Equity in the Boardroom: How Asset Manager Voting Shaped Corporate Action on Racial Justice in 2022

1. Overall shareholder proposals related to racial equity received strong support in 2022: a majority of the 20 largest asset managers – those with more than $1 trillion in assets under management – voted in favor of a majority of shareholder proposals on racial equity audits, board diversity, political spending and lobbying activity, human capital management, and tech company product and service issues.

2. Racial equity audits – an essential mechanism for management and oversight of risks associated with systemic racism – saw increased support from shareholders in 2022, with average support increasing from 33 percent in 2021 to 44 percent in 2022, withsix receiving majority support. However, the Big Four asset managers lagged their peers in supporting racial equity audit proposals, undermining widespread adoption of racial equity audits. Fidelity supported just one racial equity audit proposal, while Vanguard Group supported none. BlackRock’s support fell from 87.5 percent in 2021 to 52.6 percent in 2022. State Street’s support increased from 12.5 percent in 2021 to a bare majority of racial equity audit proposals (52.6 percent) in 2022.

3. Amundi Asset Management, Northern Trust Investments, and PIMCO were leaders in supporting racial equity audit proposals, voting in favor of 100 percent of proposals.Morgan Stanley, UBS, Legal & General Investment Management, and Capital Group supported between 88 and 95 percent of these proposals.

4. Across racial equity audit, political spending and lobbying, human capital management, and tech company product proposals, the Big Four asset managers effectively blocked shareholder action on critical racial equity issues, with 44 proposals that could have received majority support with their individual or collective support. These include proposals on racial equity audits at Chevron and Wells Fargo, improved oversight of political spending at AT&T, and reporting on efforts to improve employment conditions for low-wage workers at The Kroger Company.

5. Non-binding shareholder proposals are ultimately only as powerful as shareholders’ willingness to enforce them by voting to hold directors accountable if companies fail to adequately respond to shareholder concerns about racial equity-related issues. Director accountability efforts at companies such as Wendy’s and Amazon demonstrated that most major asset managers are not yet voting to hold directors accountable for failing to respond to shareholder concerns relating to racial equity. For example, at Amazon, the New York City and New York State Comptrollers launched a “vote no” campaign against two directors following the company’s inadequate responsiveness to unsafe working conditions in its warehouses among other human capital management issues. The long-serving Chair of the Leadership and Development Committee, Judith McGrath, received support from only 78 percent of shares voted, a drop of more than 20 percentage points. Among the Big Four, only State Street voted against McGrath’s re-election, with BlackRock, Fidelity, and Vanguard voting in favor.

Given the company-specific and portfolio-wide significance of corporate practices for investors on racial equity, asset managers should review and update their stewardship and proxy voting policies to incorporate a comprehensive racial equity lens, establishing the reduction of racial inequities as a goal of their proxy voting policies, consistent with their fiduciary duty to manage systemic risks. Specifically, this should include:

1. Acknowledging that a wide range of proposal categories can result in positive or negative racial equity impacts, and indicate (a) which proxy voting policies have been reviewed for racial equity impacts, and (b) the process for ongoing review.

2. Support for proposals to conduct comprehensive independent corporate racial equity audits as a standard practice as a complement to company disclosures and targets, unless the company has already conducted such an audit within the last five years and has established a governance mechanism for ongoing oversight of racial equity across their products, practices, and policies.

3. Setting a minimum standard of at least 30 percent racial and ethnic diversity on corporate boards, board demographic disclosures that include directors' racial and ethnic identities, and empowering votes against relevant committee and/or board leadership at companies failing to meet that standard.

4. A policy of voting against directors for not fully implementing a shareholder proposal that received support from a majority of shares voted, with the adequacy of implementation judged by whether the company has implemented each of the proposal’s essential elements, including any request that actions be carried out by an independent third party rather than the company.

In addition to adopting similar proxy voting policy updates, asset owners should:

1. Engage with their existing asset managers over their voting records with respect to racial justice and the risks of systemic racism, including their plans to support key shareholder proposals — particularly racial equity audit proposals — in future years at portfolio companies, and hold boards accountable for actions perpetuating systemic racism.

2. Incorporate criteria regarding proxy voting on systemic racism and associated systemic and company-specific risks into their asset manager search criteria, requests for proposals, and assessments.