morgan stanley racial equity audit morgan stanley racial equity audit

. 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. 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. We help people, businesses and institutions build, preserve and manage wealth so they can pursue their financial goals. . We anticipate greater interest in Racial Equity Audits and similar initiatives in the upcoming proxy season and accordingly believe companies will be pushed to critically and objectively examine their current internal practices and policies relating to equity and inclusion to identify areas in need of improvement. . Goldman Sachs And JPMorgan Look To Avoid Racial Equity Audits Equity in the Boardroom: How Asset Manager Voting Shaped Corporate Beyond fund managers typical fiduciary duties to minimize risk and achieve positive returns, these fiduciaries are explicitly mandated with making investments into companies that aim to have a sustainable and societal impact in the world [46] based on ESG criteria or that meet stringent environmental, social and governance standards. [47] As the usefulness of Racial Equity Audits as a tool for ESG-conscious shareholders to measure a companys adherence to ESG prerogatives becomes more mainstream, it would be no surprise to see support for these audits grow. Trilinc Global, November 4, 2013, available at https://www.trilincglobal.com/what-is-esg/. The goals provide a yardstick for school leaders to measure their progress and as a "lightning rod to galvanize change" (IDRA, 2006). Gorman has also tapped Reid to build Morgan Stanley's new Institute of Inclusion group to promote diversity within Morgan Stanley, which he will chair. [90], Under Rule 14a-8(i)(3), a shareholder proposal may be excluded from a companys proxy materials if the proposal or the supporting statement accompanying the proposal is contrary to any of the federal proxy rules, including Rule 14a-9, which prohibits a company from disclosing materially false or misleading statements in its proxy materials. [45]. Racial Equity Audits can focus on various aspects of a companys business, including the treatment of customers at a companys physical locations, the diversity of senior management, the targeting of products, and even political contributions. The increasing focus on environmental, social and governance (ESG) considerations at public companies, including this years highly publicized proxy contest at Exxon Mobil Corporation (Exxon), has demonstrated the growing importance of understanding ESG and the implications it can have for investors and companies. Id. Just like its environmental and corporate governance counterparts, addressing social concerns can be equally important to companies and investors alike as this can translate into, among other things, value additive results. As a result, Engine No. FlZ240l7_Dl4\'q3c`HBB0d)b@b7TpCR6>[Jn'EP*w"n<7R`/E/=O$H+tgu1wJwD$dAmX,E"AE W?,#( 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. [13] Recently, however, activists have begun to realize that social and environmental issues can also impact their investments, in both negative and positive ways. S7-25-97, available at https://www.sec.gov/rules/final/34-40018.htm (citing Reebok Intl Ltd. (Mar. (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). As ESG issues garner more media attention and as younger generations move into the investing space, these issues and related disclosures may become increasingly important to consumers, investors and other stakeholders. [69], Proponents contend that Racial Equity Audits would help public companies identify, prioritize, remedy and avoid adverse impacts on nonwhite stakeholders and communities of color [70] and would help a companys board of directors assess such companys behavior through a racial equity lens in order to obtain a complete picture of how it contributes to, and could help dismantle, systemic racism. [71]. Votes on the Proposals at JP Morgan & Chase, Goldman Sachs and State Street will take place in the next few weeks. [1] Secondsocial criteria, which considers how a company engages with all of its stakeholders (including employees, customers and suppliers) rather than just shareholders, including the treatment and diversity of its employees on the frontline, management and boardroom levels, the effects of a company on the surrounding community, and whether a company is working with suppliers who share similar socially desirable values. 20091 (August 16, 1983)). The $1.9 trillion-asset bank has hired the law firm Covington & Burling to conduct the review and plans . If a company lags behind in this quickly developing area, we believe shareholders may become more willing to launch shareholder campaigns focused on ESG issues, including demanding objective results through Racial Equity Audits. 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. For the sixth consecutive time, Morgan Stanley Bank has been recognized with the highest rating from the Office of the Comptroller of the Currency for its work meeting the credit needs of the communities it serves. Morgan Stanley Adds Racial Equity Investing Tool Kit: Portfolio (go back), 85See Amazon No-Action Letter, supra note 83. https://www.sec.gov/rules/final/34-40018.htm (citing Reebok Intl Ltd. (Mar. 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. 