The Walt Disney Corporation offers what is perhaps the best example of irresponsible response to the disaster in Bangladesh. Initially acting as a reasonable contracting firm, Disney halted its garment production in the country, responding to troubling reports of bad working conditions among firms with which they contracted. Following the factory collapse, just days later, Disney made the decision to pull out of the country entirely "until local conditions improve."1 Just one percent of Disney's manufacturing takes place in Bangladesh, so changing locations won't be too costly for them. But for the Bangladeshi employees who will go from unsafe employment to no employment, rather than to safe employment, this will be an extremely exploitative move. And how is the public expected to react? Perhaps some will take the naive view that by abandoning the culture of local corruption and neglect they are taking a stand in support of reform. What such individuals fail to understand is that such behavior only demonstrates lack of responsibility. Rather than rejecting bad labor practices, they are abandoning the very people whose abuse drove them to halt production--essentially punishing them for the crimes of their overseers and local officials. Furthermore, Bangladesh is not the only site of bad working conditions, and it is unlikely they will set up facilities in countries with much improved conditions.
Essentially, they are exploiting bad practices in other countries for the sake of the company's public relations, rather than paying due diligence to those they have now famously victimized. This is despicable.
While it is hard--even unsettling--to embrace companies like H&M who are, perhaps, the retailer most culpable for this tragedy, it, and other retailers who pledged to improve conditions are those most worthy of praise. Abandoning workers will not assist those victimized in the industry. Improvements, however, demonstrate respect for workers. Of course, whether or not these companies will live up to their commitments is yet to be seen. But public support for the stated reforms, rather than persistent condemnation, is a promising way forward.
As such, Disney's behavior explicitly demonstrates a problematic approach to reform. Public support--or at least tolerance--for those companies who continue to employ Bangladeshi workers, but with demonstrated commitment to reforms, is important both for the industry, and for those victimized by its past behavior. Nevertheless, consumers should be wary of promises, and continue to be vigilant as reforms unfold--or don't--and speak up when companies' commitments are abandoned.
1 The key point here is that Disney has a responsibility--as an employer--to be part of the solution, rather than outsource the responsibility for "cleaning up" to others in the industry. If every retailer took this position, there would be no improvement. This behavior epitomizes the wrong approach to correcting the wrongs already done to the society, as will be further explained throughout this posting.
Friday, May 31, 2013
Tuesday, May 28, 2013
Rejecting Silence 1: The University
**Preface: This is the first of what will be a series of posts inspired by the shameful catastrophe in Bangladesh. In it I'll draw attention to various undiscussed players (as in the last), share ideas for effective action, and comment on actions taken and not taken by major players. If anyone has any specific content requests, please feel free.**
Before I respond to a reader's facebook request for my recommendations regarding the responsibilities of larger shareholders, I am happy to inform those who don't know of two positive developments. First is that a coalition of investors and faith-based organizations, through the Interfaith Center for Corporate Responsibility, have published a letter demanding improved working conditions for laborers in Bangladesh. Second, Amalgamated Bank LongView Funds drafted a similar letter signed by investors1 from numerous organizations and firms. The language of these letters rebukes American corporations' (including The Gap Ltd. and Walmart), arguments that investors interests are best served by non-binding agreements for improved working conditions. Investors represented by these letters account for $1.1 trillion and $1.35 trillion in assets and assets under management, respectively. The interests--fiduciary and moral--of investors, whether signatories or not, are vulnerable to the effects to the consequences posed by signatories. Compliance with these influential investors ultimately serves the best interests of all those involved.
Of course, the list below (fn1) in no way represents all of any particular kind of industry. So, for a moment, let's discuss a major category of players completely absent from the list: universities. Unfortunately, universities often keep the specifics2 of their corporate investments under lock and key. However, there are are other ways to influence these institutions to be responsible with their financial dealings.
