Originally Appeared in Domini Funds' 2016 Semi-Annual Report
It has been said many times that a company’s workforce is its most valuable asset. In our opinion, there is a positive and a negative aspect to that statement. Employees do indeed provide tremendous value to their employers, making substantial investments of time and energy, and even their health and safety. But employees are not simply “assets” on a balance sheet. When Starbucks announced a pay raise for its employees, Chairman and CEO Howard Schultz used the word “partners,” and said that "trust, after all, must be earned one human connection at a time.” “Partner” is much closer to the mark.
Whether you are the CEO of a retailer with thousands of employees that meet your consumers face to face, or of a business with no consumer-facing employees at all, all successful companies must take the welfare of their employees seriously.
In this essay, we provide brief accounts of how some companies are responding to certain key challenges in the very broad area of “employee relations,” including the gender pay gap, minimum wage reform and union relations.
Domini’s Impact Investment Standards are organized around the key stakeholder groups that corporations depend upon to operate and generate profits, with a focus on the key themes that we believe best capture the strength of each of these relationships. Our standards help to identify companies run by managers capable enough to operate profitably while taking into consideration multiple stakeholders and the environment.
Among these stakeholder groups, employees are perhaps the most critical. We believe that corporations that treat their employees well should, in the long run, attain high levels of employee loyalty, high levels of productivity, and low levels of turnover – all potentially substantial contributors to profitability.
We are therefore looking for companies that invest in the health and development of their employees, focusing on the following key themes:
• Fair and Just Compensation and Benefit Programs
• Commitments to Diversity in the Workplace
• Empowerment and Investments in Training
• Solidarity with Unionized Workforce
• Continuous Improvement in Health and Safety
The companies discussed below currently meet our standards for investment, unless otherwise noted. This essay touches on a handful of key employee relations issues. We do not address health and safety or treatment of workers in corporate supply chains, for example, two areas that are consistently important to our investment decision-making, nor do we address corporate programs to meet the needs of the disabled, such as Microsoft’s innovative efforts to employ individuals with autism, or companies like Eiffage, a French construction company, where employees own 28% of the firm’s shares. In this area, every company has a story to tell. We hope you find these interesting and informative.
Equal Pay for Equal Work
The tech industry has faced persistent criticism over a lack of diversity and, in particular, a lack of opportunities for women. According to a recent study by Hired Inc. of 3,000 employers and 15,000 applicants, there is a 7% salary gap between male and female software engineers at major corporations.
In 2016, in response to shareholder proposals from our colleagues at Arjuna Capital, Apple, Intel, Microsoft and Amazon revealed that they pay their male and female employees equally. Facebook and Alphabet Inc. (Google) also announced they pay equally, but have yet to release data. What wasn’t included in these disclosures was information on how often women are promoted or if there are biases that may prevent women from being hired or moved into senior roles.
Google began a study of its employee practices after it found that its male engineers were promoted at far higher rates than female employees. Although anyone was invited to apply for a promotion, the company found that women were less likely to do so. The company found two academic studies that indicated that 1) girls don’t raise their hands as often as boys when answering math problems, even though they have a higher rate of accuracy when they do; and 2) women don't offer up their ideas as often as men in business meetings, even though observers say their thoughts are often better than the many offered by their male colleagues. When one of the heads of engineering sent an email to his staff describing the two studies and reminding them it was time to apply for promotions, the application rate for women soared. In 2013, the company started a series of diversity training workshops designed to help employees recognize unconscious bias and, as of September 2014, more than half of Google's employees had attended.
In 2013, Salesforce CEO Marc Benioff started a program called the Women’s Surge. The goal was to achieve 100% equality for men and women in pay and promotion, and to make sure that at least a third of all participants at all meetings were women. Benioff asked managers across the company to identify their top executives, who would then receive additional leadership training. In divisions where mostly men were nominated, Benioff told the managers to come back with a more diverse list. When Benioff found that many women at Salesforce were paid less than their male counterparts, the company began raising the salaries of underpaid women. In 2015, Salesforce spent about $3 million to bring the salaries of female employees up to the level of their male counterparts.