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. [33] The public announcement of the Racial Equity Audit and related diversity, equity and inclusion efforts appeared to not only rehabilitate Starbucks public image after the incident, but helped the company become the most popular restaurant stock on the S&P 500 with actively managed funds that are dedicated to ESG investing, according to RBC Capital Markets. Racial Equity Audits and similar equity and inclusion initiatives that are not robust or designed with the aid of independent third party consultants may risk being perceived as mere window dressing and invite criticism from shareholders. BlackRock plans racial audit, in break with Wall Street peers IRS accused of using 'racial equity' for audits targeting White, Asian Andrew Santini LinkedIn: I am very proud to announce that I have been 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]. [57] The aspects of Facebook that the audit focused on were informed by the aforementioned interviews, which led to a holistic review of the entire company and not just a single aspect such as employment practices. Companies advised to be alert to racial equity audit proposals Firstenvironmental criteria, which considers a companys actions as a steward of the environment, such as what steps a company is taking to address the depletion of the planets resources, pollution and greenhouse gas emissions, or the effects of climate change. 2023Morgan Stanley. (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. (go back), 37Webinar, Cyrus Mehri, Founding Partner of Mehri & Skalet, PLLC, supra note 23. (go back), 78Rule 14a-8 No-Action Letter re: Stockholder Proposal to Citigroup Inc. from CtW Investments Group, Citigroup Inc., December 23, 2020, available at https://www.sec.gov/divisions/corpfin/cf-noaction/14a-8/2021/ctwcitigroup022621-14a8.pdf [hereinafter Citigroup No-Action Letter]; Rule 14a-8 No Action Letter re: Johnson & Johnson2021 Annual Meeting, Omission of Shareholder Proposal of Christopher and Anne Ellinger and co-filers, Skadden, Arps, Slate, Meagher & Flom LLP, December 16, 2020, available at https://www.sec.gov/divisions/corpfin/cf-noaction/14a-8/2021/ellingeretaljohnson021221-14a8.pdf [hereinafter J&J No-Action Letter]. 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. SEC interpretations of this rule provide that proposals that concern ordinary business matters but focus on significant social policy issues would not be excludable because the proposals would transcend the day-to-day business matters. [82] In seeking to exclude Racial Equity Audit proposals, companies argued that these audits concerned day-to-day aspects of their ordinary business operations, including: (i) product sales and advertising; [83] (ii) customer relationships; [84] (iii) the nature of the companys public relations, messaging, and communications with its shareholders and other constituents; [85] (iv) workforce management; [86] (v) relationships with suppliers; [87] (vi) community impacts; [88] or (vii) decisions regarding the products and services [the company] offers. [89] Furthermore, these companies contended that the proposals did not focus on a significant policy issue that transcended their ordinary business. 1What is ESG?, ADEC Innovations ESG Solutions, available at https://www.esg.adec-innovations.com/about-us/faqs/what-is-esg/. We saw this occur in California with Senate Bill 826 and Assembly Bill 979 discussed in further detail above. A complicated past The financial institutions in question have recently made diversity, inclusion, and racial equity a significant. PAB News | Shareholders File Resolutions Calling for Companies to Citi to conduct racial equity audit | Corporate Secretary CtW dropped the Morgan Stanley proposal after the bank agreed to conduct a racial equity audit. 14B, September 15, 2004, available at https://www.sec.gov/interps/legal/cfslb14b.htm. If this occurs, legislators and/or regulatory authorities may at some point in the future step in to close the gap between investor demand and practical implementation. (go back), 28The Business Case for Racial Equity, a Strategy for Growth, Ani Turner, W.K. (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. [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. The decision to retain an independent . 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. [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. The Firm's employees serve cl . [58] The audit produced three reports, which ultimately described how Facebook utilized the audit process to listen, plan and deliver on various consequential changes that will help advance the civil rights of its users in a number of categories and also recommended implementation of specific action items, including to (1) continue to onboard expertise, (2) build out the civil rights leaders team, (3) expand civil rights product review processes, (4) require civil rights perspectives in escalation of key content decisions and (5) prioritize civil rights. [59] The thoroughness of the audit and the response and subsequent actions taken by the company have led to the Facebook audit being heralded by many as a big success. (AP Photo/J. Tagged: 2020, Regulatory letters Newer PostCtW letter to DoorDash dual class Older PostCtW Racial Equity letter to Morgan Stanley Back to Top 1900 L Street NW, Suite 900 Washington, DC 20036 Prior to the ESSA, IDRA developed the Six Goals of Educational Equity (2006). Goldman Sachs | Making Progress Towards Racial Equity Related research from the Program on Corporate Governance includesThe Illusory Promise of Stakeholder Governance(discussed on the Forumhere) andWill Corporations Deliver Value to All Stakeholders?, both by Lucian A. Bebchuk and Roberto Tallarita;For Whom Corporate Leaders Bargainby Lucian A. Bebchuk, Kobi Kastiel, and Roberto Tallarita (discussed on the Forumhere); andRestoration: The Role Stakeholder Governance Must Play in Recreating a Fair and Sustainable American EconomyA Reply to Professor Rockby Leo E. Strine, Jr. (discussed on the Forumhere). 