As a global financial services firm, Morgan Stanley is committed to technological innovation. 94 . As a firm, we can do more, and here are five steps were taking right now. [60], A number of other high-profile companies and financial institutions have been approached either by shareholders or civil rights advocates about conducting Racial Equity Audits. [2] Thirdcorporate governance, which considers how a company governs itself and holds itself accountable taking into account the structure and diversity of a companys board of directors, the separation between management and the board of directors, executive compensation, equal and fair pay amongst employees, and the extent to which a company or its management or board of directors are undertaking lobbying efforts, making political and charitable donations, or engaging in corruption or bribery. New York, NY. Stay abreast of the latest trends and developments. BlackRock plans racial audit, in break with Wall Street peers 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), 108Amazon No-Action Letter, supra note 83. Learn from our industry leaders about how to manage your wealth and help meet your personal financial goals. 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. [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. While we witnessed an increase in shareholder proposals related to Racial Equity Audits in the 2021 proxy season, all such proposals were either withdrawn or defeated. (go back), 105Id. Read More. 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. Recently, Morgan Stanley ( MS +0.65%) and CtW Investment Group reached an agreement for the bank to conduct an internal diversity review, and to meet shareholders on next steps before its 2022 annual meeting. (go back), 104Amazon.com, Inc., Notice of 2021 Annual Meeting of Shareholders and Proxy Statement, Schedule 14A, filed with the SEC on April 15, 2021, available at https://www.sec.gov/Archives/edgar/data/1018724/000110465921050333/tm2035374-1_def14a.htm [hereinafter Amazon Proxy Statement]. 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. [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. CtW dropped the Morgan Stanley proposal after the bank agreed to conduct a racial equity audit. Risks to shareholder value associated with diversity, equity, and inclusion (DEI) remain a top engagement priority for Vanguard with our funds' portfolio companies. https://www.sec.gov/news/public-statement/lee-statement-review-climate-related-disclosure. The firm reached its decision following successful engagement with and withdrawal of a racial equity audit shareholder proposal by SOC Investment Group and SHARE. 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. (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. Morgan Stanley Adds Racial Equity Investing Tool Kit: Portfolio US pension giants among 37% support for pioneering 'racial equity audit Amundi Asset Management, Northern Trust Investments, and PIMCO were leaders in supporting racial equity audit proposals, voting in favor of 100 percent of proposals.Morgan Stanley, UBS, Legal & General . JPMorgan's racial-equity audit falls short for some shareholders Vanguard's Insights on Shareholder Proposals Concerning Diversity (go back), 65All things (not) being equal, IR Magazine, Ben Maiden, Summer 2021, available at https://content.irmagazine.com/story/ir-magazine-summer-2021.pdf. The racial equity audit would include a review of existing documents regarding program information and evaluation, member surveys, human resource policies and procedures, marketing materials, GIA website, and other pertinent documents in order to develop a more comprehensive picture of the organizational climate in relation to its goal of . The Staff has stated that substantial implementation under the rule does not require the company to have implemented the proposal in full or exactly as proposed by the shareholder. 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 . [98] Wells Fargo also said it is making efforts toward expanding [its] diversity and inclusion commitments with a focus on hiring, promotions, and turnover, with increased accountability across all of those areas and [is] taking specific actions in support of these commitments. [99] The board of directors of Goldman recommended that shareholders vote against the shareholder proposal on a Racial Equity Audit, saying it has taken additional steps toward racial equity in the past year, including assessing its shortcomings and committing to hiring more analysts from historically Black colleges and universities, while maintaining [its] existing programs focused on other diverse populations. [100] Goldman also pointed out that it is [b]uilding upon more than $200 million of grants in minority communities and to minority-owned businesses over the past two decades and in 2020 [Goldman] created the Fund for Racial Equity to support the vital work of leading nonprofits that are addressing racial injustice, structural inequity and economic disparity, which has committed $10 million from GS Gives in addition to matching employee contributions to recipient organizations. [101]. 