Educational institutions answer to numerous players, and are therefore more vulnerable to pressure from various groups. For one, universities are accountable to students. Public universities are accountable to tax payers. All universities are accountable to alumni. They're also answerable to sports fans! This puts power in a wide variety of individuals hands and still, somehow, the expansive cross-section of the public takes only sporadic interest in universities' contributions--positive or negative--to the human rights discourse and experience.
Luckily, given the secrecy surrounding university finances, institutes of higher education are influential as more than just investors. They also have important contracts with manufacturers and retailers in a host of different industries. Therefore, pressure can be placed on universities--or collegiate athletic conferences as a whole--to make signing rights agreements a condition of contracts or contract renewal. In 2012 the Collegiate Licensing Company estimated that the market value of college-licensed goods was $4.3 billion. That's up from $3.9 billion in 2010. It is plausible, if not certain, that universities contracting with apparel manufacturers have some means of influencing behavior. Could a corporation possibly argue that signing a labor rights agreement served its shareholders' interests less than losing collegiate brand contracts? I certainly don't think so--especially if the university was joined by corporate shareholders in their plea for industry reforms.
In sum, universities are in a somewhat unique position to motivate change: They often hold sway as investors. It is likely that all have some pull as a brand. But more importantly for those of us feeling powerless, universities are vulnerable to the calls of many populations. That is both accountable to and influential among a diverse array of interests. It's time to make OUR voices heard.
Let's give everyone something to cheer about.
Coming up next...What not to do: Corporations Behaving Badly
1Including representatives from: Corporate Governance Amalgamated Bank LongView Funds, Office of Investment American Federation of Labor-Congress of Industrial Organizations, California State Teachers' Retirement System, Connecticut Retirement Plans and Trust Funds, F&C Asset Management plc, North American Engagement Hermes Equity Ownership Services Limited, Illinois State Board of Investment Cllr, LAPFF Local Authority Pension Fund Forum, Responsible Investment & Governance MN, The Nathan Cummings Foundation, The New York City Pension Funds, New York State Common Retirement Fund, Responsible Investment PGGM Investments, International Brotherhood of Teamsters, Teamsters Affiliates Pension Plan, and UAW Retiree Medical Benefits Trust
2 Many university boards have created special associations governed by the university to manage and choose their investments. These are often called "Offices of Investment Management" or "OIMs". The Google search term "university office of investment management" returns several. Of course, you can also be more specific in your choice of terms.
~*~
Before I respond to a reader's facebook request for my recommendations regarding the responsibilities of larger shareholders, I am happy to inform those who don't know of two positive developments. First is that a coalition of investors and faith-based organizations, through the Interfaith Center for Corporate Responsibility, have published a letter demanding improved working conditions for laborers in Bangladesh. Second, Amalgamated Bank LongView Funds drafted a similar letter signed by investors1 from numerous organizations and firms. The language of these letters rebukes American corporations' (including The Gap Ltd. and Walmart), arguments that investors interests are best served by non-binding agreements for improved working conditions. Investors represented by these letters account for $1.1 trillion and $1.35 trillion in assets and assets under management, respectively. The interests--fiduciary and moral--of investors, whether signatories or not, are vulnerable to the effects to the consequences posed by signatories. Compliance with these influential investors ultimately serves the best interests of all those involved.
Of course, the list below (fn1) in no way represents all of any particular kind of industry. So, for a moment, let's discuss a major category of players completely absent from the list: universities. Unfortunately, universities often keep the specifics2 of their corporate investments under lock and key. However, there are are other ways to influence these institutions to be responsible with their financial dealings.
Educational institutions answer to numerous players, and are therefore more vulnerable to pressure from various groups. For one, universities are accountable to students. Public universities are accountable to tax payers. All universities are accountable to alumni. They're also answerable to sports fans! This puts power in a wide variety of individuals hands and still, somehow, the expansive cross-section of the public takes only sporadic interest in universities' contributions--positive or negative--to the human rights discourse and experience.
