Shareholders Putting Tech Giants on Racial-Justice Hot Seat

Shareholder groups are putting unprecedented pressure on tech giants to conduct racial-equity audits, in part by putting proposals to a vote at annual meetings this spring.

Shareholders of Alphabet, the parent of Google, on Wednesday will vote on a racial-equity audit proposal submitted by the Nathan Cummings Foundation. Alphabet’s board is recommending rejection of the proposal, arguing that the company’s “commitments, actions, and transparent disclosures … already meet the aim of the proponent’s request.”

Racial-equity audits are independent examinations of whether a company causes or perpetuates discrimination. Amazon also had been facing a resolution for a racial-equity audit, but the New York State Common Retirement Fund withdrew it after the company announced in April that it would do one led by Loretta Lynch, a former U.S. attorney general during the Obama administration.

Last week, shareholders of Meta Platforms defeated a proposal from Arjuna Capital urging the company to hire a third party to examine the civil rights implications and other potential harms stemming from its push into the metaverse.

“The same issues Facebook is reckoning with—discrimination, human and civil rights violations, incitement to violence, and privacy violations—may be heightened in the metaverse,” the proposal said. “Investors question Meta’s social license to operate an emerging technology like the metaverse in the face of anti-trust litigation, whistleblower testimony, congressional hearings, and poor governance practices.”

Meta’s board argued for rejecting the proposal, calling it unnecessary. “As we do with all of our products, we create them for people first, and we’re focused on getting our contribution to the metaverse right,” the board said in the company’s proxy statement. “We plan to collaborate with policymakers, experts, and industry partners—such as those in human and civil rights communities, nonprofits, academia, privacy, government, wellness and safety, and various other fields—to build the metaverse responsibly.”

The Interfaith Center on Corporate Responsibility says that among the 485 shareholder resolutions it’s tracking this proxy season, 34 call for racial-equity audits. In addition, 105 of the resolutions relate to race, discrimination, or civil rights in general.

Approved or not, such proposals suggest concerns about racial equity and social justice are here to stay, said Marc Treviño, co-head of Sullivan & Cromwell’s corporate governance practice. “This is a growing area for shareholder proposals, driven by the continuing dialog about race in America,” Treviño said.

Many companies outside of tech also are facing calls for racial-equity audits, with some agreeing to undertake such an audit. For example, Citigroup last October became the first Wall Street bank to agree to an audit, saying it wants “to help close the racial wealth gap in the United States.”

Big tech companies, in particular, are looking for ways to be disruptive on racial equity, Treviño said, but he doesn’t believe audits are necessarily the answer. He said they can be costly and their scope indeterminate—potentially resulting in massive amounts of data but little actionable information. Treviño said companies might be better off doing more limited reviews, especially if they can measure the effectiveness of existing equity programs.

Meredith Benton, founder of Whistle Stop Capital, which advises investors submitting shareholder proposals, said that shareholder activism can help spur change even if a vote never occurs. For example, at last year’s annual meeting, Amazon had opposed a shareholder proposal calling for a racial-equity audit, and in a preliminary version of this year’s proxy, it again opposed an audit.

But 17 days later, Amazon flipped. In a statement, the company said, “The focus of the audit will be to evaluate any disparate racial impacts on our nearly 1 million U.S. hourly employees, resulting from our policies, programs and practices.”

Treviño said companies want to be seen as out front on social equity issues, not being pulled along. “The companies I’ve run across, and worked with, are all looking for ways to be ‘best in class’ corporate citizens in this area, and are open to engaging in a dialogue about what they can do better and what it takes to be leaders,” Treviño said.

See also:

• The Virtue Bubble Is About to Burst. Good Riddance.
• Evolving D&I Policies Explore New Ground
• State Street Says Companies Must Have Women on Their Boards
• The Rise of Workplace Bias in the Covid-19 Era
• Corporate America Loves the Rooney Rule. But Does It Work?

From: Corporate Counsel