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ANALYSIS: Race-Related Shareholder Proposals Rise in H1 2022

July 15, 2022, 9:00 AM

The “S” in ESG is getting attention from shareholders this proxy season. Race-related shareholder proposals saw significant growth in the first half of 2022, with more proposals filed on racial issues than in all of 2021.

There have been not only more of these proposals in H1, but also a greater variety: Shareholders supplemented racial equity audit proposals with civil rights and racial impact/justice audit proposals. And those efforts paid off—approval rates for race-related shareholder proposals are up from 2021.

More Shareholder Proposals

Shareholder proposals for racial equity audits and other race-related audits have already surpassed 2021’s counts in H1 2022 alone.

Three types of proposals dominated the first half of the year’s race-related audit proposals: racial equity audits, civil rights audits, and racial impact audits. But the success rates of these proposals vary.

Civil Rights and Non-Discrimination Audits

Shareholders have submitted 11 civil rights audit proposals in H1 of 2022, up from one in 2021.

In H1, the National Center for Public Policy Research (NCPPR) submitted multiple shareholder proposals for civil rights audits to companies including Twitter Inc., Walmart Inc., CVS Health Corp., AT&T Inc., Levi Strauss & Co., Johnson & Johnson, and Bank of America Corp. These proposals sought a third-party audit of the targeted company’s allegedly discriminatory DEI policies.

Citigroup Inc. also received a civil rights audit proposal from NCPPR, but the proposal suggested that the company could possibly perform the audit in conjunction with the racial equity audit the company previously committed to, signaling that at least some shareholders view racial equity audits as needing an additional component. The NCPPR proposals received little shareholder support, however, with the AT&T proposal receiving the most support at only 4%.

But NCPPR’s coordinated effort wasn’t the only one in this space. McDonald’s Inc. received a civil rights audit proposal from the SOC Investment Group focusing on the company’s advertising and specific issues related to franchise opportunities, including benefits and wages and leadership opportunities. And Apple Inc. received a proposal from an undisclosed shareholder based on the underrepresentation of minorities in the company’s leadership, advertising, and new technologies. Despite McDonald’s and Apple urging shareholders to reject the proposals, both were approved by the companies’ shareholders.

While NCPPR’s efforts focused on audits related to existing DEI policies, civil rights audits in response to specific corporate actions and policies (such as the proposals submitted to Apple and McDonald’s) saw higher approval rates.

Racial Impact Audits/Racial Justice Audits

Another type of race-related audit emerged this proxy season: the racial impact/racial justice audit. The five racial impact/justice audit proposals submitted in the first half of this year went beyond written policies to target advertising and company norms.

For example, Johnson & Johnson shareholders submitted two proposals on racial issues this proxy season: one for a civil rights audit and another for a racial justice audit. The racial justice audit proposal submitted by Mercy Investment Services Inc. referenced the potential disparate racial impact of health care companies, J&J’s continued sales of its talcum-based powder globally (even though North American sales ceased), and the company’s marketing targeted toward Black and Brown women. Despite J&J urging shareholders to reject the racial justice audit proposal, it passed with 63% approval. But the NCPPR proposal for a civil rights audit of J&J garnered only 3% shareholder support, suggesting that more targeted audits may yield higher shareholder support.

Northstar Asset Management Inc. also submitted a shareholder proposal to Intel Corp. for a racial impact audit. The proposal went beyond taking aim at explicit corporate policies, and requested an audit of how company written policies and unwritten norms reinforce racism. The proposal elaborated that although DEI expectations are ingrained in Intel’s culture, minorities are underrepresented in Intel’s workforce and particularly senior leadership. Intel urged shareholders to reject the proposal, and it amassed only 17% shareholder support. This proposal may have lacked strong shareholder support because it didn’t pinpoint specific corporate policies or actions, as seen in the J&J, McDonald’s, and Apple proposals.

Increased Approval Rates

As of 2021, not one of the 17 race-related shareholder proposals was approved by shareholders. The proposal amassing the most support (44%) was from an undisclosed shareholder requesting that Amazon Inc. report on diversity and equity at the company. Amazon voluntarily submitted to a racial equity audit after this strong showing of shareholder support.

This year, however, shareholders are seeing some success with these proposals. Shareholders approved eight race-related proposals in H1, two of which (both submitted by the Service Employees International Union Master Trust) were for racial equity audits. The racial equity audit proposals amassed support from 63% and 64% of shareholders.

What’s Next for Race-Related Audits

Three trends appear to be on the rise in race-related shareholder proposals:

  • Increased proposals and approval rates. If race-related shareholder proposal counts maintain this trajectory, we should expect race-related proposals to make a strong showing in future proxy seasons.
  • Increased variation in race-related proposal types. In 2021, only one race-related audit was proposed that didn’t request a racial equity audit. In H1, shareholders proposed 16 race-related audit proposals that didn’t request racial equity audits—and six were approved. Civil rights and racial impact/justice audits will continue to address broad DEI policies and issues that could impact shareholder value.
  • Increased specificity. Shareholders appear more likely to approve race-related proposals when the proposals explicitly mention specific past or current company practices that allegedly conflict with company policy. This grounding in existing policies is something to follow as shareholders explore civil rights and racial impact/justice audits.

Approaches to social justice will continue to diversify, and we should expect shareholder proposals to follow suit.

Bloomberg Law subscribers can find related content on our ESG Practice page, as well as our Practical Guidance: Shareholders page.

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