Influential proxy advisor ISS has backed the ‘civil rights audit’ proposal filed at Apple, stating in its voting rationale that an independent audit would “help shareholders better assess the effectiveness of Apple’s efforts to address the issue of any inequality in its workforce and its management of related risks”.
The proposal at the Californian tech giant was filed by SOC Investment Group – formerly CtW Investment Group – which along with US union-backed SEIU and Trillium Asset Management was behind most of the racial justice and civil rights audit proposals last year, which drew big support in their maiden year. Trillium is supporting the resolution at Apple this year too.
ISS’ focus on the “effectiveness” of Apple’s efforts around inequality in its advice appears to demonstrate a shift in its assessment of such audit proposals, moving away from a focus on corporate disclosures of actions taken towards one which also considers the impacts of those efforts and the broader business.
In early April, RI reported that ISS had diverged from its arguably more conservative rival Glass Lewis – which is also supporting the proposal at Apple this year – by recommending votes against ‘racial equity audit’ proposals at Citigroup and Bank of America. In its advice, ISS argued that the financial heavyweights were taking “sufficient meaningful actions to address the issue” – both had recently disclosed billion-dollar initiatives on racial injustice.
Tejal Patel, Corporate Governance Director at SOC Investment Group told RI at the time that she felt that ISS had misunderstood their proposal. “Their analysis was much more heavily on the existing steps that Citi or Bank of America are taking,” she said. “We’re not asking for disclosure of what the existing steps are, there’s a lot of disclosure. What we’re asking for is an independent evaluation of the effectiveness of these policies to combat systemic racism,” she added.
The proposals at Citigroup and Bank of America were supported by an impressive 37% and 25% of shareholders, respectively, in April.
ISS, however, did support racial equity audit proposals at online retail giant Amazon in May and software firm Oracle in November. In its advice, ISS highlighted concerns around both firms’ involvement in facial recognition technology – studies have shown that such technologies perform better on lighter-skinned men, raising civil rights and racial bias concerns, especially given the potential use of such technology by government agencies.
But in the advice at Oracle there is a focus on disclosure still. “Disclosure regarding a thoughtful consideration of the risks associated with the use of facial recognition software and management and board oversight of these risks appears to be missing,” ISS stated. “The company could stand to benefit from a racial equity audit of its business practices especially relating to its AI products and services. As such, shareholder support for this proposal is warranted.”
In December, ISS put out its 2022 benchmark guidance with a section dedicated to racial equity / civil rights audit proposals in which the proxy firm stated that its support will be dependent in part on “whether the company has engaged with impacted communities, stakeholders, and civil rights experts.”
The publication of that guidance followed a survey in which 44% of 155 polled investors supported the statement that “most companies would benefit from an independent racial equity audit, whether or not the company has adequate corporate programs addressing racial equity or company specific racial equity controversies”.
In its analysis, ISS states that despite Apple’s comprehensive disclosure of its racial justice efforts, including its commitment of $100m towards its Racial Equity and Justice Initiative, an “objective, third party audit assessing the civil rights impacts of the company’s policies and practices could help address recent related controversies.” It continues that it “could also help shareholders assess the effectiveness of Apple’s efforts to address the issue of racial inequality for its stakeholders and its management of related risks.”
SOC’s Patel described ISS’ new position as a “bit more balanced approach” and stated that while it continues to look at what processes and frameworks companies have disclosed, it “then weighs them against what the company’s actually doing”.
Patel, who previously worked at ISS, described filing of new proposals as an “iterative process”. She told RI that advisors’ benchmark policies are “meant to reflect market norms,” therefore: “Proxy advisors are very likely not going to step out on something until they get kind of a litmus test, and so last year’s votes, I think, were a litmus test and they reflected it accordingly when they adjusted their policies,” she said.
Patel also agreed that generally in the market there is a “little bit of reticence” when it comes to proposals asking for more than disclosure and added that this is where its audit proposals are “unique” because “it’s one of the few that asks for an actionable step [to undertake an independent third-party assessment].”
Apple’s annual meeting takes place on the 4 March.