Minimum Wage Reform
Until the early 1980s, an annual minimum wage income in the United States, after adjusting for inflation, was above the poverty line for a family of two. Today, the federal minimum wage of $7.25 per hour, working 40 hours per week, 52 weeks per year, yields an annual income of only $15,080, below the federal poverty line for a family of two. This reality has sparked the "Fight for 15" movement, which has mobilized tens of thousands of workers in hundreds of cities across the country attracting widespread attention from the public, the media, legislators and companies.
A sustainable minimum wage can support economic growth and reduce income inequality, a key risk to our economy. In 2014, more than 600 leading economists, including seven Nobel Prize winners and eight former presidents of the American Economic Association, said the United States should raise the minimum wage and index it. They argued that increases in the minimum wage have had little or no negative effect on the employment of minimum wage workers and that some research suggests that a minimum wage increase could have a stimulative effect on the economy as low wage workers spend their additional earnings, raising demand and job growth.
Costco, which employs approximately 205,000 individuals, is notable for its commitment to fair wages and benefits. It pays its retail employees approximately $20 per hour (not including overtime), compared to the national average of $11. Eighty-eight percent of employees reportedly have company-sponsored health insurance and pay premiums that amount to less than 10% of the overall cost of their plans. According to press reports, Costco has consistently resisted Wall Street pressure to conform its pay practices to lower industry standards.
Costco’s CEO, Craig Jelinek, wrote a public letter to Congress in 2013, urging it to increase the minimum wage: “We know it’s a lot more profitable in the long term to minimize employee turnover and maximize employee productivity, commitment and loyalty.” In 2016, Costco announced that it would raise wages for new and current entry-level workers to $13 an hour, up from $11.50. Costco has annual worker turnover of approximately 10%, considerably better than the retail sector’s 60% average. Other CEOs have been vocal about the need to increase the federal minimum wage, including James Gorman, CEO of Morgan Stanley, and Ron Shaich, the CEO of Panera Bread Company.
A number of companies, including Gap, Bed Bath and Beyond and Starbucks have responded to this debate by announcing wage increases.
We’d like to see more companies publicly state their views on this critical issue. Working with other investors, we developed a new proposal asking companies to adopt and publish principles for minimum wage reform. We submitted our proposal to Best Buy and Staples, and had constructive conversations with management at both companies. Our discussions with Best Buy led to a withdrawal of the proposal when we were informed that the company’s board of directors was overseeing a process already underway to further develop the company’s position on wage levels within the company to ensure its employees have sustainable careers and the company continues to attract the best talent.
Operating Globally, Thinking Locally
As global investors, we must ground our evaluation of employee relations in local realities. It makes little sense, for example, to reward a company for offering a benefit that is legally required in its local market. It is also important for American companies that operate globally to be flexible and adapt their programs to local needs.
Starbucks, which employs more than 191,000 people in 68 countries, has used regional surveys and focus groups designed to identify its workers’ greatest challenges. In the United States, this process identified health coverage, which the company has offered to full and part-time employees since 1988.
Starbucks also identified college tuition as a key challenge in the United States, and responded with a unique benefit -- it would pay for employees to get a four-year college degree online at Arizona State University. Any employee that works twenty hours or more a week and has the grades and test scores to gain admission to Arizona State is eligible for the program. The program was announced in 2014 and, to date, more than 6,000 employees have enrolled. The company hopes to have at least 25,000 employees graduate by 2025.
In Britain and China, housing costs were identified as the greatest challenges. In 2015, Starbucks began providing monthly housing allowances to full-time employees in China and interest-free loans to help its employees in the United Kingdom afford a rental deposit, a program it developed with Shelter, a housing charity. Starbucks will lend a maximum of one month's wages to employees who have been with the company for over a year, which the employee pays off over 12 months.
