racial, equity, corporate boards, Asset manager, advisor

Analysis: Asset Managers Scale Back Support For Racial Equity Policies In Corporate Boards

Eighteen of the largest asset managers have U.S. clients’ assets surpassing $33 trillion.

A majority of the nation’s largest asset managers seem to be hesitant to support racial equity plans in corporate boardrooms.

According to Equity in the Boardroom: 2023 Proxy Season by the nonprofit Majority Action, 14 out of 18 asset managers retreated from backing racial equity audit proposals last year compared to 2022.

The fresh 60-page report examined how the 18 largest asset managers voted on key racial-equity related issues last year. The report indicated those firms have U.S. clients’ assets exceeding $33 trillion. They are responsible for overseeing investments owned by tens of millions of U.S. workers. That includes 401(k) plans representing the biggest investments for most people outside of their homes. All the asset managers are listed in the report.

The analysis surmised that asset managers’ stagnation on racial equity issues is important, as the brunt of harmful corporate behavior is impacting scores of people, including individuals from communities of color.

“Against current political headwinds, asset managers must rise to the occasion and use their proxy voting power to address systemic racism – consistent with their fiduciary duty to minimize risk, protect the value of client assets, and fortify long-term investment returns,” according to the report.

Further, systemic racial disparities cost the nation’s economy over $1 trillion annually, lessening returns across portfolios for diversified investors. It was noted that corporate practices often reinforce these disparities, varying from the likes of unsafe workplaces, financial bias, and harmful products.

“Once again, we see large asset managers shirking their responsibility to create long-term value for investors in favor of their short-term institutional self-interest,” Eli Kasargod-Staub, executive director of Majority Action, stated comments in a news release.

He added, “Despite the huge cost of racial inequity to our economy and the untold opportunities for companies who meaningfully seek to operate with a racial justice lens, asset managers and the corporate boards they rubber stamp year after year would sooner maintain policies driving systemic racial inequalities that have been integral to our financial system for centuries.”

The report is extensive, covering everything from racial equity audits to racial and ethnic board diversity topics. It includes recommendations for asset managers and other players in the investment ecosystem to ensure that corporations use people’s investments to perpetuate racial equity.

Here are some of the report’s top discoveries:

  • Investors have pulled back on supporting racial equity audit proposals. If done properly, those audits are a valuable tool for identifying and problem-solving racial inequities that hurt a company’s operational, strategic, and financial success and effectiveness, says Divya Sundar, director of research at Majority Action. She pointed out that average support for those proposals rose from 33% in 2021 to 44% in 2022, but declined to 21% in 2023.

Four of the largest asset managers – BlackRock, Vanguard, Fidelity, and State Street – ranked at the bottom on all five racial equity-related proxy voting categories. Sundar explained what’s notable is the massive backsliding by BlackRock and State Street. For instance, she said, BlackRock went from supporting over half of all racial equity audit proposals in 2022 to none in 2023. And State Street’s support for such proposals fell by 32 percentage points.

  • Asset managers have a low standard for racial and ethnic board representation and do not hold boards accountable for board diversity failures. Sundar shared, “The Big Four asset managers have shown that if they really put their mind to it, they can drive substantial changes in board diversification. They were instrumental in using director votes to get companies to appoint women directors to boards. They could do the same for racial and ethnic diversity, but they are not.”

Simultaneously, this BLACK ENTERPRISE report  showed that as the number of Black directors has risen in recent years, the advancement has been decelerating.

A report from the 2023 KPMG Board Leadership Center and the African American Directors Forum revealed that immediately following the murder of George Floyd in May 2020, significantly more Blacks were appointed to corporate boards of Fortune 1,000 companies. Per that analysis, 76% of Fortune 1,000 companies as of September 2022 had at least one Black director on their boards, versus 61% by late 2020. However, 40% of Black directors joined Fortune 1,000 boards after June 1, 2020, 28% joined between September 2020 and September 2021, and only 9% joined between September 2021 and September 2022. The findings show a striking drop in the percentage of new appointments.

So, with the Majority Action report, what is possibly causing the regression? Companies and asset managers ceasing the urgency to make commitments that they promised after the murder of George Floyd, though racial inequity in America keeps rising.

Sundar added Republicans’ attack on DEI and ESG issues has had a chilling effect on asset managers’ willingness to hold companies accountable for social inequity.

The Majority Action report offered some recommendations for asset managers and investors, asset owners, proxy advisors, policymakers, and regulators to improve how they vote on racial equity-related proposals.

Overall, the nonprofit concluded that asset managers should adopt a racial equity lens toward proxy voting and hold companies accountable when they fall short on racial equity issues.

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