The SEC has denied a request from Walmart that the retailer be given the green light to exclude a shareholder proposal seeking a racial equity audit.
Proposals asking companies to have an outside party conduct such audits have taken off since they were first filed in 2021. Resolutions initially targeted major financial services firms but a wider range of companies are now facing requests.
United for Respect (UFR) has filed a proposal with Walmart requesting that the company ‘conduct a third-party, independent racial equity audit analyzing Walmart’s adverse impacts on black, indigenous and people-of-color communities, and to provide recommendations for improving the company’s racial equity impact. Input from employees, customers and racial justice, labor and civil rights organizations should be considered in determining specific matters to be analyzed.’
UFR bills itself as a multiracial, national non-profit organization ‘fighting for big and bold policy changes that improve the lives of people who work in retail.’
In its supporting statement, the group writes: ‘While Walmart has made charitable contributions and statements of solidarity with communities of color, it must do more to address significant adverse impacts of its policies and practices on those communities. Several aspects of Walmart’s business suggest a racial equity audit would help mitigate reputational, regulatory, legal and human capital risk.'
UFR adds: ‘Given the demographics of Walmart’s hourly workforce, shareholders want to ensure [the company] is not contributing to or exacerbating broader racial inequities. Failure to effectively address racial inequities in its operations exposes stakeholders, including employees, to unacceptable abuses and exposes Walmart to risks that may ultimately affect shareholder long-term value.’
NO-ACTION REQUEST
In response, Walmart sought no-action relief from the SEC if it omitted the proposal on the grounds that, per Rule 14a-8(i)(12)(i), the resolution ‘addresses substantially the same subject matter as a previously submitted shareholder proposal that was included in the company’s 2022 proxy materials, and the previous proposal did not receive the support necessary for resubmission.’
The company argued that ‘minor wording differences between the proposal and the previous proposal… are non-substantive and demonstrate that the proposals share the same substantive concerns and address substantially the same subject matter.’
Walmart acknowledged that despite the similar wording of the two proposals, their supporting statements indicate that the proponents have different ‘perspectives on how racial equity and civil rights concerns may be implicated by the company’s business and operations. [But] these differing views do not change the conclusion that both proposals share the same substantive concern and address substantially the same subject matter.’
The 2022 resolution was filed by the National Center for Public Policy Research. The group writes in its supporting statement: ‘If the company is, in the name of equity, diversity and inclusion, committing illegal or unconscionable discrimination against employees deemed ‘non-diverse’, then the company will suffer in myriad ways – all of them both unforgivable and avoidable.
‘In developing the audit and report, the company should consult civil rights and public interest law groups – but it must not compound error with bias by relying only on left-leaning organizations. Rather, it must consult groups across the spectrum of viewpoints. This includes right-leaning civil rights groups representing people of color.’
In its no-action request, Walmart states that the 2022 proposal received 0.56 percent of the votes cast at last year’s AGM, thereby failing to reach the 5 percent threshold required for resubmission.
The SEC responded: ‘We are unable to concur in your view that the company may exclude the proposal under Rule 14a-8(i)(12)(i). In our view, the proposal does not address substantially the same subject matter as the proposal previously included in the company’s 2022 proxy materials.’
A Walmart spokesperson says in a statement: ‘We publish our response to shareholder proposals in our proxy statement, and we’ll address proposals that appear in our filing at that time.’ The company’s 2022 AGM took place on June 1.
BUSY SEASON
The UFR proposal is one of many heading toward the proxy statements of US companies. Overall, the 2023 proxy season appears on pace to see as many if not more ESG resolutions filed with companies than in previous years. According to a report from As You Sow released in late March, investors had filed 542 proposals so far, about even with the same time last year. A total of 617 had been filed by the end of 2022.
Among the measures gaining attention, the Interfaith Center on Corporate Responsibility has co-ordinated the filing of proposals with nine pharmaceutical companies about their use of intellectual property.
Ben Maiden
Ben Maiden is the editor-at-large of Governance Intelligence, an IR Media publication, having joined the company in December 2016. He is based in New York. Ben was previously managing editor of Compliance Reporter, covering regulatory and compliance...
