Big U.S. businesses such as Amazon.com Inc. and Citigroup Inc. recently asked outside legal specialists to conduct a racial-equity audit. Meta Platforms Inc., Airbnb Inc. and Starbucks Corp. previously completed theirs.
Some shareholders want more companies to follow suit. Eight of 22 nonbinding resolutions requesting these audits won majority support during 2022 annual meetings held as of mid-June, according to Alliance Advisors LLC, a proxy solicitation firm. “There’s clearly strong investor interest in the issue,’’ said Shirley Westcott, an Alliance senior vice president.
Similar proposals initially surfaced last year and attracted significant support—averaging 33%—in the wake of the Black Lives Matter movement and George Floyd’s murder.
“In our wildest dreams, we never expected shareholders to accept the racial-equity audit idea this fast,’’ said Renaye Manley, deputy director of the strategic initiatives department at the Service Employees International Union. Half of SEIU’s six civil-rights audit resolutions were approved during annual meetings held so far this year.
Proponents contend these audits help combat systemic racism while expanding corporate accountability for handling employees, customers, product targeting and political contributions.
Even without investor pressure, experts suggest you conduct a racial-equity audit to reduce the chance of high-profile controversies that might increase staff turnover, depress sales and spur regulatory action.
The extensive review represents “a preventive step to mitigate any potential risk,’’ explained Courteney Keatinge, senior director of environmental, social and governance research for proxy advisers Glass Lewis & Co.
Yet “this isn’t just about reputation management,” because nondiscriminatory companies with very inclusive cultures perform better, said Jonas Kron, chief advocacy officer at Trillium Asset Management.
The Boston firm, which focuses on socially responsible investing, introduced or co-sponsored five audit resolutions this year, with one—for drugmaker Johnson & Johnson—passing.
However, racial-equity audits can take considerable time and cost at least $250,000 because they often tackle complex and ticklish topics. The choice of topics depends on a company’s unique areas of focus.
Consider Meta, formerly known as Facebook. Auditors led by civil-rights attorney Laura Murphy published their final 100-page report in July 2020 following a two-year review, the social-media giant has said.
The audit report praised Facebook for making certain meaningful changes, but also found shortcomings with how the company policed hate speech and other problematic content on its platform.
Such audits “should be a company-wide effort,’’ with the chief executive or a board committee as its internal sponsor, said Ms. Murphy, president of consultancy Laura Murphy & Associates and former director of the American Civil Liberties Union’s Washington office.
The audit typically reflects viewpoints of a broadly defined array of external stakeholders. External assessments usually scrutinize news coverage, social-media campaigns and civil-rights litigation as well.
With this approach, these audits help businesses identify blind spots that might ignite harmful controversy. For example, “a company may discover it’s not delivering goods and services in different ZIP Codes equally,’’ Ms. Murphy explained.
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