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
Several years ago, at a Goldman Sachs annual meeting, time was set aside for shareholders to ask questions of the CEO. A man approached the microphone and announced that he was a guest, not a shareholder, and wondered if he could ask a question. “No,” he was politely informed, “only shareholders can ask questions.”
It was a telling moment that spoke a significant truth about the corporate system – only shareholders count. For many, a responsible company is defined as a company that takes care of its shareholders. A nod will be given to other “stakeholders,” such as employees and community members affected by corporate activity, but only to the extent that these good relationships help create wealth for shareholders. Shareholders? That’s us. Most of us don’t know much about picking stocks, so we trust a financial advisor or a mutual fund manager to do this for us. Nearly 100 million Americans invest in mutual funds.
When you invest in a mutual fund, your money becomes part of a common pool of assets that the fund manager uses to invest in stocks or bonds or other financial instruments. It’s their job to look out for your best interests. A mutual fund is a profit-seeking vehicle, but it can also become a vehicle for the common good. Your small investment can be leveraged to help produce significant change.
Shareholders have not done a particularly good job monitoring the behavior of the companies they own. In fact, they are often a significant part of the problem. Corporations are some of the largest economic entities in the world, and they are managed with the steady drumbeat of "make me money" in the background. It should come as no surprise when companies cut corners on safety, oppose environmental regulations and outsource production where wages and worker protections are weakest. They do this to satisfy their shareholders. A year before the explosion in the Gulf of Mexico, Tony Hayward, BP’s former CEO, quipped that he pays his shareholders an annual dividend “to keep his job.”
Moral and financial concerns are not independent but interdependent. Corporate success depends on a delicate web of relationships with employees, customers, communities, governments, suppliers, investors, and ecosystems. Companies that treat these stakeholders with dignity and respect can prosper in the long run by avoiding problems and winning the loyalty of their employees and consumers. They can also create tremendous value for society. When oil companies like BP pay insufficient attention to worker health and safety, however, shareholders also suffer. And CEOs, like Mr. Hayward, lose their jobs.
So what does it mean to be a shareholder? A shareholder is a person of influence. Together, we have an opportunity to seek profits and wield that influence for the common good.
Read why Domini chose not to invest in BP, years before the Gulf of Mexico disaster. .
The complexity of our food production systems is astounding, as are its staggering impacts on climate change and human rights. Any given meal or afternoon snack can touch on issues as far-ranging as the survival of the orangutan or a land rights dispute in Africa. Climate change, water scarcity, nutritional content, marketing to children, animal welfare and labor rights are all on the table.
Behind each familiar brand lies a complex set of relationships stretching across the globe. We view these relationships as opportunities for positive impact. As investors, we can create the incentives for companies to simultaneously be more transparent and to dig deeper to ensure their businesses are operating responsibly. Through your investment in the Domini Funds, your money is working to help catalyze this process of transformation.
For example, deforestation is an important driver of climate change, accounting for an estimated 10 percent of greenhouse gas emissions. The Consumer Goods Forum, an industry association, has acknowledged that “the consumer goods industry, through its growing use of soya, palm oil, beef, paper and board, creates many of the economic incentives which drive deforestation.” All 400 members of the Forum, representing all the world’s major consumer goods manufacturers, retailers and service providers, have committed to zero net deforestation by 2020.
Who will hold these companies accountable for these commitments? What do they mean in practice?
The shareholder proposal is an effective tool for encouraging corporate management to come to the table to discuss our concerns. We developed a proposal that we have submitted to several of the largest food companies, asking for public reports assessing each company’s impact on deforestation and its plans to mitigate these risks. We’ve asked these companies to report on their impact by commodity, as each carries its own set of risks and possible solutions. Among these commodities, palm oil has received the most attention because its production is responsible for large-scale forest conversion in the tropics and extensive carbon emissions.
At Domini Social Investments, the research we conduct to understand the dynamics of our food systems is core to the investment process. Whether it is expressed in the avoidance of many manufacturers of agricultural chemicals, in the search for systems that provide safer food for all, or in the proxy votes we cast or the hard questions we ask of corporate managers, we view our social and environmental standards as key to the process of helping both the public and corporations understand what is at stake.
Download our new Annual Report (PDF) to learn more about the ways the Domini Funds are helping to promote better food production around the globe, including our approach to local and organic sourcing, genetically modified organisms, pesticide use and deforestation.
One of the most important areas of corporate social responsibility has gone largely ignored, until now. The headlines are filled with stories of aggressive strategies by corporations to minimize or eliminate their tax payments, primarily through the use of offshore tax havens. Countries around the world are losing billions in tax revenues, all in the name of shareholder value.
Tax avoidance weakens societies and threatens long-term wealth creation. That is why Domini is taking a lead role in asking corporations to adopt more responsible and transparent tax strategies.
Tax is an investment in society. What is our return on investment? Corporations and investors depend upon government services funded by tax revenues, including law enforcement, market regulation, judicial systems, infrastructure maintenance, public education, poverty alleviation, environmental protection and national defense. These indispensable services can only be funded by tax revenues.
