Executive Briefings

Environmentalists, Human-Rights Activists Take Aim at Global Supply Chains

Critics of globalization argue that it gives rise to an army of multinationals that are answerable to no one, and care about nothing but the bottom line. But that picture doesn't accurately reflect what's going on in many corporate boardrooms today.

A growing number of shareholders are pressuring companies to take action on a slew of social and environmental issues. And management is starting to listen.

Ernst & Young tracks shareholder proposals on a variety of issues from year to year. In the 2011 proxy season, which generally runs from March through June, social and environmental resolutions accounted for 40 percent of all proposals, an increase of 30 percent over 2010, Ernst & Young says. What's more, the average level of voting support for those motions has increased steadily since 2005, from 10 percent to 21 percent.

Even 21 percent might seem like a small number - 30 percent is considered the critical threshold at which boards start paying attention to shareholder proposals, according to Ernst and Young. Yet nearly a third of corporate responsibility resolutions reached that level in 2011, compared with only 2.6 percent in 2005. And many resolutions were withdrawn because businesses took action before they could come up for a vote. "The withdrawals therefore represent a significant level of success that is not captured in the voting data," Ernst & Young notes.

For the most part, proponents of the resolutions aren't individual gadflies who have bought a few shares of stock in order to grandstand at the annual meeting. They're established groups with a social mission - organizations like the Interfaith Center on Corporate Responsibility and Ceres, a coalition of investors, environmental advocates and public interest groups. Labor and public pension funds are also getting into the act, according to Allie Rutherford, an associate director who leads Ernst & Young's Corporate Governance Group.

The emphasis this year was on green issues. A third of the resolutions that were related to social and environmental issues called on companies to disclose their sustainability efforts and impact on climate change. One big emerging concern on the environmental front is hydraulic fracturing, the extraction of oil and natural gas from deep shale by pumping high volumes of water and sand into the rock. The practice has been called everything from the answer to our energy problems to an outright assault on the environment. It has only come to the fore in the last couple of years, but has already garnered more than 40 percent of votes cast, Rutherford says.

Regardless of the issue at hand, all of the proposals were in some way related to the makeup of companies' supply chains. A common theme among activists today is a lack of transparency - that companies are not revealing "where their supply chains go, and where the goods they ultimately sell come from," says Amanda Kloer, senior organization with Change.org.

Kloer's group specializes in generating online petitions for social change. It's pressuring companies on a number of fronts related to human rights - again, a major issue for multinationals with complex supply chains. And despite the somewhat rosy picture painted by Ernst & Young, relations between corporations and their shareholders aren't always harmonious. Here are just a few of the battles currently being waged:

- The Hershey Company is under fire by activists who are pushing the concept of fair-trade chocolate as a weapon against the use of forced, abusive and child labor in Africa.

- The J.M. Smucker Company hasn't done enough to disclose climate-related risks associated with its Folgers Coffee and other brands, according to a pair of investor groups, Trilliam Asset Management, LLC and Calvert Investment Management, Inc.

- Target Corp., Hanesbrands Inc., Macy's Inc. and other major brands in retail apparel are accused by Change.org and the Institute for Global Labour and Human Rights of turning their backs on alleged sexual assault and abuse at the Classic Factory in Jordan.

The list goes on. Other issues being pressed by human-rights activists include promoting fair trade-certified flowers, seeking a ban on the trading of "dirty gold," and fighting the use of child labor for picking cotton in Uzbekistan and Kazakhstan.

That's a lot of injustices for multinationals to take on at one time. Rutherford says the question of human rights has yet to emerge as a "headline issue" in the eyes of most corporate boards, with environmental concerns taking precedent. Still, global businesses have been stung in the past by the unfair labor practices of their supply-chain partners. Just ask Michael Jordan and Kathie Lee Gifford.

For any company concerned about its image - and, not incidentally, the welfare of workers all over the world - it pays to be proactive when it comes to human rights. As Kloer puts it: "Most companies don't just want to be perceived as ethical. They actually want to be ethical." The best way to make that happen is to be intensely aware of what's going on at every stage of your supply chain. Even before shareholders stand up and start making noise.