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. BlackRock pledges to conduct racial-equity audit Equity Audits Address Racism in the Workplace - SHRM [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. [51], Practitioners also believe that the audit process can be important for companies as a way to build trust with their stakeholders. Morgan Stanley is also donating $5 million . (go back), 120Amazon investors reject New York retirement funds call for a racial-equity audit, 10 other shareholder proposals, MarketWatch, Levi Sumagaysay, May 28, 2021, available at https://www.marketwatch.com/story/amazon-investors-reject-new-york-retirement-funds-call-for-a-racial-equity-audit-10-other-shareholder-proposals-11622242863. IRS accused of using 'racial equity' for audits targeting White, Asian Citi announced the move in a blog post last Friday afternoon. 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. 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. A Racial Equity Audit is, at its core, an independent, objective and holistic analysis of a companys policies, practices, products, services and efforts to combat systemic racism in order to end discrimination within or exhibited by the company with respect to its customers, suppliers or other stakeholders. (go back), 106Other shareholders joining the proposal were: (1) the Praxis Growth Index Fund; (2) CommonSpirit Health; (3) the Adrian Dominican Sisters; (4) Catherine Donnelly Foundation; (5) Monasterio Pan de Vida; (6) Reynders, McVeigh Capital Management, LLC; (7) the Congregation of the Sisters of St. Joseph of Peace; (8) the Sisters of the Holy Names of Jesus and Mary U.S.-Ontario Province Corporation; and (9) Newground Social Investment on behalf of the Robert H. and Elizabeth Fergus Foundation and Eric Menninga. From volatility and geopolitics to economic trends and investment outlooks, stay informed on the key developments shaping today's markets. 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. As a result, Engine No. . Annie Palmer @annierpalmer. In 2007, the firm's co-founder, a former Goldman Sachs and Morgan Stanley banker named Divesh Makan, told a wealth management magazine that he'd even organized clients' parties and helped . We rely on our technologists around the world to create leading-edge, secure platforms for all our businesses. (go back), 50Webinar, 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. Wells Fargo plans to conduct a racial equity audit, asking an outside law firm to assess the bank's workforce diversity and determine how its business practices are affecting communities of color. BlackRock Breaks Wall Street Ranks With Planned Racial Audit . (go back), 10ESG Activism Becomes the Norm, ESG Activism, Insightia, 2021, available at https://www.activistinsight.com/wp-content/uploads/dlm_uploads/2021/06/InsightiaESGActivism-1.pdf?utm_source=newsletter&utm_medium=email&utm_campaign=greenfin&utm_content=2021-06-30. The lender pledged in 2020 to spend $1 billion over four years to combat racial and economic. 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 . What Counts as Race Discrimination? A Suit Against JPMorgan Is a Test [10] On the other hand, it has been found that companies that affirmatively adopt meaningful approaches to these issues may not only help progress environmental and societal goals, but may also potentially see improved financial performance. 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. Racial Equity Audits are the practice of independently reviewing an organisation's policies and ascertaining how well they encourage and promote inclusion, diversity, and racial equality. (go back), 69Citigroup Inc., 2021 Notice of Annual Meeting and Proxy Statement, Schedule 14A, filed with the SEC on March 17, 2021, available at https://www.sec.gov/Archives/edgar/data/831001/000120677421000735/citi3828191-def14a.htm [hereinafter Citigroup Proxy Statement]; see also CoreCivic Inc. Proposal, Service Employees International Union (SEIU), available at https://exchange.iccr.org/node/88686/text. 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. 