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Racial justice: The imperative for investor action

September 2020
September 2020
  • Recent demonstrations against the killing of George Floyd and others by police called attention to systemic issues of racial inequalities and police brutality in the US, mobilising people globally to rally for racial justice.
  • Corporations around the world have publicly supported the call to action on racial justice and made commitments to address racism and inequity within their own organizations, but more transparency is needed to assess how well those words align with actions.
  • Investors can play a key role here in pressing for stronger policies and disclosure through engagement, as well as addressing racial equality within our own organizations.

The Black Lives Matter movement’s call for change inspired anti-racism protests around the globe. It has forced corporations to re-examine their hiring, pay and promotions practices, workplace cultures, product branding and consumer discrimination. Public debate about systemic racism is also set against the backdrop of the stark realities of the COVID-19 crisis, which has had a disproportionate effect on Black people and other vulnerable communities, underscoring the need for companies to prioritize issues around racial inclusion, worker protections and pay equity.

At BMO Global Asset Management, we recognize the importance of this critical issue of social justice, and we recognize the real value diversity and equality has to our own business and to the businesses we invest in. As investors, we believe we can contribute by:

  • Engaging our investee companies in constructive dialogue to advocate for adoption of practices that address systemic racism and lack of representation in the workforce
  • Seeking to ensure the same good practices are adopted within our own business and wider industry
  • Reinforcing our engagement with thoughtful use of voting rights where appropriate
  • Supporting industry initiatives and investor collaborations that align with our views to amplify our voice in seeking positive change

Slow progress on corporate racial diversity

Progress on racial diversity in the corporate workforce, especially at corporate leadership levels, is significantly lagging recent progress made on gender diversity.


In the US, only 3.2% of executives and senior manager–level employees are Black, and while Black people represent 13.4% of the US population, there are only 3 Black CEOs on the Fortune 500 list, less than 1% of the total list. There are significant pay disparities too, with Black men paid 13% less than white men, and Black women 39% less than white men and 21% less than white women. In other countries progress on ethnic diversity in leadership and board positions is equally slow.


A recent report showed that 37% of FTSE 100 companies surveyed do not have any ethnic minority representation on their boards, despite recommendations by the Parker Review Committee for all boards to have at least one director from an ethnic minority background by 2021.


In Canada, where Black people represent 3.5% of the population, they make up less than 1% of senior executives and board members, and 75% of companies report not having representation of visible minorities at all on their boards.

The business value of diversity

Beyond addressing discrimination issues, there is also a business case for increasing minority representation. A report by McKinsey suggests that diversity beyond gender can be a key corporate differentiator:

  • Ethnic diversity in executive teams: companies in the top-quartile for ethnic/cultural diversity on executive teams were found to be 33% more likely to have industry-leading profitability.
  • Penalties for ethnic diversity laggards: companies in the bottom quartile for both gender and ethnic/ cultural diversity were 29% less likely to achieve above-average profitability than were all other companies in the data

Additionally, with mounting consumer and stakeholder scrutiny of corporate messaging versus practices on social issues, there are heightened reputational risks associated with not addressing inequality and issues of racism. In the wake of George Floyd’s death, several corporate leaders, including the CEO and founder of CrossFit, have stepped down amidst controversies over inappropriate responses to the anti-racism protests.

The need for transparency

While companies in the US are required to report racial diversity data to the U.S. Equal Employment Opportunity Commission (EEOC), only 25% of US companies choose to publicly disclose this data, with an even smaller subset disclosing an annual breakdown of the representation of different ethnic minorities at various levels across the organization.

Yet with the exception of South Africa, there are no countries where public company reporting of diversity data is of similar stature to that of companies in the US, which makes it challenging for investors to have a structured approach to voting and engagement on ethnic diversity and inclusion in the workforce across markets.

Challenges to collecting racial and ethnic identity information

  • Racial and ethnic identity information collection needs to be based on voluntary disclosure by individuals to be consistent with international human rights principles. This can be sensitive information people could prefer to withhold.
  • The way people self-identify might not fit the categories provided. While data on visible minorities could give insight into the treatment of people who are “not white”, focusing on race or ethnicity is likely to provide more nuanced information. For example: in certain countries such as Canada, Indigenous persons are not classified as visible minorities because their Indigenous status is not always “visible” – instead, data on Indigeneity is usually captured in questions separate from the visible minority category.
  • Data collection rules vary by country. For example, the EU’s Article 8 prohibits the processing of personal data in relation to certain special categories, including data concerning ethnic origin, mainly to prevent discrimination. There are exceptions to this rule that vary in different markets, for example if a person has given their consent or the data is aggregated.8
  • Because racial and ethnic dynamics vary between regions and countries, it is difficult to compare and analyze for inequality, especially at companies with a global workforce. As such region-specific qualitative data around diversity and inclusion efforts is needed to complement aggregate corporate statistics.

Regulatory influence on the rise

However, efforts by regulators to require “comply or explain” disclosure from companies are increasing. For example, under the Canadian Business Corporations Act (CBCA) public companies have been required since 2020 to report on the representation of four designated groups on their board of directors and senior management teams: women, Indigenous peoples, persons with disabilities and members of visible minorities. They are also required to disclose whether they have a policy, targets and strategies in place to enhance the representation of those groups at the board and executive levels. In the US, California is considering requiring companies incorporated in the state to have minimum levels of directors from underrepresented communities on the board.

