The lawyer pressuring companies on civil rights

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Labor unions have long leveraged the power of their significant wealth — currently some $250 billion in pension funds — to pressure companies to change their ways.

SOC Investment Group was set up by a coalition of unions representing more than 4 million members to focus those efforts and champion labor’s cause through shareholder activism. And Tejal Patel, SOC’s director of corporate governance, is at the forefront of those campaigns.

After the 2020 murder of George Floyd in Minneapolis, Patel began pushing a new type of shareholder demand — the civil rights audit. SOC and its union partners, including the Service Employees International Union, or SEIU, began asking companies to take a close look at their records on social justice and racial equity.

Almost immediately, the group scored victories. While it lost votes at Wells Fargo & Co., Goldman Sachs Group Inc. and Bank of America Corp., among others, it did get surprising support.

Now investment giant BlackRock Inc., Citigroup Inc. and meat packer Tyson Foods Corp. have agreed in recent months to conduct audits. On March 4, Apple Inc. shareholders voted in favor of a civil rights audit after employees raised questions about pay equity and diversity in the executive ranks.

And on March 24, JPMorgan Chase & Co., the country’s biggest bank, said it would hire an independent firm to audit its $30 billion racial equity project, which is designed to close the racial wealth gap.

JPMorgan directors just last year had urged shareholders to oppose an audit, saying that the bank already was committed to advancing racial equity.

Patel talked with the Long Game about civil rights, holding companies accountable, and her graduate-school dissertation.

This interview has been edited for length and clarity.

Civil rights audits are a new thing, with the first wave of shareholder proposals surfacing last year. Why now?

There were three civil rights audits that companies had sort of done on their own volition, which were at Airbnb, Facebook, and Starbucks. What led us to develop the proposal with the SEIU was the racial justice protests following George Floyd’s murder. We started reevaluating how we were drafting shareholder proposals because we felt as though most of the ones that we had been using beforehand didn’t have enough teeth to them. They asked for disclosure, maybe the development of a committee at the board level, increased board diversity.

Those are all good things, obviously. But it doesn’t get to this sort of tangible assessment process that a racial equity or civil rights audit does.

How is an audit a step up?

Lots of companies started funding different organizations, putting in a lot of money and making very, very lofty statements about racial equality. But you don’t really know if anything’s actually happening.

It’s great that JPMorgan, for example, has allocated $30 billion, that’s not a small amount of money. We want them to allocate that money effectively, as shareholders but also as stakeholders. An audit like this makes sure that when it’s done it’s done objectively. It makes sure that groups that should be getting this money are getting the money, makes sure that the company is addressing any kind of implicit bias in their policies.

That’s a big one. Legal bare minimums don’t always address every form of discrimination that exists. And so a lot of what this audit — at least in the banking industry and many other industries, too — is supposed to accomplish is for companies to be able to address unintentional bias.

But it’s JPMorgan. They have a lot of smart people who are experts at spending money.

The board and management are very, very well-versed at running a company. I have yet to see any company, management structure or board structure that has individuals on it that have core competency in civil rights-related work.

Last year, when you began these campaigns, what sort of reception did you get?

The general reception was, “We’re already doing this. We know the company best, so we don’t need somebody from the outside. How could they possibly understand us?”

The first proposals got pretty strong votes, especially when compared to other social questions. Why do you think that is?

It exceeded the average shareholder proposal support level pretty significantly. I think it was very much the racial justice protests. I think it was George Floyd’s murder. I think it was this idea that shareholders couldn’t stand on the sidelines anymore.

Somebody had to hold these companies accountable for their lofty statements, for the policies that they make that impact Black and Brown communities. This was the moment to do it.


Where are you with civil rights proposals this year?

Last I counted, there’s over 35 that are floating out there, which is a lot. One change that you’re going to be seeing more of is that these companies are starting to become more amenable to the idea of it.

What do you expect companies to do with the information the audits provide?

If there’s a recommendation that’s being made about lending algorithm bias, we want the company to follow through with that, and we’re going to keep asking them about it. We’ve got ESG funds that are interested in this, we’ve got numerous religious funds interested in this. This issue of equity and fairness is one that resonates no matter kind of what type of shareholder you are. So these companies should be expecting to get follow-up not just from us, but from other shareholders as well.

Are there any big votes coming up?

We have a big one at McDonald’s. McDonald’s is one of those companies, very similar to Apple, where they’ve got worker-related issues, issues related to their operational model, the franchise model, particularly with Black franchisees.

The SEIU has refiled at Wells Fargo. That’s going to be a really interesting one, especially given that they tried last year to convince people that their human rights report was going to be sufficient. And it turned out that it really wasn’t.

A House subcommittee looking into Covid-19 pandemic aid had some surprising findings related to banks and race just recently.

We would often get pushback from issuers and even some asset managers basically saying that companies have addressed redlining, they’ve addressed discrimination in their lending products, and things like that.

But this House Financial Services report came out which basically found that the policies developed by several of the banks to distribute the funding limited the ability of minority- and women-owned businesses to access that funding, because they would only allow pre-existing clients of those banks to apply for it.

Now, most of those minority- and women-owned businesses bank at a more local bank, probably. They weren’t clients of JPMorgan. And because of that, it had a basically a disparate impact on those groups. The majority of the funding went to White-owned businesses

Now, that was a simple thing. And it’s something that the banks were aware of. There was at least one bank whose legal department pointed this out to them and they went ahead and put the policy in place anyway.

This is still a very real problem, implicit bias. It exists and it’s subtle, but it’s there, and an audit can help with it.

Lurking on LinkedIn, I saw your London School of Economics dissertation: Sovereign wealth funds: Accountable agents or political pawns? I have to know, which is it?

Sovereign wealth funds are an interesting one because they’re accountable to their constituencies. There are more political elements to it that you don’t always see in the world that I’m in now. If you compare the Norwegian sovereign wealth fund to the Chinese investment fund, going to be very, very different right? Their values are driven by different things.

So that’s basically what the dissertation was about, but it’s super funny because I don’'t think anyone has ever asked me. It was interesting learning about how these political values can drive the decision-making for such large funds.

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