In 1970, Milton Friedman wrote a famous essay for the New York Times Magazine, arguing that “there is one and only one social responsibility of business—to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.”
For many years, the Friedman point of view prevailed: the job of a corporation is to serve its shareholders. A portion of Friedman’s argument rested on a bit of rhetorical sleight of hand—the notion that a “free market” also means “freedom.” Here is how Friedman put it: “In an ideal free market resting on private property, no individual can coerce any other, all cooperation is voluntary, all parties to such cooperation benefit or they need not participate. There are no values, no ‘social’ responsibilities in any sense other than the shared values and responsibilities of individuals.”
Perhaps that is how an “ideal” free market would function. Forty-five years after Friedman’s essay, however, we still remain very far from that ideal state. Consider these unsettling facts:
- Although illegal, slavery and forced labor persists in many forms around the world. Researchers estimate there may be as many as 36 million people in slavery today—more than at any other time in history.
- According to a two-year study conducted by Verite, forced labor in Malaysian electronics factories is widespread, impacting one in three migrant workers.
- Last spring, the Guardian reported that “large numbers of men bought and sold like animals and held against their will on fishing boats off Thailand” are integral to the production of shrimp sold in leading supermarkets around the world.
- Every year the government of Uzbekistan, one of the world’s largest exporters of cotton, forcibly mobilizes children as young as ten years old to harvest their crops.
Many corporations are now well aware of these facts, and enforce codes of conduct at factories and fields around the world through regular monitoring. Some collaborate with labor unions and human rights groups, and actively seek to find the root causes of these abuses. They are changing the definition of “good business.” But these changes did not come about through the influence of a magical invisible hand of the market. These transformations are largely the result of concerted engagement by investors and civil society organizations repeatedly raising concerns with corporations for decades.
Milton Friedman allowed for profitable socially responsible activities—this is just good business after all, not “social responsibility.” He failed to see, however, how far away we are from his ideal free market, and the critical need to convince companies to act more responsibly, even when it is in their long-term best interests to do so.
In 2010, Domini convinced Nucor to adopt strong policies to address forced labor and slavery in Brazil. Read the case study.
Learn more about Domini's approach to Human Rights
The food choices we make every day have a surprisingly important impact on people and ecosystems around the world. Corporations like Kraft and Pepsi purchase significant quantities of basic commodities like palm oil and soy through complex supply chains that may end in a rainforest in Indonesia or a farm in Brazil. We are making a focused effort to work with these companies to ensure that these purchases are not inadvertently driving human rights violations and destruction of critical ecosystems.
The shareholder proposal is an effective tool for encouraging corporate management to come to the table to discuss our concerns. In January, Mondelez International updated its website to explain how it is addressing deforestation in its supply chain—a direct response to Domini’s shareholder proposal. We are currently in a focused dialogue on these policies, encouraging the company to provide more robust data to its investors.
Our proposal on deforestation also brought PepsiCo to the table. We are currently discussing the impact of the company’s palm oil, soy, paper and sugar purchases on forests around the world. We hope to convince the company to adopt an over-arching forestry policy, backed by clear public reporting, in order to allow Pepsi’s customers and investors to evaluate its progress.
Our forestry proposal at Kraft Foods Group will go to a vote in May.
A year after one of the worst factory disasters in history, Domini continues its work as part of global investor initiative to help respect and protect the fundamental human rights of workers in global supply chains throughout the world.
The coalition of institutional investors, representing over $4.1 trillion, originally came together last May, under the leadership of the Interfaith Center on Corporate Responsibility, following the Rana Plaza factory collapse in Bangladesh, a disaster that claimed the lives of more than 1,100 individuals and injured 2,500 more. At that time, we issued a statement appealing to apparel companies to use their influence to help implement systemic reforms to ensure worker health and safety.
Last week, we joined the coalition in releasing a new statement marking the one-year anniversary of the Rana Plaza collapse. In it, we highlight the improvements that have been made over the past year, while renewing our appeal to brands and retailers and detailing the progress that still needs to be made. Notably, we urge companies to make stronger financial commitments to the Rana Plaza Donors Trust Fund, which was established to provide much-needed aid and remediation to the victims and families affected by Rana Plaza.