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. Racial Equity: Advancing Change | Morgan Stanley 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. Morgan Stanley did not respond to a request for comment. Morgan Stanley leadership is dedicated to conducting first-class business in a first-class way. Whether its hardware, software or age-old businesses, everything today is ripe for disruption. Everything we do at Morgan Stanley is guided by our five core values: Do the right thing, put clients first, lead with exceptional ideas, commit to diversity and inclusion, and give back. (go back), 75Goldman, Citi Stave Off Investor Calls for Racial Audits (1), Bloomberg Law, Saijel Kishan and Jeff Green, April 29, 2021, available at https://news.bloomberglaw.com/banking-law/goldman-citi-stave-off-investor-calls-for-racial-audits-1. 1s unprecedented victory, with three of its director nominees being elected to Exxons board at its 2021 annual meetingsending a clear message that environmental concerns and proactive planning are deeply important to Exxons shareholders. 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. . 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. (go back), 6Final Rule: Modernization of Regulation S-K Items 101, 103 and 105, 17 CFR 229, 239 and 240, Release Nos. BlackRock Breaks Wall Street Ranks With Planned Racial Audit [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. A racial equity audit is an evaluationusually conducted by an external law firmof an employer's policies, procedures and practices to identify and address systemic bias and discrimination. [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. Companies Negotiated with Shareholders to Withdraw the Racial Equity Audit Proposal. ARTICLE: Racial Equity Audits: A New ESG Initiative Poised to Gain Black Rock, the world's largest asset manager, is launching a racial audit at a request of a shareholder. A 38 percent "yes" vote at Citi was particularly encouraging, given the fact that institutional investors typically follow the corporate board's recommendation. Input from civil rights organizations, employees, and customers should be considered in determining the specific matters to be analyzed. Currently, neither the SEC nor the major U.S. securities exchanges mandate publicly traded companies to make disclosures regarding Racial Equity Audit initiatives. 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. Why Racial Equity Audit Matters - LinkedIn 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. %PDF-1.6 % We all want to do something to try to change the course we find ourselves on. Internal Audits Role in Driving Diversity, Equity and Inclusion Amy Fread, CISA Senior Manager Deloitte & Touche LLP Korynne Bernard . [20] State governments have also codified ESG initiatives into lawCalifornia leading the charge with the passage of Senate Bill 826 and Assembly Bill 979, which require a certain percentage of directors on the boards of public companies headquartered in the state be composed of females and individuals from underrepresented communities. 16, 1992)). 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. [115] The companys environmental impact has also been called out for allegedly disproportionately affecting minority communities. PAB News | Shareholders File Resolutions Calling for Companies to Like the other companies that received shareholder proposals on Racial Equity Audits in the 2021 proxy season, SEIUs proposal urged BlackRock to assess its behavior through a racial equity lens to identify how it contributes to systemic racism, including where its stated values are misaligned with the impact of its actions. (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. [53] Advocates believe it is critical that the audit be conducted by an independent third party in order to ensure integrity and credibility throughout the process. (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. [34]. (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. [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. Racial Equity Audits: The New ESG Frontier These votes follow a 2021 season in which eight racial equity audit proposals were proposed . 1, Reuters, Svea Herbst-Bayliss, Gary McWilliams, December 7, 2020, available at https://www.reuters.com/article/exxon-shareholders-engine-no-1/exxon-faces-proxy-fight-launched-by-new-activist-firm-engine-no-1-idUSKBN28H2IO. 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. And lastly, whether a company has sufficient mechanisms in place to monitor effectiveness. 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. 