The national conversation ignited by the killing of George Floyd in May 2020 has evolved from a narrow focus on police brutality to a much broader evaluation of systemic racism and discrimination in society.
Shareholder resolutions are one of the ways that investors can challenge companies to deliver fairer, more sustainable outcomes and assume responsibility for social and environmental “externalities” or negative impacts.
Given the relatively long lead time between filing and voting on shareholder resolutions, the range of ballot initiatives voted on in the 2020 proxy season was not explicitly influenced by the recent protest action against anti-Black racism.
And though they may not have yet received the level of attention that we expect in 2021, race-related resolutions have still been on the proxy ballot. In the past few years, issues of racial justice have most frequently surfaced in resolutions calling for disclosure on workforce, senior management, and board diversity. In 2020, the 14 resolutions in this category averaged 45% support, and six of them achieved majority support. These results are encouraging and supported by ample research evidence that diversity leads to better business and investment outcomes.
But workforce diversity commitments are not enough to tackle pervasive racism in all its forms. It’s just as important that companies and investors examine how products, processes, and corporate culture contribute to societal power imbalances and what changes are needed to rebalance the scales.
Below, we look at some of the ways that filers of shareholder resolutions are challenging companies to do this. These resolutions, though they haven’t always attracted strong shareholder support, have proved prescient in light of the wave of protest action. They also offer direction for more concerted future investor action to turn corporate pledges into structural change.
Forced Arbitration Protects Companies Against Claims of Racial Discrimination Structural racism surfaces in employment protections and economic well-being, owing to differential treatment of occupations and classes of workers under the law and the underfunding and limited remit of antidiscrimination government agencies.
One issue that shareholder action in this area has targeted is the use of contractual provisions forcing employees to settle employment-related claims via a company-appointed mediator. These “mandatory arbitration” provisions are contained in private contracts that employees are required to sign as a condition of employment, and they’re binding. Opponents of this practice argue that they protect companies from lawsuits claiming damages for racial discrimination, harassment, and unpaid wages, and therefore have a disproportionate impact on people working in low-paid jobs with fewer protections--a population in which people of color are overrepresented.
A couple of examples of how shareholder resolutions in this area took shape this year include:
- At Chipotle Mexican Grill CMG, a resolution that focused on the vulnerability of fast food workers to sexual harassment won 51% support. The Comptroller of the State of New York, who filed this resolution on behalf of the New York State Common Retirement Fund, argued that "arbitrating employment-related claims can allow a toxic culture to flourish, increasing the severity of eventual consequences and harming employee morale."
- At Alphabet GOOG, a resolution filed by New York City pension funds only received 17% support (not including insider votes). It acknowledged Alphabet's ban on mandatory arbitration in agreements with employees but noted that this ban does not extend to Alphabet-owned businesses and Google contract workers.
Decent work practices that protect vulnerable workers in our economy and that create the conditions for equal participation in the workforce--broadly defined to include contract workers and workers in the supply chain--are essential in addressing systemic racism.
Environmental Injustices Are Borne Disproportionately by Communities of Color Frontline communities are the "first and worst" hit by climate change: Think hurricanes, flooding, food system disruption, and more. Environmental justice communities are ones directly adjacent to highly pollutive industrial and extractive operations, causing soil and water contamination, air pollution, natural habitat loss, and more. What do they have in common? These communities are disproportionately composed of indigenous people and people of color.
One resolution addressing this issue was on the ballot at Amazon.com AMZN, where it received a paltry 6% support from shareholders. The resolution asked the company to report on efforts to “…identify and reduce disproportionate environmental and health harms to communities of color, associated with past, present and future pollution from its delivery logistics and other operations.”
The resolution’s supporting statement argued that the disproportionate accumulation of pollution in communities of color across the United States and known health consequences of exposure to pollutants, especially pollutants from heavy vehicle traffic, links environmental impacts to social justice.