In 2005, a Chinese human rights activist named Shi Tao was sentenced to ten years in prison for sending an email through his Yahoo account relating to the anniversary of the Tiananmen Square massacre. As shocking as this case was, we soon learned that censorship and surveillance of the Internet is widespread, in China and in many countries around the world. These revelations ultimately led to the creation of a human rights organization called the Global Network Initiative (GNI). Domini is a founding member of the GNI, and currently serves on its board of directors. The GNI is truly multi-stakeholder, with corporations, human rights organizations, academics and investors represented. Together, we developed a set of principles on freedom of expression and privacy to help guide corporations when they receive requests from governments that may violate these fundamental rights.
In the fourth quarter, GNI crossed an important milestone with the completion of the first round of assessments of founding companies Google, Microsoft and Yahoo. GNI member companies submit to a three-phase independent assessment process to allow the GNI board to evaluate whether they are in compliance with GNI’s principles. In this last phase, an independent firm looks at a series of cases – actual examples of how the companies responded to government requests for data or to alter or take down content. This was the first assessment of its kind.
The GNI board met in Washington to receive these assessment reports and to vote on compliance. We determined that each company is in compliance with the GNI Principles, meaning that they have demonstrated good faith efforts to implement them in practice. We recognize that each company receives thousands of government requests per year and that it is not possible to evaluate each and every instance, or to determine what a representative sample might look like. Nevertheless, we are confident that the process was meaningful and credible. The GNI published the results of these assessments in a report on its website (www.globalnetworkinitiative.org).
Recent revelations about NSA surveillance efforts could not be included in the GNI assessment, because companies are legally prohibited from even acknowledging the existence of NSA requests. The GNI is seeking greater transparency from our government, and Domini has signed several letters to this effect.
During the third quarter, Domini signed a letter to the Board of FedEx*, the owner of the Washington Redskins, urging the company to re-evaluate its business relationship due to the profoundly insulting nature of the team name. The letter was coordinated by a group of social investment firms and Native American organizations.
On April 24, the eight-story Rana Plaza factory complex in Bangladesh collapsed, killing 1,129 garment workers and leaving nearly 2,500 more seriously injured. It was the worst apparel factory disaster in history, but unfortunately only one in a series of tragedies that have taken the lives of more than 1,800 Bangladeshi workers over the past eight years. The perpetual quest to lower the costs of production has brought the apparel industry to Bangladesh, where extremely low wages accompany lax safety standards and weak labor unions. This race to the bottom has produced jobs in Bangladesh, but at significant cost to the health and safety of these workers.
A strong investor response was needed. Domini worked with other investors affiliated with the Interfaith Center on Corporate Responsibility (ICCR) on a public statement urging global companies operating in Bangladesh to sign a multi-stakeholder factory safety program, the Accord on Fire and Building Safety (the Accord) and to strengthen local trade unions, disclose suppliers and ensure appropriate grievance and remedy mechanisms for workers.
“The horrific loss of life in Bangladesh serves to once again highlight the difficulties in building accountability into global supply chains. As investors, we also bear responsibility to enhance the power of the private sector to effect positive change by engaging companies to ensure that human rights remain at the core of their business models.”
- Excerpt, Investor Statement on Bagladesh (May 13, 2013)
More than 200 institutional investors from around the world representing more than $3 trillion signed our statement, which we plan to use as a foundation for engagement with companies in the retail apparel sector. The first 120 signatories came together in only 48 hours, a strong testament to the seriousness of this issue and the need for systemic reform. The Accord represents a significant change from past practice—its board of directors is chaired by the International Labor Organization (ILO) and split evenly between corporate and labor union representatives. It is also legally binding. More than 80 companies have signed the Accord, but, to date, only a handful of American companies have joined.
Gap is one of the leading companies that have declined to sign the Accord, joining other American companies citing concerns about legal liability. We had several calls with Gap executives, seeking to better understand their concerns and reiterate our strong support for the Accord. We also had a call with PVH to understand why one American company chose to sign the Accord, despite its legally binding nature.
Originally Appeared in Domini Funds' 2013 Annual Report
On March 25, 1911, a fire swept through the 8th-10th floors of the Asch Building in lower Manhattan, occupied by the Triangle Waist Company garment factory. This tragic event, which killed 146 young immigrant workers, helped spur the growth of unions and set in motion a series of legal reforms to protect U.S. garment workers from such preventable disasters.
More than 100 years later, however, garment workers around the world still face the same risks that led to that tragedy. The recent collapse of the Rana Plaza factory complex in Bangladesh was the worst disaster in the history of the apparel industry. The owners of the eight-story complex had illegally added three floors to the building, and although cracks had been seen in the walls the day before the collapse, the factory owner chose to ignore warnings and protests, and ordered workers into the building.