Economist Joseph Stiglitz warns that corporate tax avoidance threatens the wellspring of “future innovation and growth.” Companies like Google and Apple have benefited from taxpayer-funded scientific research.
Investors need to speak up, and end this global race to the bottom. At Domini, we are asking companies to adopt ethical principles to guide their tax strategies, considering their impact on society and brand value, just as they have with bribery, child labor and climate change.
Quick Facts on Corporate Tax Avoidance
Corporate profits are booked in places like Bermuda to avoid paying taxes where those profits were actually earned. How do we know? In 2010, the amount that American companies told the IRS they actually earned in Bermuda was 1,643% of that country’s entire yearly economic output.*
At least 362 companies (72% of the Fortune 500), operate subsidiaries in tax haven jurisdictions as of 2013.*
When corporations don’t pay their taxes, somebody else needs to pick up the tab. In 1952, 32% of U.S. federal tax revenues came from corporate income tax. By 2012, this portion had shrunk to only 8.9%. (Source: Congressional Research Service)
*Source: Offshore Shell Games 2014 (U.S. PIRG Education Fund and Citizens for Tax Justice)
Investors may only just be waking up to this critical issue. Our first of its kind proposal, asking Google to adopt a set of ethical principles to guide its tax strategies, went to a vote at the company’s annual meeting in May. Although we received a very low vote, nearly 20% of investors abstained, telling us that many investors are undecided. In the meantime, our proposal helped to raise awareness, and led to our first conversation with Google about its tax strategies, a dialogue that we hope will continue.
Chipotle Mexican Grill recently made headlines with a divisive online animated short depicting a lone scarecrow in a dystopian fantasy world trying to provide an alternative to unsustainable factory-processed food. This video is part of a bold marketing strategy that is contributing to an important conversation about our food system, as Chipotle attempts to make a name for itself as a more environmentally friendly fast-food restaurant “dedicated to creating a sustainable, healthful and equitable food future.”
Domini applauds Chipotle for these efforts and for its high-profile challenges to industrial factory-farming techniques. However, we do not take the company’s claims at face value— we would like to see substantiating data. That is why we chose to join another investor in submitting a shareholder proposal seeking a sustainability report. During the quarter, we spoke with Chipotle executives about the proposal and about the company’s sustainability efforts. The company is committed to improving its level of transparency but was unwilling to produce the report we have requested. Our proposal will go to a vote at the company’s annual meeting on May 15, and our dialogue will continue.
In November, Domini wrote a letter to Jeff Bezos, Founder and CEO of Amazon.com, raising concerns about the company’s participation in the militarization of the civilian firearms market, after we discovered semi-automatic weapon accessories being sold on Amazon that could help gun owners increase the firepower of their weapons. We highlighted, for example, a trigger kit that allows the shooter to “shoot as quickly as desired” and devices designed to increase accuracy and reduce shooter fatigue. Our letter, which received coverage from Reuters, was signed by 33 institutional investors managing $490 billion, including New York State and the Church of Sweden.
In a recent conversation with Amazon executives we learned that our letter was taken quite seriously. Most of the products we identified have been removed from Amazon.com and added to the company’s list of prohibited items. The third-party sellers have been notified that they may no longer offer these items for sale on Amazon. We will continue to engage Amazon to ensure that they are doing everything they can to avoid becoming a marketplace for assault weapons.
For the past twenty years, shareholders of the Domini Funds have used their investments to enable conversations with executives at some of the largest and most influential corporations in the world on a wide range of social and environmental issues. Domini Funds investors can take credit for helping to convince JPMorgan Chase* to hire its first Director of Environmental Affairs and to adopt a comprehensive set of environmental policies. They can take credit for helping to convince Nucor, the largest steel producer in America, to adopt stringent human rights policies to address the risk of slavery and illegal deforestation in its Brazilian supply chain. After a five year campaign, they helped convince Emerson Electric to ban discrimination against its gay and lesbian employees, and after a three year dialogue, Toyota Motor* announced that a major trading partner had ended its joint venture with the Burmese military regime. Domini Funds shareholders have helped convince numerous companies to measure their environmental impacts and to adopt strong protections for vulnerable workers in factories around the world.
Since our first shareholder resolution was submitted in 1993, Domini has filed more than 240 proposals at 95 different corporations. The use of social, environmental and governance standards to select investments, combined with a shareholder activism program to help move companies further in the right direction, has proven to be a powerful vehicle for change.
Archimedes, the ancient Greek scientist, once remarked, “Give me a lever and a place to stand and I will move the earth.” For the past twenty years, Domini has provided “a place to stand” for its mutual fund shareholders, finding as many ways as possible to amplify their voice on some of the most pressing challenges of our time. Over the course of 2014 and beyond, we look forward to sharing more success stories about how Domini Funds investors have helped to create positive change.
For more about Domini’s shareholder activism successes over the past twenty years, read our full essay in the Domini Funds 2014 Semi-Annual Report.
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.
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.