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. (go back), 37Webinar, Cyrus Mehri, Founding Partner of Mehri & Skalet, PLLC, supra note 23. The global presence that Morgan Stanley maintains is key to our clients' success, giving us keen insight across regions and markets, and allowing us to make a difference around the world. The Citi Blog - Citi Will Conduct a Racial Equity Audit (go back), 81See Citigroup No-Action Letter, supra note 78. [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. Wells Fargo announced it will commission a third-party racial equity audit Tuesday after years of advising shareholders to vote against one. 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. [112], In a webinar hosted by CtW, Comptroller DiNapoli explained the importance of racial equity at Amazon and why shareholders should vote in favor of the proposal, and argued that racial inequity is harming the United States economy. [113] DiNapoli argued that the pattern and magnitude of issues repeatedly facing the company demonstrate a need for a more in-depth review . The lender pledged in 2020 to spend $1 billion over four years to combat racial and economic inequality. Morgan Stanley CtW Morgan Stanley Racial Equity Audit Proposal Julia Khan November 20, 2020 Morgan Stanley Click Here to Read the Letter in PDF Format. New York. (go back), 134 ISS Opens Global Annual Benchmark Policy Survey and Separate Climate Survey, ISS, July 28, 2021, available at https://insights.issgovernance.com/posts/iss-opens-global-annual-benchmark-policy-survey-and-separate-climate-survey/. [55], Some companies have independently engaged in Racial Equity Audits or similar internal reviews, usually in response to external pressures. Civil rights advocates and proponents of social justice have long touted the moral and ethical considerations of closing the racial divide in America. The Black Leaders Forum brought together senior leaders from Wealth Management for targeted conversations, development and actions to achieve success. The two leading proxy advisory firms, ISS and Glass Lewis & Co. LLC (Glass Lewis), have generally taken opposing views on Racial Equity Audits. 34-40018, May 28, 1998, available at https://www.govinfo.gov/content/pkg/FR-1998-05-28/html/98-14121.htm. hW[oSI+B"!vThKA}4J~-c2)75x>qfg\ Z2X$gp-78Yz|Z8X|^^_&fdrrv1s*Cj=Wo/y>?NW&xUJKW [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. 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]. (go back), 29Webinar, Susan Baker, Director of Shareholder Advocacy, Trillium Asset Management, supra note 23. (go back), 115See, e.g., Bias, disrespect, and demotions: Black employees say Amazon has a race problem, Vox:Recode, Jason Del Rey, February 26, 2021, available at https://www.vox.com/recode/2021/2/26/22297554/amazon-race-black-diversity-inclusion; Black Amazon manager sues the e-commerce giant, accusing it of race and gender discrimination, Washington Post, Jay Greene, March 1, 2021, available at https://www.washingtonpost.com/technology/2021/03/01/amazon-race-discrimination-lawsuit/; Five women sue Amazon, accusing e-retailer of race and gender discrimination and retaliation, Washington Post, Jay Greene, May 19, 2021, available at https://www.washingtonpost.com/technology/2021/05/19/amazon-suit-race-gender-discrimination/. (go back), 36Johnson & Johnson, 2021 Notice of Annual Meeting & Proxy Statement, Schedule 14A, filed with the SEC on March 10, 2021, available at https://www.sec.gov/Archives/edgar/data/200406/000020040621000011/jnjproxy2021.htm [hereinafter J&J Proxy Statement]. Restoration: The Role Stakeholder Governance Must Play in Recreating a Fair and Sustainable American EconomyA Reply to Professor Rock, https://www.esg.adec-innovations.com/about-us/faqs/what-is-esg/, https://investor.vanguard.com/investing/esg/, https://www.issgovernance.com/library/esg-matters-part-ii/, https://www.sec.gov/rules/final/2020/33-10825.pdf, https://corpgov.law.harvard.edu/2021/02/06/new-human-capital-disclosure-requirements/. Shareholder activist Engine No. A report on the audit, prepared at reasonable cost and . What Makes Patagonia A World Leader in Sustainability, Medium, Tom & Jerry, January 13, 2021, available at https://medium.com/climate-conscious/what-makes-patagonia-a-world-leader-in-sustainability-486073f0daa. 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 believe our greatest asset is our people. We have global expertise in market analysis and in advisory and capital-raising services for corporations, institutions and governments. Sarah Anderson May 17, 2021 Inequality.org Promoted to one of five voting members on the S&P Municipal Bond Index Committee, overseeing and ruling on policy and governance. Financial institutions and asset management firms have become the focus of Racial Equity Audit shareholder proposals. Wells Fargo agrees to racial equity audit | National Mortgage News 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 .