Unfortunately, Rana Plaza was no anomaly. Factory disasters claim the lives of countless workers around the world every year. In Bangladesh, more than 1,800 workers have been killed during the past eight years, and in the past eight months alone, approximately 130 Bangladeshi workers have lost their lives in factory fires.
Globally we have seen a continuous search for the lowest-cost facilities, but nowhere has this issue become as critical as it is in Bangladesh, where the apparel sector employs more than four million people, mostly women. The minimum wage in the country is $38.50 per month, less than half the wage paid in Cambodia and a quarter of the wage paid in China. According to the World Bank, as of 2010, Bangladesh ranked last in terms of minimum wages for factory workers. This race to the bottom has made Bangladesh the second-largest global apparel exporter, behind China. Adding to the problem is a history of weak labor unions and strong representation of factory owners in government. Roughly ten percent Bangladesh’s parliamentary seats are currently held by garment industry leader. The sector’s political influence has been, predictably, an obstacle to meaningful reform.
In the same way that the Triangle Shirtwaist fire brought attention to these issues in the United States a century ago, Rana Plaza has now brought attention to these issues globally. Below, we discuss several paths that companies have taken to improve worker health and safety, particularly in Bangladesh, where the issue has become most critical.
Factory Monitoring Efforts
When we began reaching out to companies to discuss supply-chain sweatshop issues in the mid-1990s, we heard a common refrain: “we don’t own these factories.” However, as responsible investors, consumer activists, students and other labor rights groups engaged with companies to discuss the advantages of taking on greater accountability, things began to change. Companies in a wide range of industries have since adopted codes of conduct for their suppliers and have instituted factory monitoring programs. Many have supplemented these efforts with training programs to educate workers and managers on factory safety and labor rights. Some companies, like Gap, have recognized that a degree of responsibility also lies back at corporate headquarters, where cost-cutting initiatives and last-minute changes to orders can trigger overtime violations and increased pressures on factory managers to cut corners on safety.
It is clear, however, that these efforts have been insufficient to address systemic problems that persist in factories around the world, including excessive hours, forced labor, child labor and safety problems. Many multinational corporations report that they are serving a regulatory function with factory owners that should be played by government. While several leading companies have partnered with civil society organizations to find more lasting solutions, Rana Plaza has made it abundantly clear that more drastic and immediate action is needed.
Banning Production in Bangladesh
Global brands cannot police factory working conditions if they do not know where their clothes are being made. When a company places an order with a factory that meets its standards, it is not uncommon for that factory to ship the order to another factory without the buyer’s knowledge. This practice of unauthorized subcontracting is endemic in Bangladesh, where it is estimated that half of the nation’s roughly 5,000 factories are subcontractors. Even companies with rigorous monitoring programs risk finding their orders being produced at factories not on their approved list. Such was the case when several boxes of Disney sweatshirts were found at the Tazreen factory after a November fire that killed 112 workers.
Our relationship with the Walt Disney Company dates back to 1996, when we first encouraged the company to take greater responsibility over its supply chain. Since then, we have seen a dramatic evolution in its approach to these issues. In addition to providing feedback over the years on Disney’s code of conduct and audit program, we have also visited factories and participated in a hands-on project with Disney and McDonald’s to find a better path towards sustained factory compliance with labor standards.
Two months before Rana Plaza, Disney executives reached out to obtain our feedback on their plans to withdraw from Bangladesh. Disney permits licensing of its name and characters for production in more than 170 countries. While Bangladesh represented only a very small portion of its global sourcing, Disney believed it presented significant risks. Leaving Bangladesh could help the company reduce risk to its brand and allow it to focus efforts where it could most improve working conditions. Therefore, in March, Disney announced that Bangladesh had been removed from its “Permitted Sourcing Countries” list.
Some have accused Disney of “cutting and running,” a tactic that companies use to avoid accountability for sweatshop conditions, but we disagree with those accusations. Disney’s limited economic activity in Bangladesh would have afforded it little leverage with factory management, but by publicly withdrawing, it was able to exercise its leverage as a global brand to send a clear message. The Bangladeshi government needs to understand that substandard working conditions will have economic consequences if it does not take immediate action.
A Shift in Worker Safety Initiatives
For many companies, however, leaving Bangladesh is not a viable option. These companies instead must take a hands-on approach to reform.