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. [62] Under Rule 14a-8, a company is required to include a shareholder proposal and related supporting statement in its proxy statement and list the shareholder proposal on its proxy card to be voted on with the companys proposals if: (a) the shareholder satisfies specified eligibility and procedural requirements; and (b) the proposal is not excludable under Rule 14a-8(i). Underpinning all that we do are five core values. Morgan Stanley Launches the Institute for Inclusion Using Equity Audits to Assess and Address Opportunity Gaps - IDRA CtW dropped the Morgan Stanley proposal after the bank agreed to conduct a racial equity audit. 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. [129] As a result, the shareholder proposal was withdrawn and SEIU announced that it was currently working with BlackRock to bring about needed change within the company and the financial services industry. [130] Commentators anticipate that BlackRocks commitment to a Racial Equity Audit could sway other financial services companies to follow in its footsteps. [131]. [22]. For example, such guidelines may provide for a minimum frequency of Racial Equity Audits and indicate parameters on what attributes an audit must possess to be considered sufficient. Every company has a different mix of products, operations and services; therefore, according to practitioners in the area, it is important for participants in a Racial Equity Audit to identify the scope of the audit and benchmarks prior to conducting the audit. Citi and BlackRock Join List of Companies Doing Racial Equity Audits From our startup lab to our cutting-edge research, we broaden access to capital for diverse entrepreneurs and spotlight their success. See how you can continue your career journey at Morgan Stanley. We value our commitment to diverse perspectives and a culture of inclusion across the firm. 34-40018, May 28, 1998, available at https://www.govinfo.gov/content/pkg/FR-1998-05-28/html/98-14121.htm. endstream endobj 334 0 obj <>stream (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. (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/. What Are Racial Equity Audits? - nhforge.org (go back), 30Webinar, Cyrus Mehri, Founding Partner of Mehri & Skalet, PLLC, supra note 23. Morgan Stanley's HBCU Scholars program provides scholarships for students at three Historically Black Colleges and Universities. No major proxy advisory firm has issued official voting guidance on the implementation of Racial Equity Auditsand the two largest advisory firms, ISS and Glass Lewis, have been split on their support for shareholder proposals requesting such audits. Morgan Stanley (NYSE: MS) is a leading global financial services firm providing investment banking, securities, wealth management and investment management services. (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/. [123], While the financial institutions that have received Racial Equity Audit proposals have recently made philanthropic and strategic investments, along with other commitments to racial equity, CtW has stated that the only way to effectively address racial injustice and economic inequality is careful study of how the industrys products and services have contributed to this imbalance, [124] which includes analyzing mortgage issuances, the number of bank branches in minority neighborhoods or banking deserts and whether charitable contributions are fully aligned with . (go back), 118Id. (go back), 98Wells Fargo & Company, Notice of Annual Meeting and Proxy Statement, Schedule 14A, filed with the SEC on March 16, 2021, available at https://www.sec.gov/Archives/edgar/data/72971/000119312521082907/d71313ddef14a.htm [hereinafter Wells Fargo Proxy Statement]. identify and address racial and other inequities in the accounting profession. (go back), 95For a detailed discussion of BlackRocks decision to implement a Racial Equity Audit, see Section IV.A. 