We are particularly interested in employee benefits that exceed local requirements. Fujifilm, of Japan, is notable for benefits that help its employees establish a healthier work-life balance, particularly parents. The company prohibits overtime working hours until a child starts elementary school at the age of six, exceeding legal standards by three years, and allows a six hour working day until a child starts third grade at the age of nine, exceeding the legal standard by six years. Fujifilm also offers three years of parental leave, exceeding the legal requirement of one year. The company also provides specialized benefits for elder care. The company began these programs in 2014 for a core business reason – they believed they needed a diverse workforce to create products that would appeal to consumers in a changing world.
In South Africa, we are particularly interested in companies’ efforts to promote people of color, and to address the HIV/AIDS epidemic. Tiger Brands, a packaged goods company, was founded in 1920 and is headquartered in Bryanston, South Africa. Four people of color and two women serve on the company's ten-member board of directors, and three women, including one woman of color and two men of color, serve on the company's eleven-member executive management team.
In 2014, Tiger Brands invested almost R8 million ($592,000) in on-site clinic services. These include occupational health support, as well as limited primary healthcare, and is free to all permanent and temporary employees on site. One of the company’s clinics is also open to the community. The company also offers HIV/AIDS support for employees. In 2015, 331 employees were voluntarily counseled and tested and 95% of employees who tested positive enrolled in the program.
A Brave New World
The modern workplace is changing. Although the fear that machines would replace workers has been present since the early days of the Industrial Revolution, those 19th century workers could not have anticipated the use of computers to manage the human work week.
A 2014 New York Times article highlighted a growing practice among retailers to utilize automated scheduling software, which can produce erratic schedules for employees. Such companies might provide notice of hours only a day or two in advance, dismiss employees mid-shift because the computer says sales are slow, or schedule employees for very late nights followed by very early mornings. After the story was published, Starbucks, the focus of the article, announced that it would change its scheduling practices and New York’s Attorney General sent letters to thirteen retailers asking for information regarding their scheduling policies.
Some employers, like Target, post employee schedules ten days before the start of a work week, and don’t use the on-call approach. Costco gives part-time workers at least a week's notice about their schedules, and JCPenney also has a policy against on-call scheduling. Gap phased out on-call scheduling in September 2015 and L Brands, the parent company of Victoria’s Secret, also recently ended the practice.
We live in an interconnected world, where simple management decisions can have significant effects. Corporate policies regarding something as simple as scheduling worker shifts can become public controversies that can damage trust in a brand. Other employee policies can have direct impacts on public health.
In July 2015, Chipotle announced that it would offer hourly workers paid sick leave, paid vacation and tuition reimbursement, benefits that were previously only available to salaried workers. These policies are both admirable and uncommon among restaurant chains. They also make good sense for Chipotle’s consumers, who are put at risk when sick people come to work because they cannot afford to stay home. Only five months after announcing these new benefits, however, more than 140 Boston College students picked up norovirus from a sick worker who wasn’t sent home. In 2015, almost 500 people fell ill after eating at Chipotle restaurants due to E. coli and norovirus outbreaks. In the wake of this crisis, which battered the company’s stock price, the company took action to enforce its sick leave policy and to add new programs to extend sick leave when circumstances warrant.
The right to form or join a union of one’s choice and to bargain collectively for the terms of one’s employment are among the core conventions of the International Labor Organization and are recognized as fundamental human rights. 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.
Union relations can be contentious, but strikes can be a sign of a healthy union. These issues can therefore be difficult to evaluate, and rarely lead us to exclude a company from our portfolios, unless we see a pattern of unethical or illegal behavior.
In some cases, however, a lack of unionization can be a decisive factor for us. Take, for example, two similarly situated companies – United Parcel Service and FedEx. Historically, we have approved UPS for our portfolios, and excluded FedEx. At UPS, approximately 60% of employees are represented by the Teamsters. With the exception of its pilots, however, the vast majority of FedEx employees are not affiliated with a union, and FedEx has lobbied aggressively to stave off unionization. FedEx drivers are independent contractors and can start at $30,000-35,000 a year with no overtime, no retirement plan, no health-care benefits and only one week of vacation per year. By contrast, a full-time unionized UPS driver starts at a base of $39,000 a year, with regular raises up to $52,000. Overtime pay brings the total to more than $80,000 a year for the majority of drivers, along with a full benefits package.