In the wake of the collapse, several significant initiatives have arisen to improve worker safety issues. Most notable is the Accord on Fire and Building Safety (the Accord)—a five-year, multi-stakeholder agreement between retailers, non-governmental organizations, and labor unions to maintain minimum safety standards in the Bangladesh textile industry. We believe that this initiative is the best hope for meaningful reform. As a legally-binding agreement, the Accord represents a significant shift from past practice. Its board of directors, which is chaired by the International Labor Organization (ILO), is split evenly between corporations and labor unions. We believe that this equal representation of trade unions is critical. Domini’s Global Investment Standards have always recognized that:
“Healthy and vital unions play a crucial role in addressing the imbalances in power that often arise between corporate management and workers in their struggle for fair working conditions. Without unions, the possibilities for long-term equal partnerships between management and labor would be vastly diminished.”
One Rana Plaza survivor told Time: “The managers forced us to return to work, and just one hour after we entered the factory the building collapsed…" It was not simply lax regulations, political corruption and greed that led to these deaths—it was also fear. In order for desperately poor workers to stand up for themselves, they need strong labor unions.
To date, the Accord has been signed by more than 80 companies, primarily based in Europe. One of the first to sign was Hennes and Mauritz (H&M, Sweden). Over the past three years, we have seen impressive improvements in H&M’s approach to labor conditions in its supply chain. The company has advocated for increases to the minimum wage and for the adoption of a “living wage” standard, and has pledged to remain in Bangladesh even if wages rise.
Some of the other major global brands that have signed the Accord include Fast Retailing (Uniqlo, Theory), PUMA, Carrefour, Tesco, Next and Marks & Spencer. The decision to sign the Accord by Japan’s Fast Retailing, one of the world’s largest retailers, supplements an already impressive social profile, including its practice of publicly reporting the results of its factory audits and the remedial measures its takes. To date, only a handful of American companies, including PVH (Calvin Klein, Tommy Hilfiger) and American Eagle Outfitters, have signed the Accord.
Domini Helps Lead Investor Response to Rana Plaza
In May, Domini worked with other investors affiliated with the Interfaith Center on Corporate Responsibility (ICCR) to draft a public statement urging global companies sourcing from Bangladesh to sign the Accord on Fire and Building Safety and to strengthen local trade unions, disclose suppliers, and ensure appropriate grievance and remedy mechanisms for workers.
More than 200 institutional investors from around the world, representing more than $3.1 trillion, signed our statement. The first 120 signatories came together in only 48 hours, a strong testament to the seriousness of this issue and the need for systemic reform (Read the investor statement).
Citing legal concerns with the Accord, a group of 20 North American retail companies, including Gap, Wal-Mart, Target, Macy’s, Nordstrom and Costco, announced another initiative—The Alliance for Bangladesh Worker Safety (“the Alliance”). While we favor the Accord over the Alliance because of its legally-binding nature and the role of labor unions in its governance structure, both initiatives represent an important shift in approach to worker safety issues. Both the Accord and the Alliance focus on bottom-line, critical reforms to address urgent fire and safety issues; both recognize the need for competitors to work together toward common solutions, to share the results of their factory inspections with each other, and to enforce common standards; both are committed to a level of public transparency; and both recognize the need for workers to have a voice.
Domini is currently helping to coordinate a global investor coalition focused on factory safety in Bangladesh. In the coming months, as we follow developments with the Accord and the Alliance, we will turn careful attention to those apparel companies that have not signed up for either initiative.
Here are a few additional changes we will continue to push for, both in Bangladesh and around the world:
- A global dialogue is needed about the definition and achievement of a sustainable living wage—sufficient for a worker to support a family and save for the future.
- A social safety net should be provided for the families of workers who are injured or killed in the line of work.
- The New York Times reports that children in Bangladesh can tell the latest fashion trend based on the color of the water in the canal that runs past their schoolhouse. The environmental consequences of global supply chains are significant and must be addressed.
- We would like to see the Accord model, which incorporates cross-company information sharing, an active partnership with unions and a commitment to public transparency, become the norm for global supply chains everywhere.
- While Bangladesh may be the flash point today, similar problems persist in other countries around the globe. It is our hope that the reforms sparked by Rana Plaza will reach beyond Bangladesh.
Rozina Akter, a 21-year-old survivor of the Rana Plaza collapse, told the Wall Street Journal: "I'll go back to work as soon as I get better. Not all buildings will collapse." What other choice does she have?
Like the Triangle Shirtwaist fire of another era, we hope to look back on Rana Plaza as a turning point for Bangladesh, and an end to the global “race to the bottom” that this poor country has come to symbolize. We hope that it will catalyze a new era of labor reforms that will provide young women like Ms. Akter with more acceptable and dignified choices. As investors, we will continue to do our part to bring that hope to fruition.
