Exxons board of directors. Published Dec. 21, 2022 Gabrielle Saulsbery Reporter Example of an Organizational Racial Equity Audit RFP Morgan Stanley is a leading global financial services firm providing a wide range of investment banking, securities, investment management and wealth management services. Hear their stories and learn about how they are redefining the terms of success. Why Racial Equity Audit Matters - LinkedIn Morgan Stanley Wealth Management has launched a Racial Equity Investing Tool Kit as part of its Investing with Impact Platform to help investors who want to advance the goals of racial. 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.