Luckily, given the secrecy surrounding university finances, institutes of higher education are influential as more than just investors. They also have important contracts with manufacturers and retailers in a host of different industries. Therefore, pressure can be placed on universities--or collegiate athletic conferences as a whole--to make signing rights agreements a condition of contracts or contract renewal. In 2012 the Collegiate Licensing Company estimated that the market value of college-licensed goods was $4.3 billion. That's up from $3.9 billion in 2010. It is plausible, if not certain, that universities contracting with apparel manufacturers have some means of influencing behavior. Could a corporation possibly argue that signing a labor rights agreement served its shareholders' interests less than losing collegiate brand contracts? I certainly don't think so--especially if the university was joined by corporate shareholders in their plea for industry reforms.
In sum, universities are in a somewhat unique position to motivate change: They often hold sway as investors. It is likely that all have some pull as a brand. But more importantly for those of us feeling powerless, universities are vulnerable to the calls of many populations. That is both accountable to and influential among a diverse array of interests. It's time to make OUR voices heard.
Let's give everyone something to cheer about.
Coming up next...What not to do: Corporations Behaving Badly
1Including representatives from: Corporate Governance Amalgamated Bank LongView Funds, Office of Investment American Federation of Labor-Congress of Industrial Organizations, California State Teachers' Retirement System, Connecticut Retirement Plans and Trust Funds, F&C Asset Management plc, North American Engagement Hermes Equity Ownership Services Limited, Illinois State Board of Investment Cllr, LAPFF Local Authority Pension Fund Forum, Responsible Investment & Governance MN, The Nathan Cummings Foundation, The New York City Pension Funds, New York State Common Retirement Fund, Responsible Investment PGGM Investments, International Brotherhood of Teamsters, Teamsters Affiliates Pension Plan, and UAW Retiree Medical Benefits Trust
2 Many university boards have created special associations governed by the university to manage and choose their investments. These are often called "Offices of Investment Management" or "OIMs". The Google search term "university office of investment management" returns several. Of course, you can also be more specific in your choice of terms.
Wednesday, May 15, 2013
Perpetrating Silence
Since the disaster in Bangladesh that claimed 1,127 lives, analysts have tossed blame around various parties, including (in no particular order) the owner of the Rana Plaza factory building, local government, the multiple subcontracted firms that operated within the building, and Western retailers. Others contend that it is the stinginess of consumers1 that drives the neglect found in factories like the one in Rana Plaza, which have been caught in a spree2 of fatal disasters throughout the country. In fact, just six days ago a fire in a Dhaka sweater factory killed the owner and seven workers.
My intention here is not to deny that any or all of these parties maintain some degree of responsibility. Rather, it is to bring attention to a largely undiscussed perpetrator of irresponsibility in this catastrophe: corporate shareholders. Right or wrong, corporations maintain that they are driven to subcontracting--even with unreliable companies--in order to meet their fiduciary responsibility to shareholders. Shareholders hold a considerable amount of power, whether they know it or not, as they are invited to participate in annual meetings where many corporate policy decisions are made. Additionally, they hold the right to draft resolutions for consideration.
Given that resolutions may be of fiduciary consequence for other shareholders (for example, divestment as a product of failed or passed policy), they should be treated with the same concern for fiduciary responsibility as those policy decisions that come from executives. Indeed, although many European garment retailers have agreed to a binding accord mandating that they improve and contribute financial resources to the improvement of workplace safety, American retailers (The Gap and Walmart, though The Gap is spearheading the resistance) have refused, hiding behind their conflicting conception of fiduciary responsibility. As if public shaming does not threaten their ability to profit. And shareholders, though they possess the potential to form a critical mass in decision-making, are often ignorant of, or indifferent to their opportunities and responsibilities to motivate changes. Frequently shareholders assume that their only role as an investor is as a collector of returns on purchases of shares. But investors can--and should--also see themselves as members of a community whose decisions reflect not only their individual interests, but their integrity as well.
