Lessons Learned from BlackRock’s First Racial Equity Audit

Amid an uptick in shareholder proposals calling for racial equity audits, BlackRock’s own audit has resulted in a public report showing the investor’s progress (or lack thereof) on various diversity commitments. BlackRock agreed to undergo a racial equity audit in 2021 after the Service Employees International Union (SEIU) agreed to withdraw a share proposal calling for such an audit if the firm voluntarily conducted one.

The audit was conducted by Covington & Burling, the law firm where former US General Attorney Eric Holden is senior counsel, in conjunction with DEI consultant Working IDEAL. Its results are instructive as to what other companies undergoing third party racial equity or workplace audits can expect:

• BlackRock met its 2024 goal of boosting overall Black and Latino staffing by 30% in the US. However, it missed its 2024 goal of doubling the number of Black and Latino senior leaders.
  
  
• Attrition was a contributing factor; attrition rates for Black senior leaders matched hiring increases almost exactly, while Latino representation increased by just .5%.

The report comes as BlackRock is facing criticism from SEIU and other activists for opposing shareholder proposals at other companies calling for racial equity audits; BlackRock argued that the companies already provided fulsome disclosure and specific goals. BlackRock has supported similar proposals in the past, but noted that in this case, investors failed to make a compelling argument that target companies were underperforming on D&I initiatives.

Meanwhile, companies should be careful about how racial equity audits are performed if they become necessary. SOC Investment Group is calling for JPMorgan shareholders to oppose re-election of the bank’s Audit Committee Chair because of a “clear conflict of interest” in choosing the company’s financial auditors, PwC, to undertake the racial equity audit instead of a third party. The audit was categorized as being related to financial audits, yet was overseen by the Public Responsibility Committee instead of Audit. SOC claims this is the first time they’ve seen a company use its financial auditor for racial equity audits and the first time it has recommended against an Audit Chair regarding such audits – but it may not be the last.