In many ways, the FedEx approach is the precursor for many “sharing economy” companies like Uber and AirBnB. FedEx’s model has been challenged in a number of court cases over the years, and the company has responded by reorganizing aspects of its business to avoid unionization by its drivers.
Whole Foods has long resisted any attempts at unionization, despite the fact that employees of grocery chains, like Kroger, are generally represented by the United Food and Commercial Workers Union. John Mackey, the company’s co-CEO and co-founder, says the company isn’t “so much anti-union as beyond unions.” While Mackey’s sometimes aggressive anti-union rhetoric is a concern, we take comfort in the fact that Whole Foods takes employee benefits seriously and has, in some cases, responded to unionization efforts by increasing benefits. Whole Foods employees pay between $0 and $20 per paycheck for health insurance, depending on company tenure. Employees are also allocated up to $1,800 a year for personal wellness accounts to be spent at their discretion. The company rewards teams for coming in under budget and distributes a monthly surplus that averages about 6% of total wages. As a further commitment to solidarity with its workforce, the company caps its executive salaries at no more than nineteen times the average worker’s pay.
In the United States, with a few exceptions, like Macy’s, it is uncommon to see unionized employees at retail chains. American retail workers are more likely to belong to a union if they work for companies based in Europe. In August 2016, for example, employees at eight Zara locations in New York chose to join the Retail, Wholesale and Department Store Union. Zara is owned by Inditex of Spain, one of the world’s largest retailers. The company offered no resistance and agreed to recognize the union, stating that “this is a normal consequence of our commitment regarding the rights of freedom of association worldwide.” Similarly, there have been unionized employees at H&M (Hennes & Mauritz, Sweden) locations in the U.S. since the 2000s.
Of course, unions are not always respected at the American workplaces of European companies. In 2007, we co-filed a shareholder proposal with FirstGroup, a transportation company based in Scotland, to address allegations of anti-union activity at First Student, the company’s U.S. school bus subsidiary. The proposal was submitted along with the International Brotherhood of Teamsters, the Service Employees International Union, and more than 140 FirstGroup employees. Domini’s participation was critical in allowing the unions to meet the onerous British filing requirements. We then attended a meeting in London with FirstGroup’s CEO and chairman to discuss our concerns. FirstGroup hired an independent monitor to oversee its U.S. operations and ensure it was meeting its obligations to respect its workers’ rights, a program that is being held out as a potential model for other companies. Although we cannot claim sole credit for this important development, we have been told that investor involvement (including a large group of European pension funds) was a turning point in the engagement.
Domini asks SEC for Better Employee Relations Disclosure
The Securities and Exchange Commission requires publicly traded corporations to disclose the number of people they employ, but that is only the bare beginning of what we’d like to know. In 2016, The SEC recently requested public comments on its disclosure rules and asked whether companies should be required to disclose more information about their employee base. We submitted a lengthy letter, including the following requests for employee information:
- Employee turnover rate, including significant layoffs
- Breakdown between domestic and foreign employees
- Breakdown of full-time, part-time, seasonal and sub-contracted employees
- Diversity information, including gender pay ratio data
- Percentage of employees represented by a union. For companies with significant union representation, provide a narrative discussion of its process for engagement with the union, noting any significant disputes.
- Benefits and incentive structures available to all full-time employees
- Company goals regarding diversity, employee training and retention, and efforts to implement these goals
- Significant pending legal proceedings, or regulatory investigations, including fines or judgments awarded, relating to employee management.
Investors are well-advised to pay attention to how the companies they invest in treat their employees. By doing so, they can gain fresh insights into the quality of corporate management teams and identify those companies that are best positioned to compete in a rapidly changing marketplace. More importantly, however, by raising these questions with corporate managers, investors send the message that employees matter. When large companies take this seriously, and invest in their employees, they can create lasting value with ripple effects throughout our globally connected economies.
In a tightly interconnected world, investors can no longer afford to ignore the social and environmental costs of business as usual. For decades, responsible investors have joined with civil society organizations, corporations and public institutions to address working conditions in global supply chains and, although problems persist, we’ve made significant headway.
