Asset managers accused of ‘woke-washing’

With the mass movement towards index funds giving asset managers a large number of shareholder votes in publicly traded companies, companies are facing increased pressure to use this power to drive change.

A group of unions, corporate responsibility organizations, religious leaders and other investors accuse asset managers of making ‘public statements in support of racial equity and justice without taking meaningful action to dismantle systemic racism to a level commensurate with the risks it poses to investors”. wallets”, according to to a January 5 report from the 2 million-member Service Employees International Union and nonprofit activist shareholder group Majority Action.

Companies such as BlackRock, Vanguard, State Street, Fidelity Investments and JP Morgan Chase have conducted a wave shareholder voice last year for environmental and diversity proposals at large publicly traded companies, to the point that two Republican U.S. senators noted two of them “may prioritize their CEO’s personal political views over the financial security of retirees.” Left-leaning investors are calling on major asset managers to vote more in favor of proposals such as racial equity audits and against electing boards with few or no women or minorities .

“There are companies doing good things. One particular action or one donation or even a few donations — that doesn’t necessarily solve the root problem, which is systemic racism,” Kate Monahan, director of shareholder advocacy at ESG firm Trillium Asset Management, said in an interview. .

The 2021 shareholder proposal season displayed “significant investor support” for racial equity audits, according to Monahan. “When big asset managers vote against these proposals while maintaining that they support racial justice, there is a disconnect.”

Monahan attended an event this week to unveil the coalition’s report, alongside a union-funded corporate responsibility organization called SOC Investment Group and the Interfaith Center for Corporate Responsibility. Last April, the coalition wrote an open letter in the FinancialTimes signed by over 140 racial justice leaders demanding that asset managers “use your outsized voting power at the nation’s biggest corporations to challenge systemic racism and white supremacy in corporate governance.” As part of the new report, they released a video titled “Behind the Woke-Wash: The Investors Who Supported the Insurgency”.

Despite the rhetoric, the group gives some asset managers credit for their votes last year. They are asking companies to go further by rejecting boards without any minority members or “arguably token representation” with just one; vote against members who they believe have “not addressed” the role of their respective companies in funding politicians involved in the January 6 riot at the US Capitol or in voter suppression; and fully support racial audit proposals, political contributions and lobbying disclosures, and fair workplace practices.

For example, they point out that four of the eight racial equity audit proposals could have received majority support if Vanguard, State Street and Fidelity had joined Morgan Stanley, UBS, Amundi and BlackRock in voting for the audits. Of 34 proposals requiring more public information and control over political spending and lobbying, seven won majority support. Along with the votes of BlackRock, Vanguard, State Street and Fidelity, another 15 would have garnered the majority of shareholder votes at publicly traded companies.

“‘Business as usual’ corporate behavior has long perpetuated and exacerbated systemic racism,” the report said. “Bringing real change will require a conscious and comprehensive effort on the part of boards to take responsibility for monitoring the racial equity consequences of corporate behavior towards internal and external stakeholders, and for transforming those practices. in order to reduce and ultimately eliminate harm to communities of color.”

On the other hand, many of the same companies have come under fire from the opposite end of the political spectrum for votes that Republicans say put a liberal agenda above corporate duties to shareholders. Since BlackRock and State Street are the managers of the Federal Employees Savings Plan for their retirement, makes sense. Pat Toomey from Pennsylvania and Ron Johnson from Wisconsin wrote a letter in July to the Federal Retirement Thrift Investment Board requesting a briefing on the two companies’ proxy voting policies and the agency’s oversight and recourse if the positions violate the companies’ fiduciary duty to retirees.

“We are concerned that BlackRock and SSGA are prioritizing their CEOs’ personal political views over the financial security of retirees,” Toomey and Johnson wrote. “Federal law explicitly requires all plan trustees, including BlackRock and SSGA, to fulfill their responsibilities” solely in the interests of participants and beneficiaries and for the exclusive purpose of providing benefits to participants and their beneficiaries. “

Prepare for a busy season
In 2021, the two companies and other asset managers helped create a proxy season that was “revolutionary in many ways”, including majority support for environmental proposals more than ever before and near unanimous votes for disclosure of workforce diversity figures, according to to a study by shareholder activism data firm Insightia. Globally, proposals on political and lobbying transparency received 38% of the vote in 2021, up from 26% in 2016, according to the study. BlackRock, Vanguard and State Street each voted far more often last year than in 2020 in favor of proposals relating to environmental and social goals. And the very first votes on the new racial audit proposals last year received the support of 33% of shareholders.

“First, some boards might be tempted to dismiss an activist investor’s focus on diversity as a cynical ploy to exploit the current zeitgeist,” wrote company founder Pat McHugh. proxy and shareholder advisory firm Okapi Partners, in the report. “But the fact remains that many investors – and not just activists – see diversity on the board and among the workforce as critical factors in a company’s performance – and the inability to resolve these issues as a material risk to value.”

Such questions loom over asset managers in the 2022 proxy season. Meanwhile, reports such as the latest and latest report from the SEIU-led group a last month of the Diversity and Inclusion Subcommittee of the House Financial Services Committee provide unprecedented new data on the workforce, operations and governance of companies. They launched a variety of programs around the recruitment of more diversified talents and work with more customers of historically excluded groups. Activists aim to ensure the “racial calculus” of 2020 does not fade away.

“I have spent over 30 years of my career leading DEI strategies for multiple multinational organizations in different industries in the United States and abroad, so I understand the complexities and nuances as well as the challenges of this job at across companies and cultures,” Michelle Gadsden-Williams, global head of diversity, equity and inclusion at BlackRock, said during a hearing held by the subcommittee last month. “We still have a lot of work to do at BlackRock, but thanks to our continued commitment and focus, I know we are on track to make significant and sustained progress.”