Investor groups ponder further action on racial inequality

Jun 10, 2020
Companies could face investor scrutiny on authenticity of public statements

A number of socially responsible investors across America are in active discussions about how they can further support the movement to address racial inequality, in light of recent protests around the world.

Investors interviewed for this article pointed to three main areas where engagement and proposal-filing activity has been channeled in the past: improving corporate diversity and inclusion programs and reporting, addressing concerns with government or police contractors and addressing the private prison system in America.

The Interfaith Center on Corporate Responsibility (ICCR) – a coalition of more than 300 global institutional investors representing more than $500 bn in assets under management – is currently working with a small group of its members on a formal position on racial equality.

Nadira Narine, senior program director at ICCR, tells Corporate Secretary sister publication IR Magazine that this has been a prominent talking point for ICCR members since the start of the Covid-19 outbreak, when concerns were raised that the virus was having a greater effect on black Americans. She says the deaths of Breonna Taylor, Ahmaud Arbery and George Floyd have placed a greater focus on the need for a public policy platform.

‘We are working on a platform and being led by people of color,’ Narine says. ‘There’s a recognition that supporters have to be clear they’re implicit in the systems of oppression that exist – we helped create this. We’ll be looking for people who recognize that upfront and commit to action as a result.’

Ceres president and CEO Mindy Lubber released a statement last week, announcing that the investor group was reviewing all policies and practices to achieve a ‘just and sustainable future for all people’. She added: ‘Systemic racism demands systemic solutions.’

Shareholder proposals

ICCR has a long history of supporting racial equality, starting with its very first proxy contest against General Motors in 1971 to remove its business operations from South Africa until apartheid was over. ICCR’s anti-apartheid campaign played an influential role in 50 corporations announcing that they were taking business operations out of apartheid South Africa in 1986. The group filed anti-apartheid resolutions at 185 companies that year.

This year, eight companies – including Facebook, JPMorgan Chase and Wells Fargo – have faced proxy votes on whether to publish information about gender or racial pay gaps. According to a recent report from Arjuna Capital and Proxy Impact, which has sponsored numerous proposals on gender and racial pay gap disclosure, 19 proposals had been filed as of March 2020, and six had been withdrawn.  

Alphabet and Facebook both faced proposals calling for the appointment of a board director with a human rights or civil rights background. Those proposals received 8.9 percent and 3.7 percent support, respectively.

North Star Asset Management has been engaging with public companies about disclosures of prison labor since 2015. In 2018 it published a report that outlined why the use of prison labor in the supply chain is an investor concern – citing reputational risk and litigation risk as two prominent themes. The report notes that a large number of prison inmates are black, due to systemic issues in society, and therefore that prison labor is a racial issue as well as a supply chain issue.

The asset manager has filed numerous shareholder proposals asking for disclosure of prison labor in the supply chain at companies like Costco, The TJX Companies, IBM and The Home Depot.

Authenticity of company statements

Many public companies released public statements addressing the Black Lives Matter movement last week, especially around the #BlackoutTuesday movement. AlphaSense has compiled a breakdown of a number of the companies that pledged money to helping establish greater racial equality.

In an investor relations context, three companies – Domo, PagerDuty and Zuora – made public comments in support of the Black Lives Matter movement on their earnings calls this month, according to a search of the AlphaSense database. Two other companies – Genesco and Destination XL – discussed racial equality on their earnings calls this month.

Andrew Behar, CEO of As You Sow, says the group is maintaining a database of companies that have published public statements on Black Lives Matter and racial equality. Behar is interested in which companies follow through on their statements.

This year, As You Sow filed a shareholder proposal at BlackRock, asking how it would adhere to the principles of the Business Roundtable statement on corporate purpose – to which BlackRock is a signatory. He says he could imagine similar proposals at companies that have released statements on racial equality in the future.

‘Veracity and honesty are the most powerful commodities a person and a company can have,’ Behar tells Corporate Secretary sister publication IR Magazine. ‘As companies are making statements about Black Lives Matter and racial justice, we’re aggregating those statements into a database to hold those companies accountable.’

Aaron Bertinetti, senior vice president of research and engagement at Glass Lewis, agrees that transparency and accountability are going to be crucial for companies as they try to implement the positive messaging they’ve communicated.

‘A key barrier to any systemic change is the lack of good governance,’ he says. ‘Systemic racism exemplifies that. In order to change you need to be able to have transparency in information so you can better diagnose the problem and measure progress, and then get enough people, including those with power, to amplify the issue and be held accountable for the change.

‘In Glass Lewis’s case, our role has always been focused on pushing for disclosure first, explanation of behavior second, amplifying through policy and engagement third and ultimately holding companies to account for failing to address such issues.’

Bertinetti adds that Glass Lewis will be reviewing the key themes that emerged from proxy season, as it always does, and will be considering how it can build a policy around racial equality in the future.

An ISS spokesperson says there is currently no update to the proxy adviser’s position on racial equality. Its current US proxy voting guidelines are covered on pages 59-60 here.

 

Editor's note: This article was updated on June 12 to mention that a research report was co-authored by Arjuna Capital and Proxy Impact. 

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