Unfortunately, accountability is much harder to achieve. The well-crafted art of "plausible deniability" makes prosecution of responsible parties challenging--perhaps, given the politics of business, impossible. But this is no reason to throw in the towel on labor rights. These disasters themselves are not inevitable, even under the present circumstances. Correcting the problems just requires different actors to assume stewardship roles. For shareholders, this is not a role that is earned, but one acquired in tandem with the purchase or acquisition shares.
It's time for shareholders to realize that as partial owners of these corporations, they too have a responsibility to ensure that their companies meet--if not surpass--the basic rights of the laborers they employ, no matter what country.
1 Interestingly, NPR's Marketplace offers the view that "Ultimately, the pressure driving the cut throat competition for cheaper clothing comes from one place," citing Stanford University professor of Economics Nicholas Bloom: “American consumers want to buy clothes for low cost...Companies -- even big ones like Walmart or Target “are just rats in a maze. We are the maze." For a critical look at this proposition...stay tuned.
2 According to an article published by Human Rights Watch, "The Rana building collapse is the latest in a long list of factory building tragedies in Bangladesh, Human Rights Watch said. In April 2005, 73 garment workers died in a factory collapse in Savar. In February 2006, 18 workers were killed in a garment factory collapse in Dhaka. In June 2010, 25 people were killed in a building collapse in Dhaka. In November 2012, more than 100 workers died in a fire at a factory in Dhaka."
My intention here is not to deny that any or all of these parties maintain some degree of responsibility. Rather, it is to bring attention to a largely undiscussed perpetrator of irresponsibility in this catastrophe: corporate shareholders. Right or wrong, corporations maintain that they are driven to subcontracting--even with unreliable companies--in order to meet their fiduciary responsibility to shareholders. Shareholders hold a considerable amount of power, whether they know it or not, as they are invited to participate in annual meetings where many corporate policy decisions are made. Additionally, they hold the right to draft resolutions for consideration.
Given that resolutions may be of fiduciary consequence for other shareholders (for example, divestment as a product of failed or passed policy), they should be treated with the same concern for fiduciary responsibility as those policy decisions that come from executives. Indeed, although many European garment retailers have agreed to a binding accord mandating that they improve and contribute financial resources to the improvement of workplace safety, American retailers (The Gap and Walmart, though The Gap is spearheading the resistance) have refused, hiding behind their conflicting conception of fiduciary responsibility. As if public shaming does not threaten their ability to profit. And shareholders, though they possess the potential to form a critical mass in decision-making, are often ignorant of, or indifferent to their opportunities and responsibilities to motivate changes. Frequently shareholders assume that their only role as an investor is as a collector of returns on purchases of shares. But investors can--and should--also see themselves as members of a community whose decisions reflect not only their individual interests, but their integrity as well.
Unfortunately, accountability is much harder to achieve. The well-crafted art of "plausible deniability" makes prosecution of responsible parties challenging--perhaps, given the politics of business, impossible. But this is no reason to throw in the towel on labor rights. These disasters themselves are not inevitable, even under the present circumstances. Correcting the problems just requires different actors to assume stewardship roles. For shareholders, this is not a role that is earned, but one acquired in tandem with the purchase or acquisition shares.
It's time for shareholders to realize that as partial owners of these corporations, they too have a responsibility to ensure that their companies meet--if not surpass--the basic rights of the laborers they employ, no matter what country.
1 Interestingly, NPR's Marketplace offers the view that "Ultimately, the pressure driving the cut throat competition for cheaper clothing comes from one place," citing Stanford University professor of Economics Nicholas Bloom: “American consumers want to buy clothes for low cost...Companies -- even big ones like Walmart or Target “are just rats in a maze. We are the maze." For a critical look at this proposition...stay tuned.
2 According to an article published by Human Rights Watch, "The Rana building collapse is the latest in a long list of factory building tragedies in Bangladesh, Human Rights Watch said. In April 2005, 73 garment workers died in a factory collapse in Savar. In February 2006, 18 workers were killed in a garment factory collapse in Dhaka. In June 2010, 25 people were killed in a building collapse in Dhaka. In November 2012, more than 100 workers died in a fire at a factory in Dhaka."
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