Amazon faces ‘racial equity audit’ proposal

Amazon shareholders are set to vote on a proposal asking the company to conduct a ‘racial equity audit,’ joining investors elsewhere considering measures seeking to assess how companies are approaching racial issues.

The proposal is brought by the New York State Common Retirement Fund, the trustee of which is New York State comptroller Thomas DiNapoli, and other funds and foundations.

Specifically, the proponents are seeking a vote on a request that the board commission ‘a racial equity audit analyzing Amazon’s impacts on civil rights, equity, diversity and inclusion, and the impacts of those issues on Amazon’s business. The audit may, at the board’s discretion, be conducted by an independent third party with input from civil rights organizations, employees, communities in which Amazon operates and other stakeholders.’ The proposal also requests that the company publicly disclose a report on the audit.

Investor interest in diversity, inclusion and equity has grown over the last year following widespread protests sparked by the deaths of George Floyd and other African Americans at the hands of police officers, and the disproportionate impact of the Covid-19 pandemic on people of color.

The proposal’s supporting statement notes the increased attention the media and policymakers are paying to systemic racism, racial violence and societal inequities. ‘Companies would benefit from assessing the risks of products, services and overall corporate practices that are or are perceived to be discriminatory, racist or increasing inequalities,’ the proponents state.

They acknowledge that Amazon in May 2020 tweeted its solidarity with the fight against systemic racism. But they also state that some of Amazon’s actions, products and services have been criticized as inconsistent with that pledge.

Amazon has unsuccessfully requested that it be given no-action relief to exclude the proposal under Rule 14a-8(i)(7), on the grounds that it involves matters related to the company’s ordinary business operations.

The company states that ‘civil rights, equity, diversity and inclusion’ are topics it acknowledges are important, but that the proposal ‘does not focus on any particular aspect of these topics or practice at the company.’ It adds that the proposal does not request that any action be taken to address these issues, only that the audit be conducted and its results reported.

‘By requesting a broad survey on the impact of the company’s policies, practices, products and services on societal issues, and the impact of such issues on the company, the proposal necessarily implicates many aspects of the company’s operations that do not raise significant policy issues,’ which therefore does not transcend the company’s ordinary business operations, it argues.

‘The broad scope of the second part of the proposal’s request – an assessment and a report on how the ‘civil rights, equity, diversity and inclusion’ issues in the current social climate in which the company operates impact its business – necessarily implicates a multitude of ordinary business matters relating to the company’s day-to-day operations,’ Amazon says.

But the SEC states on its website that it is unable to concur that Rule 14a-8(i)(7) provides a basis to exclude the measure.

On the same day that it announced its decision on the New York State Common Retirement Fund proposal, the SEC also posted its findings on four other proposals that Amazon sought relief to exclude under Rule 14a-8(i)(11) on the grounds that each ‘substantially duplicates’ the New York measure.

The agency agreed that Rule 14a-8(i)(11) gives grounds to exclude one of the four proposals, but not the other three:

• One of those proposals requests that Amazon’s board commission an independent third-party report assessing the company’s process for customer due diligence ‘to determine whether customers’ use of its products or services with surveillance or computer vision capabilities or cloud products contributes to human rights violations’
• A second requests that Amazon report on its efforts to address ‘hate speech and the sale or promotion of offensive products throughout its businesses’
• The third requests that Amazon prepare a report disclosing ‘promotion velocity rates’ at the company, defining this as ‘the time it takes from the date of hire to promotion, or between one promotion and the next. The report should provide promotion velocity rates by title and level for different gender and racial identities.’

However, the SEC agrees separately that the proposal requesting a report on ‘hate speech and the sale or promotion of offensive products’ can be excluded under Rule 14a-8(i)(10) because Amazon has ‘substantially implemented’ it through its tools and procedures.

A request for comment from Amazon was not returned immediately. The company has not yet released its 2021 proxy statement. Its 2020 AGM took place on May 27 last year.

GROWING INTEREST
Amid growing investor interest, Amazon is not the only company to have shareholders request that it conduct some sort of review and report back on racial issues.

PayPal shareholders, for example, are set to vote on whether to commission a report ‘on whether written policies or unwritten norms at the company reinforce racism in company culture.’ PayPal unsuccessfully sought SEC no-action relief for excluding the proposal, arguing that this should be possible under Rule 14a-8(i)(10) because the company has substantially implemented the measure.

The CtW Investment Group earlier this year said it had asked several financial institutions to conduct a racial equity audit that ‘identifies, prioritizes and remedies the adverse impacts of the bank’s policies and practices on non-white stakeholders and communities of color.’

In addition, Trillium Asset Management submitted a proposal requesting that Johnson & Johnson ‘conduct and publish a third-party audit… to review its corporate policies, practices, products and services, above and beyond legal and regulatory matters; to assess the racial impact of the company’s policies, practices, products and services; and to provide recommendations for improving the company’s racial impact.’

Johnson & Johnson unsuccessfully requested no-action relief from the SEC for excluding the proposal, detailing a number of steps it has taken that it said ‘substantially implemented the proposal.’ For example, the company wrote that it already publishes information on ‘its assessment of the ways that it has been working, and is continuing to work, to promote diversity, equity and inclusion both within and outside the company, including promoting racial and social justice.’