This summer's swell in protests against police brutality and racial injustice have been accompanied by an unprecedented outpouring of statements from corporations acknowledging the existence of systemic racism. CitiGroup, Nike, J.P. Morgan Chase and Amazon.com are just some of the corporate giants that have spoken out in recent weeks. However, this moment demands more than Instagram posts declaring #BlackLivesMatter and one-time donations to Black-led organizations.
The inequities that have fueled protests have been a cornerstone of the U.S. economy for 400 years. Put simply, the U.S. has never had an economic model divorced from racial inequity and violence. Even our core financial ideas and institutions — from mortgages to bookkeeping to the growth of Wall Street banks — were intimately intertwined with the slavery economy, the legacy of which drives the racial wealth gaps and criminal justice industrial complex that undergird the challenges facing so many communities of color today. "Business as usual" only reinforces our racially inequitable systems; making real change will require conscious and comprehensive action, including a fundamental re-examination of corporate systems and behavior.
This shift to align racial justice with our economic engines will require leadership from investors and corporate leaders alike. Corporate leaders respond to the demands of shareholders, who collectively set corporate policy through their voting power over boards of directors. Shareholders can and should engage companies on concrete demands to uproot systemic racism — and hold their boards accountable if they fail to act responsibly. Indeed, shareholders have successfully used their power to push corporations to take action on myriad issues, most notably on climate change, often overcoming entrenched resistance from incumbent corporate leadership to drive fundamental transformation of business models.
While much work will be needed to undo centuries-old structures of racialized inequality, investors can start by supporting these critical initiatives already underway.
Demand companywide civil rights audits, with remedial action overseen by independent — and diverse — boards of directors. If we can't evaluate what's wrong, then we won't know what to change. Just like financial audits, companywide civil rights audits must be led by external experts, covering both internal issues, including pay gaps, harassment and leadership composition, as well as external issues, such as the company's relationship with law enforcement and the impact of company policies and practices on communities of color. Following a number of high-profile incidents of racism and discrimination on its platform, Airbnb undertook an audit, led by an external expert and including extensive consultations with civil rights organizations, which translated to tangible improvements in Airbnb's business practices. In recent weeks, Airbnb announced a new initiative, in partnership with leading civil right organization Color Of Change, to create tools and policies to root out discrimination and racist behavior against Black users and other people of color on the platform.
While audits are an effective tool to gather information, the results must lead to change. The example of Facebook reveals the limitations of an audit when it's not paired with robust oversight by independent directors with the power to hold management accountable. Facebook's inadequate response to concerns regarding misinformation, discrimination, violent movements and data breaches that put users, in particular Black users, at risk, led Color Of Change and Majority Action to launch a campaign in 2019 urging shareholders to withhold support for Mark Zuckerberg's nomination to the board. These issues have clearly only escalated, as the company is now faced with hundreds of companies pulling ads from their platform for its failure to address hate speech and is now faced with a class-action lawsuit alleging widespread discrimination against their Black employees. The failure of Facebook to use the civil rights audit it undertook to make progress on racial justice reflects a broader breakdown of corporate governance at the tech giant. As a result, shareholders can and must hold accountable Facebook and other giants whose racial justice rhetoric is not aligned with their actions, such as Amazon, Google parent Alphabet and Walmart.
Of course, robust board oversight requires independent directors that reflect the racial diversity of the country. As of a 2019 analysis by Black Enterprise, Black directors make up only roughly 6% of directors in the S&P 500, and 37% of S&P companies have no Black board members.
In addition to electing independent leadership who can lead on issues of racial justice, investors should oppose directors with track records of overt support for racism.
At Duke Energy, the largest electric power company in the country, director Daniel DiMicco, who sits on the committee tasked with oversight of the company's political and lobbying activities, led Nucor Steel during a time when that company faced legal claims for racial discrimination, including explicit racial epithets and violent threats against Black workers. Nucor has paid multimillion-dollar fines and settlements related to those claims.
Mr. DiMicco also has a record of climate change denial and opposing policy action to reduce carbon emissions. After years of opposition from Black and Indigenous communities along its path, Duke and its partner, Dominion Energy, were forced to abandon the $8 billion Atlantic Coast Pipeline, an unnecessary expansion of fossil-fuel infrastructure running from West Virginia to North Carolina. Since then, Duke has indicated it will have to write down its investment in the ACP by as much as $2.5 billion.
Finally, shareholders can demand corporations create enhanced disclosures on corporate policy influence. Lobbying, trade association support and political spending can often translate to support for organizations, elected officials and policies that exacerbate systemic racism, despite corporate rhetoric of inclusion. Duke Energy has long-been reported to be a member of the American Legislative Exchange Council, an organization that promoted the "Stand Your Ground" laws that protected George Zimmerman after he killed Trayvon Martin. ALEC has also pushed voter ID bills that disenfranchise people of color and bills that result in targeting of Indigenous communities protesting against fossil-fuel pipelines. However, Duke's membership in ALEC (and other organizations) is not disclosed to shareholders.
Despite routinely receiving substantial support, often 35% to 40% of voting shareholders, our analysis shows BlackRock and Vanguard Group typically vote against shareholder resolutions calling for enhanced disclosures of corporate lobbying and political spending activity. The votes from just those two asset managers often could swing proposals to majority support.
Shareholders must take their rightful role in the national effort to dismantle systemic racism, lending our efforts to complement critical initiatives at local and federal levels. It is incumbent on all of us to use our influence to undo the inequities and violence woven throughout the fabric of our economy and our institutions. As a sector, we must demand much more from the corporate leadership that we elect every year. Any hope for an inclusive and sustainable economy depends on it.
Eli Kasargod-Staub is the co-founder and executive director of Majority Action, a non-profit that seeks to empower shareholders to hold corporations accountable to high standards of corporate governance and long-term value creation, based in Washington. Renaye Manley serves on the boards of Majority Action; the Council of Institutional Investors, where she co-chairs the Activism Committee; and the Thirty Percent Coalition, based in Hobart, Ind. This content represents the views of the authors. It was submitted and edited under Pensions & Investments guidelines, but is not a product of P&I's editorial team.