Proxy advisory firm ISS also announced that it has been conducting outreach to companies in the US, asking them to provide the race or ethnicities of their directors and named executive executives on a voluntary, aggregated and self-identified basis.

Requirements and/or guidance
SEC – Reporting Guidance on Diversity Policies and Practices
  • Disclose whether the board considers (self-identified) diversity as an attribute when considering new nominees.

  • Discussions on diversity policies must include how the company considers the self-identified diversity attributes of a nominee.
California proposed bill – if passed, in effect end of 2022.
  • Corporations with 4-8 directors required to have min. 2 directors from underrepresented communities.

  • Corporations with 9 or more required to have min. 3 directors from underrepresented communities.
Parker Review 2020 recommendations(not mandated) and UK Corporate Governance Code
  • Engage and report on the ethnic diversity on boards.

  • Report on ethnic diversity policies and activities as in compliance with the Corporate Governance Code, covering board nomination processes.

  • Proactive recruiting.

  • Develop a pipeline pool of ethnic minority leaders.
Canadian Business Corporations Act
  • Disclose the representation of women, indigenous peoples, persons with disabilities and members of visible minorities.

  • Disclose whether there is a diversity policy in place to enhance representation at board and senior management levels.

  • Disclose board renewal mechanisms, nomination practices and diversity targets and timelines.

Investor engagement on diversity

At BMO GAM, we have been engaging and voting on issues of diversity and inclusion for a number of years, with a primary focus on gender. Our approach to race is less well established. Nevertheless, we have taken steps to develop our engagement strategy with investee companies.

In the period of January 1st 2019 to June 18th 2020, from 2219 total interactions with companies, 186 interactions were linked to workforce diversity, and 114 were linked to board diversity.

Given the limited availability of ethnic/cultural demographic data and overall workforce data, we have been engaging companies for several years on their participation in the Workforce Disclosure Initiative, seeking greater transparency from companies about their workforce management and the resulting data such as wage gaps. Measurement and disclosure are important first steps in being able to make further progress. Our engagement asks to companies centre around:

  • Strategy-setting at the top
  • Setting targets and measuring progress
  • Hiring practices
  • Equitable pay
  • Employee engagement
  • Education and training

Beyond representation

Beyond addressing diversity issues in the workforce and C-suite, we note that companies must reform business models that profit from perpetuating inequities. Examples are the for-profit prison industry, companies benefitting from prison labour, surveillance software with inherent racial biases, or marketing strategies that target vulnerable communities.

Investor engagement can help companies align with the UN Guiding Principles for Business and Human Rights to be better prepared to address racial inequities and related issues such as human rights, modern slavery in supply chains, living wages and worker protections.14

Responsible Investment – a glossary of terms

We cannot ignore the fact that the financial services industry itself struggles with having adequate racial and ethnic representation. While responsible investing has roots in fighting Apartheid in South Africa in the 1970s, the industry today must recommit to tackling racial injustice within our own organizations as well as the companies we invest in. To that end BMO GAM has endorsed the Investor Statement of Solidarity to Address Systemic Racism and Call to Action coming out of the Racial Justice Investing coalition, based in the US. In line with the statement’s recommended actions, we are committed to advance progress on racial equity and justice in the following areas:

  1. Commit to actively engage with, amplify, and include Black voices in investor spaces and company engagements
  2. Commit to embed a racial equity and justice lens into our own organizations
  3. Commit to integrating racial justice into investment decision-making and engagement strategies
  4. Reinvest in communities
  5. Use the investor voice to advance anti-racist public policy
We will be reporting on our progress against these commitments going forward. We will also be working collaboratively with other investors and investor networks to address this topic in other markets, including in Canada.


This article is for information purposes. The information contained herein is not, and should not be construed as, investment, tax or legal advice to any party. Investments should be evaluated relative to the individual’s investment objectives and professional advice should be obtained with respect to any circumstance.

The information, opinions, estimates or forecasts contained in this document were obtained from sources reasonably believed to be reliable and are subject to change at any time.

In the United States and Canada, BMO Global Asset Management is the brand name for various affiliated entities of BMO Financial Group that provide investment management and trust and custody services. Certain of the products and services offered under the brand name BMO Global Asset Management are designed specifically for various categories of investors in a number of different countries and regions and may not be available to all investors. Products and services are only offered to such investors in those countries and regions in accordance with applicable laws and regulations. BMO Financial Group is a service mark of Bank of Montreal (BMO).

BMO Asset Management Corp., BMO Private Bank, BMO Harris Bank N.A. and BMO Harris Financial Advisors, Inc. are affiliated companies. BMO Private Bank is a brand name used in the United States by BMO Harris Bank N.A. BMO Harris Financial Advisors, Inc. is a member FINRA/SIPC, an SEC registered investment adviser and offers advisory services and insurance products. Not all products and services are available in every state and/or location.

This financial promotion is issued for marketing and information purposes; in the United Kingdom by BMO Asset Management Limited, which is authorised and regulated by the Financial Conduct Authority; in the EU by BMO Asset Management Netherlands B.V., which is regulated by the Dutch Authority for the Financial Markets (AFM); and in Switzerland by BMO Global Asset Management (Swiss) GmbH acting as representative offices of BMO Asset Management Limited in Switzerland, which are authorised by FINMA.

®/™Registered trade-marks/trade-mark of Bank of Montreal, used under licence.

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