Twenty years ago, companies argued that they carried no responsibility for working conditions in factories they did not own. We no longer hear that argument. While it is true that these human rights abuses occur at factories and fields owned by third-parties, global companies can exercise significant influence. According to the United Nations’ Guiding Principles on Business and Human Rights, adopted in 2011, global businesses are obligated to identify these problems and do what they can to address them.
Around the world, approximately 150 million people leave their countries each year in search of economic opportunities elsewhere, often passing through the hands of unscrupulous recruiters with every incentive to take advantage of their vulnerable situation. Many workers find themselves working months on the job simply to pay off exorbitant recruitment fees. In other words, they are working for no pay at all. This is known as ‘bonded labor’ – a form of forced labor where a person is working to pay off a debt. It is considered the most common, and least known, form of modern slavery.
The International Labor Organization estimates that almost 21 million people are trapped in conditions of forced labor, generating over $150 billion for other parties. More than 75% of these workers work within the private sector, particularly in industries such as agriculture, construction and manufacturing.
Migrant workers are among the most vulnerable members of the global workforce and are subject to multiple forms of abuse across industries.
While attention has been paid to conditions in the factory or on the farm, less attention has been paid to the path migrant workers take to get to the workplace, and the unique risks they face. Today, that is changing.
What Can Investors Do?
Our experience teaches us that investors can have significant influence over corporate practices.
Domini has worked closely with the Interfaith Center on Corporate Responsibility (ICCR), a coalition of faith-based and socially responsible investors, since our inception. ICCR has launched a “No Fees Initiative” to address unethical recruitment practices, based on three pillars:
1. No Fees: Workers should not be obligated to pay for their job and should be immediately reimbursed for any fees charged. If a worker is indebted to her recruiter, she can effectively work months without pay. She may even feel honor-bound to repay these unjust debts. According to a 2014 US Department of Labor-funded study, “92 percent of the migrant workers in Malaysia’s electronics industry had paid recruitment fees and…92% of that group had paid fees that exceeded legal or industry standards.”
2. Workers should be provided with contracts in their own language: If a worker’s contract is written in another language, he can’t agree to the terms of his employment, and he can’t understand his legal rights.
3. No passport retention: If a worker cannot retain her passport or other identify documents, then she is unable to go home.
These are the most common factors that hold these workers in debt bondage, often without their awareness.
According to Know the Chain, a project led by Humanity United that ranks companies in the apparel, tech and food and beverage sectors on their responses to forced labor issues, corporate awareness of unethical recruitment practices is very low. For example, in the tech sector, out of twenty companies reviewed, “only four of the companies demonstrate awareness of the risks of forced labor that can arise from the use of recruitment agencies.” Know the Chain awarded the industry an average of 20 points out of 100 on recruitment issues.
Investors have important opportunities to raise awareness of the problem, set expectations and engage with companies to eradicate these practices.
The Corporate Response
Many of us first learned about the extreme conditions migrant workers can face after a series of articles broke in the Guardian and the Associated Press in 2014 and 2015, uncovering slavery in the Thai shrimp supply chain. Our research department spotted the issue early, leading to decisions to continue excluding Thai Union and Charoen Pokphand (CP) Foods, two Thai companies at the heart of the controversy, from the Domini Funds. We made those decisions before these stories broke.
Often, we are unable to obtain reliable information about labor issues from the companies themselves. In the absence of corporate reporting, we must rely on what we know about these industries and the regions where they operate. Reliable NGOs can be an invaluable source of information. In this case, a report published by Finnwatch in 2013 highlighted problems identified by interviewed workers including accusations of low wages, child labor, a large migrant workforce, and unpaid compensation and leave. The report stated that about half of Thai Union Manufacturing’s (TUM) employees were Thai citizens and the rest were migrant workers from Myanmar and Cambodia. Finnwatch reported that violations of migrants’ rights are common in Thailand. The NGO also reported the company’s denial of these allegations.
