PayPal shareholders are set to vote on whether to commission a report into company culture as investor interest grows in how US companies are addressing racial issues.
The proposal filed by NorthStar Asset Management, Inc Funded Pension Plan states: ‘Shareholders urge the board of directors to prepare a report to shareholders on whether written policies or unwritten norms at the company reinforce racism in company culture.’
In a supporting statement, the proponents encourage the board to assess whether these policies or unwritten norms:
- ‘Yield inequitable outcomes for employees based on race and ethnicity in patterns of hiring and retention, promotion and upward mobility, disciplinary action or employee usage of benefits’
- ‘Establish a cultural hierarchy through perceived pressure to use ‘whitened’ names rather than birth names, to adopt ‘white-centric” physical appearance standards in hair style, body art or modifications, and facial hair styles, or to avoid traditional attire and religious head coverings.’
The proponents state that they believe the company ‘can advance long-term value creation through an analysis of whether and how systemic racism is embedded in company culture, policies and procedures.’
PayPal has unsuccessfully sought SEC no-action relief for excluding the proposal, arguing that this should be possible under Rule 14a-8(i)(10) because the company has substantially implemented the measure.
‘[T]he company takes great pride in the diverse and inclusive workplace culture it provides to its employees and consistently promotes diversity, equity and inclusion in its practices and policies, which is a core aspect of the company's corporate culture and a focus of the proposal's supporting statement,’ PayPal states in its request to the SEC.
‘Additionally, the company publishes information on its assessment of its programs and initiatives to promote diversity and inclusion, both within and outside of the company, including the promotion of racial and social justice in communities.’
PayPal states, for example, that it has a website that discusses how the company promotes diversity and inclusion within and outside of its workplace, such as by confirming that it ‘strive[s] for a diverse workforce that includes people of different ethnic and cultural backgrounds, gender and sexual orientation, veteran status, abilities and those who bring diverse thoughts, opinions, experience and leadership styles – and all other characteristics that make people unique.’
PayPal states that it supports eight employee resource groups, including communities to support its Hispanic, interfaith, Asian, black and women employees and their allies, with ‘objectives and accomplishments’ of these communities including:
- ‘[P]romoting a sense of ‘belonging’ and an inclusive and respectful workplace’
- ‘[F]acilitating strong mentoring relationships and personal development’
- ‘[P]roviding inspiration and motivation from role models and subject matter experts.’
Among other things, PayPal says its publicly available code of business conduct and ethics ‘confirms the company' s policy of ‘respecting and embracing’ diversity, and that ‘all employees are expected to treat each other with mutual respect and foster a culture of inclusion.’
In response to the company’s request, the SEC posted to its website last Friday that it was unable to concur that Rule 14a-8(i)(10) provides a basis to exclude the proposal.
A PayPal representative declined to comment beyond the contents of the no-action request to the SEC, adding that the company will be including a statement in opposition to the proposal in its proxy statement filed later this month.
PayPal is not the only US company to have shareholders request that it conduct some sort of review and report back on racial issues. Investor interest in diversity and inclusion matters has ramped up sharply over the last year following widespread protests sparked by the deaths of George Floyd and other African Americans at the hands of police officers and the disproportionate impact of the Covid-19 pandemic on people of color.
For example, the CtW Investment Group earlier this year said that it had asked major financial institutions to conduct a racial equity audit that ‘identifies, prioritizes and remedies the adverse impacts of the bank’s policies and practices on non-white stakeholders and communities of color.’
Elsewhere, Trillium Asset Management submitted a proposal requesting that Johnson & Johnson ‘conduct and publish a third-party audit… to review its corporate policies, practices, products and services, above and beyond legal and regulatory matters; to assess the racial impact of the company’s policies, practices, products and services; and to provide recommendations for improving the company’s racial impact.’
Johnson & Johnson unsuccessfully requested no-action relief from the SEC for excluding the proposal, detailing a number of steps it has taken that it said ‘substantially implemented the proposal.’ For example, Johnson & Johnson wrote that it already publishes information on ‘its assessment of the ways that it has been working, and is continuing to work, to promote diversity, equity and inclusion both within and outside the company, including promoting racial and social justice.’