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Feb 22, 2021

SEC denies J&J request to exclude racial-audit proposal

Investors are seeking to have third party assess company’s impact

The SEC has rejected a request from Johnson & Johnson that it exclude from its proxy statement a shareholder proposal that it conduct a ‘civil rights audit.’

Trillium Asset Management, on behalf of Christopher and Anne Ellinger, has submitted the measure 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.’

The full text of the proposal notes that last year’s Black Lives Matter protests brought systemic racism into the center of public discussion and argues that ‘business as usual in the healthcare sector can result in disparate outcomes for black Americans.’

The proposal also notes that last June Johnson & Johnson made commitments to address underrepresentation in clinical trials, among other things. ‘While these commitments are positive steps taken during a time of acute reflection on racism in America, we believe a third-party civil rights audit would demonstrate an even deeper commitment, provide rigorous independent insights, and may reveal additional ways in which [Johnson & Johnson] can have even more impact on systemic racism,’ the proponents write.

Among other things, the proposal points to other companies as having commissioned third-party audits in efforts to understand and address their role in contributing to systemic racism. For example, Starbucks in 2019 commissioned former attorney general Eric Holder to conduct an assessment of the company’s ‘commitment to civil rights, equity, diversity and inclusion.’

No-action request

Johnson & Johnson requested no-action relief from the SEC for excluding the proposal. It argued this in part on the basis that the company ‘has substantially implemented the proposal,’ listing a variety of steps it has taken.

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.’

It pointed to having a diversity and inclusion landing page on its website that details company initiatives to advance racial equity through diversity and inclusion. It also provided details of its ‘You belong: diversity, equity & inclusion impact review’ that explains how Johnson & Johnson approaches such matters and how that is reflected in company policies, practices and initiatives. Among other things, it stated that the impact review looks at ways the company ‘has approached products and services in order to promote racial equity.’

The company also argued that the proposal could be excluded under Rule 14a-8(i)(7) ‘because the proposal deals with matters relating to Johnson & Johnson’s ordinary business operations,’ and under Rule 14a-8(i)(3) ‘because the proposal is materially false and misleading.’

The SEC’s division of corporation finance wrote that it was unable to agree with exclusion on any of the bases Johnson & Johnson asserted.

Jonas Kron, chief advocacy officer at Trillium Asset Management, tells IR Magazine sister publication Corporate Secretary he had previously met with officials at Johnson & Johnson but that no progress had been made on the proposal. He adds that although he is not aware of a change in thinking at the company following the SEC’s decision the proponents remain happy to discuss the matter.

Johnson & Johnson has not yet published its proxy statement. A request for comment from the company was not returned immediately.

Ben Maiden

Ben Maiden is the editor-at-large of Corporate Secretary , an IR Media publication, having joined the company in December 2016. He is based in New York. Ben was previously managing editor of Compliance Reporter , covering regulatory and compliance...
Editor-at-large, Corporate Secretary