Under the spotlight of public attention, conditions are changing. Large consumer-facing brands like Costco and (William) Morrisons (United Kingdom) are taking action as part of the Shrimp Sustainable Supply Chain Task Force, a multi-stakeholder alliance which aims to tackle forced labor and human trafficking in Thailand’s seafood supply chain. The ability to track workers far out at sea is one critical piece of the problem they are trying to solve. CP Foods and Thai Union are also engaged, and working to improve their practices.
Unfortunately, the flawed recruitment system that produced those horrifying conditions also serves a wide range of industries. And in those industries as well, several long-term Domini Funds holdings have taken leadership.
HP Inc. reports that it was the first IT company to develop its own foreign migrant worker standard, a standard that addresses each of the three pillars of ICCR’s initiative. But the company took a step further that gets much closer to the root of the problem: HP is the first company in its industry to require direct employment of foreign migrant workers in its supply chain. Its policy, and the audit tools it has developed to enforce them, were developed in collaboration with Verité, a well-respected international nonprofit that promotes safe, fair, and legal working conditions, with particular expertise in combatting forced labor in supply chains.
When a person works in a factory, but is employed by the labor agency that recruited them, they are at far greater risk of exploitation. According to Verité, “HP’s standard requiring direct hiring will remove a key obstacle to ethical treatment of migrant workers. The standard sets a new bar and will likely result in substantial financial benefit to foreign migrant workers in HP’s supply chain, and we hope other companies will adopt similar policies.” We agree, and are raising this issue with other companies. Direct employment may be the solution to this problem, but we will need to overcome objections from factory owners and others that argue that it is too expensive or burdensome for small suppliers to adopt.
Companies realize that they need to work collaboratively to find solutions to these endemic problems. Leading companies in the electronics industry have turned to the Electronics Industry Citizenship Coalition (EICC). EICC members share a common code of conduct for their supply chains and a common factory audit process. Thanks to the leadership of companies like HP, the EICC code of conduct now addresses unethical recruitment practices.
Another important collaborative effort cuts across industries. The Coca-Cola Company, HP Inc., Hewlett Packard Enterprise, IKEA and Unilever launched the Leadership Group for Responsible Recruitment, focused on promoting ethical recruitment and combating the exploitation of migrant workers in global supply chains across industries. Walmart and Marks & Spencer (M&S) have joined the initiative, which is supported by the Institute for Human Rights and Business, ICCR, the International Organization for Migration and Verité. The Leadership Group is working to champion the “Employer Pays Principle”, which states that no worker should pay for a job – those costs should be borne by the employer.
Case Study: Turning Words into Deeds
In many instances, Domini has acted as a catalyst for change, helping to set a company on a new course that may produce substantial benefits in the future. Apple is a case in point.
In 2004, when we first reached out to Apple, the company was silent about working conditions in its supply chain, and did not have a policy to protect the rights of these workers. We changed that. After months of dialogue with Domini, Apple adopted a strong code of conduct, committing it to uphold core labor rights in its global supply chain.
Only words on paper. But when a corporation adopts a policy, it works to implement it. That code provided the foundation upon which to build a labor standards program. The company soon began public reporting, to ensure a degree of public accountability. Public reporting is needed to ensure effective implementation of these kinds of policies, and to educate others about the kinds of problems that are found, the tactics that work and those that don’t. It is also a necessary mechanism for building trust with investors, consumers and other stakeholders, a valuable asset for any global brand. Our engagement also provided the foundation for a dialogue we have maintained with the company ever since.
Today, Apple is far more transparent about problems in its supply chain, and actively works to address them. Visit www.apple.com and click on “Supplier Responsibility” to read the story of Rechel Ragas, a factory worker recruited from the Philippines to Taiwan in search of higher wages. Apple reports that “to secure a factory position there, Rechel had to use a job broker agency that charged her more money than she made in an entire year working in her home country.” When Apple uncovered these fees – fees that were legal, but violated Apple’s policies – it ensured that she received full reimbursement. As a result, she was able to return home six months earlier than she had planned. Apple is the only company we are aware of that discloses the amount of recruitment fees it has reimbursed to workers: $25.6 million since 2008, including $4.7 million in 2015.
