Asset managers including BlackRock and Vanguard have been criticised for their voting record on racial equity, workforce issues, pay disparities, and civil rights issues in the US in a new shareholder activism report.
The report, from New York-based shareholder activism group Majority Action and the Service Employees International Union (SEIU), a 2 million-strong union in North America and Puerto Rico, found BlackRock and Vanguard voted overwhelmingly against proposals that were directly related to issues of racial justice in a company’s operations and/or governance, including board diversity.
The report has been backed by the giant California Public Employees Retirement System (CalPERS) Board of Administration, which manages in excess of £300bn in assets.
Of 25 proposals on workforce issues, pay disparities, and civil rights issues in the United States that received substantial shareholder support across the S&P 500, BlackRock supported only four, while Vanguard only supported five. Legal & General and PIMCO voted for 100 per cent of all of the policy influence disclosure and the racial justice resolutions reviewed in the report. Amundi voted for more than 90 per cent of the policy influence disclosure resolutions.
Of the 178 companies currently in the S&P 500 that had no Black directors as of their annual general meetings, BlackRock supported every director at 163 of them. It says BlackRock, Vanguard, Fidelity, JP Morgan AM, Capital Group, Goldman Sachs AM and Wellington voted to re-elect the entire board where there were no Black directors on between 90 and 98 per cent of occasions, compared to Legal & General which did so on 9.6 per cent of occasions and Pimco which did on 17 per cent of occasions.
Since the end of the 2020 proxy season, the number of Black appointees to corporate boards has increased, with 130 new Black directors appointed at Russell 3000 companies since the end of May, compared with only 38 during the preceding five months, the report says.
The report cites research from Citigroup from this year which calculates the failure to address racial wealth gaps in wages, housing, investment, and housing cost the US economy $16 trillion over the last 20 years.
The report argues that failure to comprehensively address issues of inequitable corporate behaviour creates risks for shareholders as society grapples with systemic racism, including risk of reputational damage, litigation, and adverse policy and regulatory action.
It points to the example of social media giant Facebook, which has for years been flagged by civil rights activists and shareholders as failing to adequately respond to misinformation, discrimination, violent movements and data breaches that put Black users at risk. In July 2020, more than 1,200 advertisers, including Unilever, Starbucks, and Coca-Cola paused advertising on the platform under the label “Stop Hate for Profit,” to demand that Facebook address racism across their platforms.
The report also says that during the 2020 shareholder season, at least 25 proposals at S&P 500 companies that were directly related to issues of racial justice achieved shareholder support of more than 20 per cent, including resolutions on board and executive-level diversity, workforce diversity, pay disparities by race and gender, and oversight of civil and human rights issues. Resolutions ranged from calls for reports on a company’s median pay gap by gender and race, reports on the sale of products promoting hate, reports on human rights due diligence, including discrimination and harassment of workers and suppliers and the formalisation of board oversight of sexual harassment procedures.
Of these 25 proposals, BlackRock supported only four, while Vanguard supported five. BlackRock, Vanguard and Capital Group supported between 12 and 20 per cent of these resolutions, while Pimco and Legal & General supported 100 per cent of these resolutions.
Eli Kasargod-Staub, CFA, executive director of Majority Action says: “Uprooting systemic racism endemic to our economic system –– and protecting long-term investors from its risks –– will require a fundamental re-evaluation of all aspects of corporate behaviour and governance from a racial equity perspective.
“The world’s largest asset managers should be using their outsized holdings to hold corporations accountable for their role in addressing systemic racism, but in 2020, BlackRock and Vanguard instead shielded boards from taking responsibility.
Gerry Hudson, secretary-treasurer, SEIU says: “While major asset managers like BlackRock and Vanguard made large pronouncements about their commitment to address systemic racism during the summer’s protests for racial justice, their proxy voting practices in 2020 upheld systemic racism through their support of all-white boards, undermining of racial justice resolutions, and backing of lobbying and political spending that harms Black and brown communities.
“As managers of the retirement savings of millions of Black and brown workers, the world’s largest asset managers like BlackRock and Vanguard have a responsibility to change course to root out systemic racism from our economic system.
Theresa Taylor, chair of the investment committee of the California Public Employees Retirement System (CalPERS) Board of Administration says: “Institutional investors should carefully review the information that Majority Action and SEIU present in this report. I expect that plan participants will want to examine how funds are reviewing the proxy voting records of their asset managers. Racism is a systemic risk that should be evaluated like any other.”
BlackRock had not responded to a request for comment at the time of publication.
A JP Morgan Asset Management spokesperson says: “Human capital management is one of our global investment stewardship priorities. We encourage companies to focus on their hiring, retention and promotion policies to improve diversity. We also encourage companies to strengthen their corporate culture and adjust their employment practices to create a welcoming and diverse workplace.”
A Vanguard spokesperson says: “Vanguard’s Investment Stewardship team has focused on diversity and social issues in our engagements with portfolio companies over the past several years, as we feel both can have long-term effects on shareholder value. We recently published our perspectives on boardroom and workforce diversity, which provides additional insight into how we’re approaching this important matter with portfolio companies. Additionally, I’d like to add that proxy voting, while important, does not reflect the full extent of our actions with companies on the material risks associated with social and diversity issues. If you haven’t had a chance yet, I would encourage you to read through our recent Annual Report (pages 28 and 29 provides 5 examples of our engagements and subsequent voting rationale on diversity-related shareholder proposals with portfolio companies).
“We expect to continue to increase our engagements with companies, and our expectations of how companies oversee and make progress on diversity and social issues.”
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