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. BlackRock breaks Wall Street ranks with planned racial audit [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. The SEC considered the arguments described above to exclude the shareholder proposals on Racial Equity Audits, and, in each case, the SEC did not concur with the company that the shareholder proposal should be excluded. Services Employees International Union (SEIU), Unable to concur that Rule 14a-8(i)(7) provides a basis to exclude, Unable to concur that Rule 14a-8(i)(10) provides a basis to exclude, Unable to concur with exclusion on any of the bases asserted, Materially False and Misleading Exception (Vague or Indefinite). Hear their stories and learn about how they are redefining the terms of success. Our accelerator promotes financial inclusion and provides access to capital for startups led by women and multicultural entrepreneurs. Whether its hardware, software or age-old businesses, everything today is ripe for disruption. Otherwise, these proponents posit, a lackluster or hastily conducted Racial Equity Audit or failure to take meaningful action in response to an audit may actually have the opposite effect for the implementing institutioninstead of insulating the company from potential proposals demanding Racial Equity Audits, faulty or perfunctory audits may instead create a target on the institutions back for ESG activists in the following years. [141]. JPMorgan's racial-equity audit falls short for some shareholders SOC Investment accused the bank and its auditor of approaching the process with a "narrow perspective," and said the report fails to look at any internal diversity, equity and inclusion issues. Advocates Call For Racial Equity Audits To Dismantle Decades of 94 . (go back), 94CoreCivic, Inc., Form 8-K, filed with the SEC on May 18, 2021, available at https://www.sec.gov/ix?doc=/Archives/edgar/data/1070985/000119312521165313/d184269d8k.htm. [14], ISS and others have published a number of reports that have found that addressing social and environmental concerns correlates with companies either currently experiencing or having the potential to experience increased growth and profitability. (go back), 73As You Sow: Racial Justice, available at https://www.asyousow.org/our-work/social-justice/racial-justice. [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. (go back), 81See Citigroup No-Action Letter, supra note 78. What Counts as Race Discrimination? A Suit Against JPMorgan Is a Test 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. [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. Increased focusfrom companies, regulators, investors, and employeeson racial and ethnic discrimination has heightened scrutiny of public companies' DEI-related risks and opportunities, as have the COVID-19 pandemic and . 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. New York State Common Retirement Fund et al. ;Lxqh;gxFK wEYem-()f-Nf7z/!+{)[`J9Ng cZ|4pv>jw~&?wq ?NpJ>V7{b[tgsllQ.SjT-hN0 `cU Shareholder activist Engine No. (go back), 100Goldman Sachs Proxy Statement, supra note 35. 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. 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. However, on August 6, 2021, the SEC approved new listing rules proposed by The Nasdaq Stock Market LLC (Nasdaq) requiring each Nasdaq-listed company to disclose certain information about the diversity of its board of directors and generally include a minimum number of members of its board of directors who are Diverse (as defined within the new listing rules). endstream endobj 336 0 obj <>stream Yesterday, the audit proposal also went to the vote at Wells Fargo, the result has not yet been disclosed. David Ake) It followed his 2021 executive order . 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. (go back), 23Racial Equity Audits: A Critical Tool for Shareholders, CtW Investment Group, available at https://www.socinvestmentgroup.com/critical-tool-for-shareholders [hereinafter Webinar]. (go back), 82See Final Rule: Amendments to Rules on Shareholder Proposals, Release No. 333 0 obj <>stream Citigroup, Wells Fargo, Bank of America, Goldman Sachs, JP Morgan urge A career at Morgan Stanley means belonging to an ideas-driven culture that embraces new perspectives to solve complex problems. Discover who we are and the right opportunity for you. We believe our greatest asset is our people. We live that commitment through long-lasting partnerships, community-based delivery and engaging our best assetMorgan Stanley employees. [109], Amazon argued the proposals call to review its impact on civil rights, equity, diversity and inclusion is a broad survey on the impact of the Companys policies, practices, products and services on societal issues, which implicates routine business issues, such as the products and services that the Company offers to its customers, the Companys business practices and operations, the Companys strategic decisions, and the Companys choice of technologies. [110] Similarly, according to Amazon, such an audit would necessarily implicate[] a multitude of ordinary business matters relating to the Companys day-to-day operations, which Amazon argued included decisions relating to, among other things, its charitable donations, hiring decisions, diversity and recruitment initiatives, customer relations, advertising, public relations and communications with its shareholders and the kinds of products it sold. Morgan Stanley is a leading global financial services firm providing a wide range of investment banking, securities, investment management and wealth management services. Our culture of access and inclusion has built our legacy and shapes our future, helping to strengthen our business and bring value to clients. 1 grew impatient with Exxon after years of declining financials and long-continued dependency on fossil fuels, with no indication of future change. Morgan Stanley is also donating $5 million . (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.