The rise and risks of racial equity audits and shareholder activism – Vicki Robinson
In recent years, the business world has paid a phenomenal amount of attention to the issue of racism. Generally, this is assumed to result from public pressure, notably the youth-driven Black Lives Matter protests. Academic theory filtering from universities into the workplace is another factor as well as the desire to be viewed as virtuous and socially just too. However, much change is being initiated from within the corporate world itself. Shareholder activism is a growing force, and this movement sees racial equity audits (REAs) as a primary method of combating racism.
Sometimes referred to as civil rights audits, REAs are usually conducted by an external law firm and are becoming increasingly prevalent in the United States where, according to the FT Specialist Agenda publication, shareholders are increasingly asking for audits on companies’ racial equity programs. Numerous businesses made statements against racism following George Floyd’s murder by police, and REAs are a way of checking that action has been taken.
This development has potentially significant implications for the UK. Though diversity and inclusion audits are more common here than REA, America’s influence means that this is likely to change. REAs are being embraced by big businesses, and a read through the audit reports shows that several major companies appear to wholeheartedly embrace the theory of equity. Starbucks and Facebook have carried out civil rights audits and assessments with strong focuses on equity. JPMorgan Chase conducted one recently as part of its $30 billion Racial Equity Commitment. Amazon agreed to one in 2022.
The push for REAs does not, however, seem to be coming from individual shareholders. For example, Trillium Asset Management has been “at the forefront of ESG (Environmental, social, and corporate governance)” for nearly forty years. Its investment strategies and services aim to “advance humankind towards a global sustainable economy, a just society, and a better world”. It identified REAs as a leading practice in its 2021 Investment Team Racial Equity Project, and Trillium recommends that its portfolio companies carry them out. In a short video, the Director of Shareholder Advocacy detailed successfully engaging Elevance Health, a US national health insurance provider, to carry out such an audit following a two-year campaign of advocacy.
Trillium is not the only one. As You Sow, a non-profit leader in US shareholder advocacy, harnesses shareholder power to effect change, particularly in relation to workplace equity and wider social justice issues. Its Racial Justice Initiative, part of its Social Justice Program, aims to end corporate complicity in systemic racism and help businesses achieve an “anti-racist” perspective.
Companies are coming under considerable pressure. SOC Investment Group, which “holds corporations and their leadership accountable for irresponsible and unethical corporate behavior and excessive executive pay,” suggested that JPMorgan Chase conduct a REA in 2020. Later, it publicly criticised the company, stating that JPMorgan and its auditor, PwC, “appear to have a basic misunderstanding of what a racial equity audit is and should be” and “approached this process with the narrow perspective of a financial audit”.
All this goes some way to explaining why the concept of equity is suddenly everywhere, despite little democratic public debate. It raises many questions. Why focus on equity instead of equality of opportunity? Why is systemic racism being treated as a fact rather than a perspective? And why is so little attention being paid to class, a huge issue given the political upheaval of recent years? When powerful organisations choose to group people in a racial way, and display obvious preferences, it can create division rather than unity amongst disadvantaged people.
Of course, ethical investing is important. Many people want their finances to reflect their values and do good in the world. But when financial organisations take a political stance, it conflicts with the democratic process. This is amplified by the massive power of corporations, particularly those in the tech sector. A small group dictating how things should be done is very different to ordinary people joining a union or voting in order to fight for better pay. It is the power of the elite rather than the citizens. Capital and labour are out of balance.
Furthermore, there is a danger of ideology taking precedence over profit. Underlying assumptions may not be questioned, creating economic risks. In response, alternatives are emerging. Vivek Ramaswamy, author of Woke, Inc., has co-founded Strive, an asset management company aiming “to offer everyday Americans a way to invest in the stock market without mixing business with politics”.
How can government help create change in this vital issue? Given London’s prominence as a global finance centre, the UK is surely well-placed to set some boundaries, in conjunction with other countries. There must surely be some way to discourage the groupthink around equity and create a diversity of thought and approaches. Working in conjunction with wider society, business and finance could test out different methods of improving opportunity. A fairer society can only be created by the many, not the few.