Johnson & Johnson shareholders vote for racial impact audit

May 04, 2022
Company is latest to face pressure to assess its impact

Johnson & Johnson shareholders have voted for the company to commission an independent assessment of its effects on racial matters – the latest company to feel investor pressure on that front.

According to an SEC filing, almost 63 percent of votes cast at the company’s April 28 AGM backed a proposal urging Johnson & Johnson’s board to ‘oversee a third-party audit… which assesses and produces recommendations for improving the racial impacts of its policies, practices and products, above and beyond legal and regulatory matters.’

The proponent Mercy Investment Services asks that input from stakeholders, including civil rights organizations, employees and customers be taken into account in determining the specific matters to be assessed in the audit.

‘Addressing systemic racism and its damaging economic costs demands more than a reliance on internal action and assessment,’ Mercy Investment Services writes. ‘Audits engage companies in a process that internal actions alone may not replicate, unlocking hidden value and uncovering blind spots that companies may have to their own policies and practices. Company leaders are not diversity, equity and inclusion [(DE&I)] experts and lack objectivity. Crucially, a racial justice audit examines the differentiated external impact a company has on minority communities.

The proponent adds: ‘Given the many companies across sectors embroiled in race-related controversies, any company without a comprehensive third-party audit and plan for improvement of its internal and external racial impacts could be at risk. Companies such as Facebook, Starbucks, BlackRock and Citi have committed to such audits, and practitioners have developed guidelines.’

Johnson & Johnson had urged shareholders to vote against the measure. The company’s board writes in its 2022 proxy statement that ‘[DE&I] is built into our credo and has long been a core value of the company.’

It argues, among other things, that: the board and management continually review the company’s DE&I policies, practices and goals; the company releases two annual publications describing its progress toward its DE&I goals; the company has ‘made a commitment to address racial and social justice through Our Race to Health Equity platform and several other programs, and the requested audit would divert resources from this and other [DE&I] initiatives; and the company ‘embraces [DE&I] as a key driver of its success and intends to continue to publicly demonstrate its commitment to [DE&I] in all aspects of its business.’

A request for comment from Johnson & Johnson was not returned immediately.



NOT ALONE
Johnson & Johnson is not alone in facing face pressure from investors in this area. Citigroup last October agreed to have a third party conduct a racial equity audit of the bank, six months after a significant number of its shareholders – though not a majority – voted for such a step.

Shareholders in McDonald’s Corporation will vote later this month on a proposal pressing the fast-food company to carry out a civil rights audit.

The SEC rejected a request from McDonald’s for no-action relief if it excluded the proposal from its proxy statement. Investors will instead vote at the company’s May 26 AGM on the measure, which was brought by the SOC Investment Group. It urges the board ‘to oversee a third-party audit analyzing the adverse impact of McDonald’s policies and practices on the civil rights of company stakeholders, above and beyond legal and regulatory matters, and to provide recommendations for improving the company’s civil rights impact.’

McDonald’s sought relief to exclude the proposal, arguing that per Rule 14a-8(i)(7) it concerns ‘ordinary business operations’ because it relates to the company’s litigation strategy and the conduct of litigation to which the company is a party.

McDonald’s stated: ‘[I]ssuing the report requested in the proposal would require the company to take action that would harm its legal defense in multiple pending lawsuits, including because the proposal seeks an audit and a report on issues that are subject to ongoing litigation and in support of a predetermined adverse conclusion (contrary to the company’s stated position in such litigation) that the company’s existing policies and practices ‘adversely impact’ the civil rights of certain stakeholders, including but not limited to employees, franchisees and their employees, suppliers and customers (which the company strongly disputes).’

The SEC did not agree with the company’s argument, stating that ‘[i]n our view, the proposal transcends ordinary business matters.’

In addition to this argument, McDonald’s stated in its no-action filing that [DE&I] is a top priority for the company: ‘Even while the company defends itself in the litigation referenced in this letter, it continues to take actions to hold itself accountable to public commitments to advance equitable opportunity for its employees, franchisees and suppliers.’ It pointed, for example, to having introduced a global franchisee recruitment initiative designed to increase the number of franchisees from all backgrounds, including historically under-represented groups.

A McDonald’s spokesperson did not have additional comment at the time of the original article.

A BROADER INITIATIVE
Several companies have faced votes on requests that they conduct racial equity audits, though not all have received majority support. The SOC Investment Group (previously known as CtW Investment Group) was at the forefront of the initiative last year. It works with pension funds sponsored by unions affiliated with the Strategic Organizing Center.

According to an SEC filing, 54 percent of the votes cast at Apple’s 2022 AGM were in favor of a shareholder proposal – also supported by the SOC Investment Group – requesting that the board oversee a third-party audit ‘analyzing the adverse impact of Apple’s policies and practices on the civil rights of company stakeholders, above and beyond legal and regulatory matters, and to provide recommendations for improving the company’s civil rights impact.’

Apple had written in its proxy statement that it is ‘committed to respecting human rights, including civil rights, and to ensuring everyone is treated with dignity and respect.’

The company argued that it ‘already fulfills the objectives of the proposal in several ways, including through impact and risk assessments, active governance and board oversight, engagement with our communities and key stakeholders and regular, transparent public reporting. We believe our current framework for the implementation and oversight of our human rights commitments is more effective than the broad and unfocused audit requested by the proposal.’

A request for comment from Apple was not returned at the time of the original article.

 

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