Racial Equity Audits Gain Traction with BlackRock Seal of Approval

The murder of George Floyd last May forced a reckoning among leading U.S. companies that claim to support racial justice and equality. For all the talk of diversity and inclusion, institutional racism is baked into American society. Now the global money management firm BlackRock is raising the bar. The company has taken the rare step of committing to a third-party racial equity audit, with the aim of exposing its own role in systematic exclusion and division.

BlackRock and the Biden connection

Due to its size, BlackRock plays an influential role in the corporate social responsibility and ESG investing fields. The company is estimated to have $7.8 trillion in assets on its ledgers, making it the largest money management firm in the world.

BlackRock’s commitment to a racial equity audit startled some observers. It also puts considerable pressure on other firms to follow suit.

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However, the move was all but inevitable, considering BlackRock’s association with the Biden administration. President Joe Biden won his office in part on the strength of his campaign’s racial equity platform. When he tapped BlackRock executive Brian Deese to be his lead economic advisor as Director of the National Economic Council, he also put the company’s name and reputation front and center in the effort to tear down race-based institutional barriers in the U.S.

The National Economic Council keeps a low profile, but its position as an advisory group within the Executive Office of the President positions Deese to influence every aspect of the Biden administration’s racial equity goals.

More BlackRock connections at the Biden White House

Along with Deese, Biden also tapped another BlackRock executive and former Obama staffer, Wally Ademeyo, for an influential economic position as Deputy Secretary of the U.S. Treasury.

Treasury Secretary Janet Yellen welcomed Ademeyo in an official statement last week, taking note of his experience in national security and his work in a key Obama administration post impacting structural racism.

“Wally is also a tireless advocate for the working class. He helped build the Consumer Financial Protection Bureau from its foundations after the Great Recession,” Yellen said. “Those values – and that managerial experience – will be a tremendous asset to Treasury now as we continue implementing the American Rescue Plan.”

The social justice revolving door swings both ways

A third BlackRock executive and former Obama staffer to join the White House is Michael Pyle, as chief economic advisor to Vice President Kamala Harris.

All together, these three appointments have provided fresh opportunities to criticize the “revolving door” between business and government. However, the appointments also illustrate how the social responsibility focus of a younger generation of executives can influence both business and government.

Deese took up a climate action role at BlackRock, and his early resume includes stints at the Center for American Progress as well as the Carnegie Endowment for International Peace and the Center for Global Development.

Adeyemo was tapped to lead the Obama Foundation as its President in 2019, making him the head of a rapidly growing organization focused on community action.

“Since 2017, the Foundation has launched a series of programs that support leaders around the United States and the world who work to create positive change in their communities, including the Obama Foundation Fellows, Leaders, Scholars, and Community Leadership Corps, as well as the My Brother’s Keeper Alliance and Girls Opportunity Alliance initiatives,” the Foundation explains.

Pyle served as an outside advisor to the Harris campaign last year. In an interview with his home-state newspaper the Herald & Review last February, he articulated how institutionalized racism intertwines with the challenges prioritized by the Biden administration.

“The core of the (present) job is helping her [Harris] and advising her on how she and the president should navigate these four interlocking crises and challenges: the public health crisis, which is a significant part of the economic crisis, the climate crisis and the racial justice and equity challenge,” Pyle explained. “It’s…helping to make her priorities and views get represented in policy decisions that the administration makes, and helping to advise around those four core challenges.”

The union factor

Seen through the lens of the Biden administration’s focus on racial equity, the powerful role of BlackRock executives in shaping federal policy practically compels the firm to establish a leadership position on evaluating the corporation's role, if any, in perpetuating structural racism.

The Biden administration’s support for labor unions may also be a factor.

One leading driver of the racial equity audit movement is the investment firm CtW. The firm works with labor unions in the shareholder activism area, focusing on excessive executive pay as well as “irresponsible and unethical corporate behavior.”

“Founded in February 2006, the CtW Investment Group works with pension funds sponsored by unions affiliated with Change to Win, a federation of unions representing nearly five million members, to enhance long-term shareholder returns through active ownership,” CtW says. “Members of CtW affiliates participate in Taft-Hartley plans with over $250 billion in assets.”

“The long-term health of these pension plans, and the retirement security of the workers and families who rely upon them, are threatened by conflicts of interest on Wall Street and in the boardroom, a corporate backlash that seeks to weaken the accountability of executives to shareholders, and outright corporate fraud,” CtW adds.

What is a racial equity audit?

CtW’s initial focus has been on corporate transactions that benefit executives while harming shareholders. Motivated by last year’s George Floyd protests, CtW reached out to SEIU and targeted Bank of America, Wells Fargo, Citi, Goldman Sachs, Morgan Stanley, and JP Morgan for shareholder proposals requesting a racial equity audit.

As described by CtW, a racial equity audit would provide full transparency on corporate practices that perpetuate institutional racism.

“We believe that the finance industry has played a critical role in perpetuating unequal wealth distribution to communities of color,” explains CtW, adding that “The only way to effectively address racial injustice and economic inequality is careful study of how the industry’s products and services have contributed to this imbalance.”

BlackRock takes the racial equity spotlight

CtW has effectively called out financial institutions on their support for the Black Lives Matter movement, stating that "monetary pledges and verbal commitments alone are not sufficient to address the systemic racial disparities within our financial system.”

U.S. financial institutions are already facing renewed scrutiny under the pro-worker policies of the Biden administration. In that context, BlackRock’s commitment to a racial equity audit sends a message about the transparency pressures that financial institutions can expect over the next four years, and possibly well into the future.

BlackRock has also raised the profile of CtW and other drivers of the racial equity audit movement. Earlier this week, Bloomberg reporter Saijel Kishan took note of BlackRock’s commitment along with several other CtW actions that have resulted in racial equity agreements, some of which hinge on policies and programs that firms are already implementing.

If BlackRock is serious about leading the charge to dismantle institutional racism in the U.S., the company has a long, hard fight ahead.

The failed insurrection of January 6 fostered a state-based voter suppression movement that has steamrolled across the nation, exposing consequences of corporate acquiescence in government policy that supports white supremacy.

Business leaders are only just beginning to reckon with their own role in perpetuating deep-rooted racism that cuts to the very core of American democracy. The January 6 insurrection was a test that business leaders failed to pass. As a group, their response to the failed insurrection was weak, disorganized and fleeting, even though millions of PAC dollars have supported the Republican members of Congress who supported the insurrection.

Perhaps with some prodding by BlackRock and the Biden administration, others may find the courage to acknowledge their role in institutional racism, take steps to undo the damage, and build a more firm and lasting foundation for the future of American democracy.

Image credits: Julia Mouketo/Unsplash