Today, a global coalition of more than 120 institutional investors managing more than $1.2 trillion* issued a statement in response to a series of recent factory disasters in Bangladesh that has taken the lives of more than 1,500 garment workers and left a thousand more seriously injured.
The statement urges global companies operating in Bangladesh to sign a multi-stakeholder factory safety program, the Accord on Fire and Building Safety; strengthen local trade unions; disclose suppliers; and ensure appropriate grievance and remedy mechanisms. The statement was drafted by Domini Social Investments, Boston Common Asset Management, the Interfaith Center on Corporate Responsibility, the Missionary Oblates of Mary Immaculate, and Trillium Asset Management.
The investor signatories commit to further engagement with apparel companies on these issues, stating that: “Regardless of whether products are being sourced from Bangladesh, Guatemala, China or the Philippines, morality dictates that the price/value calculus for all manufactured goods must begin with the fundamental human rights of workers, including health and safety, freedom of association and collective bargaining and a living wage.”
The international coalition of investors came together in only 48 hours, underscoring the urgency of these issues and the deep level of investor concern. The Statement remains open for additional signatories.
*Update: As of July 3, the statement had been signed by over 200 institutions representing more than $3.1 trillion.
The Walt Disney Company’s decision to not allow sourcing in Bangladesh was an appropriate response to a lack of governmental labor enforcement that has manifested itself in a lengthy series of tragedies, including a fire that took the lives of over 100 workers in November and last week’s building collapse that killed more than 400 workers.
Disney permits licensing of its name and characters for production in more than 170 countries, with a range of social, environmental and economic performance. The company states it is simultaneously looking to reduce risk to its valuable brand and focus its efforts where it can improve working conditions. Its limited economic activity in Bangladesh may have afforded little leverage with factory management. Disney chose instead to exercise the significant leverage of its global brand, by publicly withdrawing and sending a clear message to the Bangladesh government to implement the International Labor Organization's Better Work program.
Bangladesh presents a series of systemic problems from low wages to safety, as well as a history of unreported subcontracting that can make it very difficult for brands to ensure acceptable working conditions, or even know where their products are made.
Companies can choose to stay and make the difficult, long-term commitments that will be needed to benefit workers, or they can make a noisy exit, as Disney has. Both courses of action are responsible, and both can be effective. Disney's public departure may, however, in the end, have more impact than its monitoring efforts, had they allowed their licensees to stay.
I applaud those companies that are committed to making a difference in Bangladesh, but when a company’s leverage and economic commitment is minimal, I don’t expect them to stay and suffer the reputational harm resulting from repeated tragedies that are outside their control. I expect them to publicly declare that "enough is enough," and set conditions for their return.
All companies should establish a rigorous and transparent country selection process, backed by meaningful human rights due diligence. They should enter these countries with a commitment to improving conditions by working with all affected stakeholders and, perhaps most important, by strengthening local trade unions. If they simply place orders without that degree of commitment, however, they risk making conditions worse and suffering the ire of their consumers and shareholders.
Following a historic election that brought long-imprisoned democratic leader Aung San Suu Kyi to Burmese parliament, the U.S. government announced the lifting of long-standing economic sanctions on Burma, and corporations announced that they would soon resume business there. In the second quarter of 2012, Domini participated in an in-person meeting with National Security Council (NSC) staff to share our concerns regarding the continued imprisonment of political prisoners; weak rule of law, including a weak judicial system; continuing violence against ethnic minorities; and the potential financing of notorious human-rights violators. Following our meeting, we worked with other members of the Conflict Risk Network (CRN) to develop and submit concrete recommendations to the NSC.
In the wake of the important democratic reforms and the lifting of economic sanctions, the U.S. State Department began work on a set of reporting requirements to ensure that companies doing business in Burma disclose sufficient information to allow the U.S. government to evaluate their impact on human rights and further democratic reforms. In September, we worked closely with the CRN on detailed comments to the State Department in support of its proposal to require such reports. In October, we then submitted our own letter to the State Department with our additional recommendations on reporting requirements. We were pleased to see that the State Department adopted at least two of our recommendations, including a reference to international human rights instruments and our suggestion to require companies that lack human rights due diligence policies to explain why they do not have these policies in place. Unfortunately, our most important concerns regarding public transparency were not addressed.
During the first quarter, we continued to work in coalition with other investors on a follow-up letter to the State Department from the CRN, which Domini signed. We were also one of the leading institutions inviting other investors to sign the letter through the United Nations Principles for Responsible Investment (PRI) network.