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Amazon Covid Settlement Spotlights Board Focus on Workforce, ESG

Nov. 29, 2021, 11:00 AM

Amazon.com Inc.’s recent settlement with California over employee Covid-19 notifications is the latest example of how pandemic-related workforce safety has emerged as a top environmental, social and governance concern for corporate boards.

The tech giant, following a state investigation, agreed to pay a $500,000 fine earlier this month and promptly notify warehouse workers and local health agencies about new Covid-19 cases.

The settlement shows that Covid health and safety concerns are a fundamental responsibility for boards of directors, corporate law experts say. It comes as asset managers, pension funds and activist investors press more companies about their Covid responses as an important social responsibility.

“What Covid has done is focus investors, employees and consumers on the ‘S’ in ESG,” said Tensie Whelan, director of the Center for Sustainable Business at the NYU Stern School of Business. Those “social” issues include worker health and safety, a living wage, and workforce equity and diversity, she said.

The penalty is a small fraction of the more than $1 billion in daily sales that the e-commerce giant averaged for 2020. But the monetary value may not have been the main point for California’s attorney general.

“It’s more important that the attorney general was able to bring Amazon to the table and suggest to them to agree and admit that this is an issue,” Massachusetts State Treasurer Deborah Goldberg told Bloomberg Law.

Proper Weight

California’s Nov. 15 settlement was the first of its kind with a company over the state’s new Covid “right-to-know” law. The agreement relates to a technicality about how Amazon discloses Covid cases through bulk employee notifications, Amazon spokesperson Barbara Agrait told Bloomberg Law. The settlement requires Amazon to disclose the specific number of cases to employees within 24 hours.

There were no issues with how the retailer informs individual employees about potential Covid exposures, Agrait said. The company has spent $15 billion to keep workers safe during the pandemic, she said.

“We’re glad to have this resolved and to see that the AG found no substantive issues with the safety measures in our buildings,” she said in an e-mailed statement.

But California isn’t the only state probing Amazon’s pandemic practices. New York filed a lawsuit in February alleging the retailer broke state labor laws through inadequate employee Covid notifications and cleaning procedures. Amazon has asked a federal court to block the suit, saying its Queens facilities are only subject to federal laws.

Regulators tend to naturally gravitate to taking action against prominent companies like Amazon to create a deterrent effect for other companies, said Kevin LaCroix, an attorney and executive vice president of R-T Specialty LLC, an insurance intermediary firm focused on management liability issues.

“Right now, companies have a lot of challenges as the result of disruptions from the pandemic and have a lot of things vying for their attention,” he said.

The California AG’s action tells boards and executives “to give the right weight to these notification issues,” he said.

Investor Pressure

Massachusetts’ Goldberg was one of three state treasurers who pressed Amazon and its board about Covid rates among its workers in June 2020. The comptroller of New York City also sought information through a December 2020 shareholder proposal on Amazon’s workplace health and safety response to the pandemic.

Workplace safety is squarely within institutional investors’ and other stakeholders’ growing focus on ESG topics, said Kenneth Henderson, a transactions and corporate governance partner at Bryan Cave Leighton Paisner LLP in New York.

“You could imagine institutional investors, many of whom are very focused on ESG issues, raising the question with the board and senior management, ‘What are you doing to comply?’” he said.

BlackRock Inc., the world’s largest asset manager, has already shown a willingness to act on workforce concerns.

In February, BlackRock backed an unsuccessful human rights due diligence proxy proposal at Tyson Foods Inc., citing concerns about a widespread Covid-19 outbreak among poultry plant workers.

“This disruption introduced risk to business operations and thus financial performance,” BlackRock said.

BlackRock said it would continue to query food producers on their approach to workforce health and safety.

Amazon and other cases highlight the need for companies to publicly report more detailed information about their workforces, said George Georgiev, a professor of business law at Emory University School of Law.

The Securities and Exchange Commission is considering changes to Regulation S-K that would make companies disclose more detailed human capital metrics, including statistics about employee turnover and the number of full- and part-time employees. Such changes would help investors spot potential workplace problems and other ESG issues, Georgiev said.

“If we have specific disclosure rules around these data points, then shareholders will have the data, and there will be things that jump out and attract activist attention,” he said.

Board Expertise

Scrutiny by investors and other stakeholders on the treatment of workers isn’t likely to abate once the pandemic is over, Whelan said.

Nearly three quarters of boards have increased their discussion of human capital strategy, according to advisory firm PwC’s 2021 annual corporate directors survey.

Whelan and others have called for more ESG expertise among directors so they can better understand workers’ concerns.

Many boards have been taking on workforce issues through special committees that focus on human capital management as part of ESG, Georgiev said. Some others delegate labor issues as a responsibility for the compensation committee, he said.

“They’re trying to make sure the workforce is a focus of board deliberations in some form,” he said.

Boards don’t necessarily need to be subject matter experts to tackle workforce concerns and other difficult ESG issues, Bryan Cave’s Henderson said. But they do need directors who know how to ask the right questions.

“Boards for years have dealt with issues that require experts,” but that doesn’t mean directors have to be experts themselves, he said.

To contact the reporter on this story: Lydia Beyoud in Washington at lbeyoud@bloomberglaw.com

To contact the editors responsible for this story: Michael Ferullo at mferullo@bloomberglaw.com; Roger Yu at ryu@bloomberglaw.com