The company has not solved all of the problems it has found in its supply chain. We don’t demand perfection – not because we don’t want to see it, but because we don’t expect to find it. We do expect companies to acknowledge these challenges and demonstrate how they are meeting them.
Apple has come a long way since 2004 and, although we would never claim that our efforts were responsible for all of this hard work, we believe we have had an impact.
We applaud the EICC’s efforts to address unethical recruitment issues, but still believe the industry should be doing more. On behalf of a group of institutional investors affiliated with ICCR, we wrote to IBM and Motorola Solutions with a series of questions about how they ensure that workers in their supply chains are free of these abuses. We also signed letters to Broadcom, Canon, Cisco, EMC, Hitachi, Johnson Controls, Medtronic, Microsoft, Qualcomm, Texas Instruments and Xerox.
We followed our letter to Motorola with a shareholder proposal on the topic, which prompted a constructive conversation with the company. Motorola Solutions has policies in place to address these issues, and as an EICC member, has adopted a “no fees” commitment. The company tells us that it is actively working through the EICC to develop more effective responses to these unethical recruitment practices. We recognize these efforts, but believe that investors have insufficient information to gauge how well the company is addressing these serious risks to workers. Our proposal seeks to rectify that by requesting an annual report disclosing the company’s efforts to ensure that its global supply chain is free of forced or bonded labor, including any efforts to reimburse workers for recruitment fees that were paid in violation of company policies. We look forward to continuing our dialogue with the company.
Out of twenty apparel companies, Know the Chain found only seven that were aware of the risks of exploitation to migrant workers. They found only two companies that encouraged the direct hiring of workers in their supply chain.
Adidas (Germany) received the top ranking in Know the Chain’s 2016 survey, and the top score for worker recruitment practices. Know the Chain praised Adidas’ “strong awareness” of the risks facing migrant workers and listed a number of leading practices. Of particular importance, if an agency is involved in the recruitment process, Adidas requires that workers sign contracts directly with the factory, not with the recruitment firm. The company requires suppliers to disclose the recruitment firms it uses, and to monitor all recruiters. The Adidas Group publishes a list of names and addresses for its primary factories, subcontractors and licensees, a practice adopted by many leading companies in the apparel and electronics sectors.
We recently met with Gap to discuss its approach to these issues, including the possibility of adopting a direct employment policy, and wrote to Ralph Lauren, Michael Kors (where we ultimately submitted a shareholder proposal), Nike, L Brands (Victoria’s Secret, Bath & Body Works) and Coach.
Ralph Lauren reports that it is working towards a “recruitment fee–free” environment for all workers. The company reported to Know the Chain that an audit had uncovered that a group of new Bangladeshi workers had recently started work in one of its supplier facilities in Jordan, and had paid recruitment fees. The factory is now fully reimbursing the 33 workers affected over a period of 3 months.
These kinds of reports should help to illustrate a basic point – these problems are out there to be found and addressed. No company’s supply chain is immune. Our letter prompted a constructive conversation with the company, which we look forward to continuing. We appreciate the company’s recognition of the plight of migrant workers and are encouraging clearer commitments and more transparent reporting.
Another long-term Domini holding that has taken leadership on these issues is Unilever (Netherlands, United Kingdom). The company ranks first on Know the Chain’s benchmark for the food and beverage sector, because of its commitment to traceability. The company’s commitment to eradicating modern slavery and human trafficking is impressive given that it reportedly has 76,000 suppliers. Unilever is working to reduce the number of recruiters used by factories. It reports that it uses very limited numbers of recruiters in North America, Europe and South America, but larger numbers in Asia and Africa.
Consider how you might handle the daily struggles these migrant workers take on, day after day. They are working far from home for people that speak another language. They may not be in the job they thought they bargained for. Those in the fishing industry may never have seen the sea before. Many find that their paycheck is considerably less than expected, but they have no option but to keep working -- they have family back home depending on them.
We invest in companies that can make a significant difference in the lives of migrant workers. That means that we can make a significant difference, as long as we refuse to turn a blind eye, and we persist in raising these concerns and pressing each company that recognizes the issue to do more.