A similar resolution was raised at Chevron CVX, where it earned 17% support. It called attention to the health burden on low-income and predominantly minority communities located near Chevron’s operations, which are disproportionately at risk from discharge or leaks. It cited evidence of increased cardiovascular, cancer, and asthma risk in communities situated near Chevron’s Richmond, California, refinery, where 80% of residents are people of color, and asked for a report on how it assesses and mitigates these harms.
Chronic conditions linked to high levels of pollution are also significant coronavirus risk factors. Recent research linking exposure to air pollution to severity and increased risk of death from COVID-19 helps explain the disproportionate impact of the virus on inner-city racial minorities.
Technologies of Mass Communication and Surveillance Require Governance of Societal Impact Evolving digital technologies can be valuable for connecting people, sharing information, and mobilizing social movements, for example. But investors have also raised important concerns linking failures in digital governance to racism and institutionalized violence against people of color. Shareholder resolutions that came to vote in 2020 focused on:
- hate speech and content policy enforcement, and
- government use of surveillance technologies.
Not surprisingly, these concerns were raised at “Big Tech” companies: Amazon, Alphabet, Facebook FB, Apple AAPL, Microsoft MSFT, and Northrop Grumman NOC.
At Amazon, a resolution in this area earned the company’s second-highest level of support of the year (44%, not counting votes controlled by Jeff Bezos). The resolution asked the company to “report on its efforts to address hate speech and the sale or promotion of offensive products throughout its businesses.”
Facebook also voted on three resolutions that addressed content governance. One questioned the company's policy exempting political postings from the same standards of accuracy as other advertising, echoing concerns raised by Facebook's own employees around general standards for political advertising. This earned 16% support, not counting votes controlled by Mark Zuckerberg.
Two others focused investors’ attention on the need to strengthen Facebook’s board-level capacity for civil and human rights oversight. They argued that the power of the technology is not matched by the board’s capacity to govern its use, which has led to the social media platform being used to spread extremist content, such as white nationalism, which could lead to voter suppression and racial violence. For instance, one resolution (that earned 9% support) cited the example of a feature that allowed a Russian influence campaign to target Black Americans in the 2016 election, leaving the company open to antidiscrimination and equal opportunity lawsuits. The other, filed by Arjuna Capital and earning only 5% support, called for a board member with civil rights expertise.
At Northrop Grumman, Investor Advocates for Social Justice (a coalition of religious investors) brought a resolution to vote asking the company to assess and report on "the actual and potential human rights impacts associated with high-risk products and services," such as algorithmic racial bias in surveillance technologies developed for the U.S. Government's Homeland Advanced Recognition Technology database. This resolution earned 24% support.
Similar concerns were raised by the same group of shareholders in a resolution filed at Amazon, citing Amazon’s contract with Immigration and Customs Enforcement and the use of its Rekognition technology and Ring doorbell video surveillance data by police departments. The resolution, earning 40% support (not counting Jeff Bezos’ votes), asked the board to investigate and report to shareholders on the risks of these technologies to underprivileged communities in the U.S., the extent to which these technologies could be used by repressive foreign governments, and other financial risks of the technologies.
Shareholder Resolutions Will Amplify the Conversation on Systemic Racism in 2021 Investors with a long-term perspective on the health of capital markets are the voice of stakeholders in the proxy process: Faith-based investors, public pension funds, union pension funds, and socially responsible asset managers were the filers of resolutions that addressed issues of racial justice in the 2020 proxy season.
They represent the financial interests of their clients, beneficiaries, and fund investors as well as the overlapping interests of workers, communities, and future generations of investors in advocating for social and environmental justice.
The concerns these proponents have raised in 2020 will likely be amplified in the 2021 proxy season through engagements, shareholder resolution filing, and stronger investor support for ballot initiatives.
We expect racial discrimination to be more frequently referenced in calls for human-rights-related disclosures, stronger board oversight, and alignment of executive pay with human rights risks. We can expect to see more resolutions filed, the companies that are targeted with these resolutions to be more open to engagement, and, when the resolutions are voted on, stronger support.
Furthermore, the impact of the coronavirus pandemic will be a key point that shareholder resolutions and engagements will reference to connect the dots between environmental justice, decent working conditions, and civil rights.