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Critics of globalization argue that it gives rise to an army of multinationals that are answerable to no one, and care about nothing but the bottom line. But that picture doesn't accurately reflect what's going on in many corporate boardrooms today.

A growing number of shareholders are pressuring companies to take action on a slew of social and environmental issues. And management is starting to listen.

Ernst & Young tracks shareholder proposals on a variety of issues from year to year. In the 2011 proxy season, which generally runs from March through June, social and environmental resolutions accounted for 40 percent of all proposals, an increase of 30 percent over 2010, Ernst & Young says. What's more, the average level of voting support for those motions has increased steadily since 2005, from 10 percent to 21 percent.

Even 21 percent might seem like a small number - 30 percent is considered the critical threshold at which boards start paying attention to shareholder proposals, according to Ernst and Young. Yet nearly a third of corporate responsibility resolutions reached that level in 2011, compared with only 2.6 percent in 2005. And many resolutions were withdrawn because businesses took action before they could come up for a vote. "The withdrawals therefore represent a significant level of success that is not captured in the voting data," Ernst & Young notes.

For the most part, proponents of the resolutions aren't individual gadflies who have bought a few shares of stock in order to grandstand at the annual meeting. They're established groups with a social mission - organizations like the Interfaith Center on Corporate Responsibility and Ceres, a coalition of investors, environmental advocates and public interest groups. Labor and public pension funds are also getting into the act, according to Allie Rutherford, an associate director who leads Ernst & Young's Corporate Governance Group.

The emphasis this year was on green issues. A third of the resolutions that were related to social and environmental issues called on companies to disclose their sustainability efforts and impact on climate change. One big emerging concern on the environmental front is hydraulic fracturing, the extraction of oil and natural gas from deep shale by pumping high volumes of water and sand into the rock. The practice has been called everything from the answer to our energy problems to an outright assault on the environment. It has only come to the fore in the last couple of years, but has already garnered more than 40 percent of votes cast, Rutherford says.

Regardless of the issue at hand, all of the proposals were in some way related to the makeup of companies' supply chains. A common theme among activists today is a lack of transparency - that companies are not revealing "where their supply chains go, and where the goods they ultimately sell come from," says Amanda Kloer, senior organization with Change.org.

Kloer's group specializes in generating online petitions for social change. It's pressuring companies on a number of fronts related to human rights - again, a major issue for multinationals with complex supply chains. And despite the somewhat rosy picture painted by Ernst & Young, relations between corporations and their shareholders aren't always harmonious. Here are just a few of the battles currently being waged:

- The Hershey Company is under fire by activists who are pushing the concept of fair-trade chocolate as a weapon against the use of forced, abusive and child labor in Africa.

- The J.M. Smucker Company hasn't done enough to disclose climate-related risks associated with its Folgers Coffee and other brands, according to a pair of investor groups, Trilliam Asset Management, LLC and Calvert Investment Management, Inc.

- Target Corp., Hanesbrands Inc., Macy's Inc. and other major brands in retail apparel are accused by Change.org and the Institute for Global Labour and Human Rights of turning their backs on alleged sexual assault and abuse at the Classic Factory in Jordan.

The list goes on. Other issues being pressed by human-rights activists include promoting fair trade-certified flowers, seeking a ban on the trading of "dirty gold," and fighting the use of child labor for picking cotton in Uzbekistan and Kazakhstan.

That's a lot of injustices for multinationals to take on at one time. Rutherford says the question of human rights has yet to emerge as a "headline issue" in the eyes of most corporate boards, with environmental concerns taking precedent. Still, global businesses have been stung in the past by the unfair labor practices of their supply-chain partners. Just ask Michael Jordan and Kathie Lee Gifford.

For any company concerned about its image - and, not incidentally, the welfare of workers all over the world - it pays to be proactive when it comes to human rights. As Kloer puts it: "Most companies don't just want to be perceived as ethical. They actually want to be ethical." The best way to make that happen is to be intensely aware of what's going on at every stage of your supply chain. Even before shareholders stand up and start making noise.

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