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
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.
The business value of diversity
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
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
Regulatory influence on the rise
Requirements and/or guidance
SEC – Reporting Guidance on Diversity Policies and Practices
Canadian Business Corporations Act
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 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.
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:
- Commit to actively engage with, amplify, and include Black voices in investor spaces and company engagements
- Commit to embed a racial equity and justice lens into our own organizations
- Commit to integrating racial justice into investment decision-making and engagement strategies
- Reinvest in communities
- Use the investor voice to advance anti-racist public policy
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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.
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