LIU, PENSION FUNDS DEMAND TECH GIANTS HOLD SUPPLIERS RESPONSIBLE
LIU, PENSION FUNDS DEMAND TECH GIANTS HOLD SUPPLIERS RESPONSIBLE
Unprecedented shareholder proposal has already increased transparency of global suppliers to consumer products from iPhones to Xboxes
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Comptroller John C. Liu and the New York City Pension Funds called on Dell, Intel, and Motorola to follow the example set by other tech giants who have adopted their shareholder effort to increase their suppliers’ compliance with internationally-recognized standards of human and worker rights. Apple, Hewlett Packard, and Microsoft all recently adopted new policies after discussions with the Comptroller’s office and the Pension Funds.
Reports last year of a rash of suicides at Foxconn, the world’s largest electronics contract manufacturer and a major supplier to Apple and other companies, focused the Comptroller’s attention on technology companies in which the Pension Funds are invested. The technology firms that rely on Foxconn and other global suppliers have increasingly been made aware that responsible business practices are
vital to their future success. Although some companies have internal “codes of conduct” for their suppliers, it is clear that this is not sufficient and has not curbed abuses.
“Violations of human and workers’ rights, even if by their suppliers, pose operational and reputational risks that these companies cannot ignore,” Comptroller Liu said. “As long term investors we must be concerned about financial risk as well as alignment with basic values. We have a responsibility to ensure that the profits and products that result from free trade are not created by the exploitation of workers in sweat shops, child labor, indentured slavery or other violations of human rights.”
The Comptroller’s office has engaged in a dialogue with many of the companies starting late last year when it began submitting the proposal to them. The proposal was subsequently withdrawn from Apple, Hewlett Packard and Microsoft after they agreed to launch new programs under which key portions of their supply chain would begin publishing annual sustainability reports.
The proposal will be subject to a shareholder vote at the annual meetings of Dell, Intel, and Motorola this spring if those companies do not agree to adopt the request. The Comptroller’s office expects to file the proposal at additional companies in the coming months.
“Microsoft, Apple, and Hewlett Packard have taken concrete steps to uphold international standards of workplace safety and human rights in their supply chains,” Comptroller Liu said. “They have set an example
that we expect other companies will follow as we expand this effort.”
Background
Companies’ supply chains are the area of their operations that are most vulnerable to labor, human rights and environmental abuses, creating both reputational and operating risks. Current best practice is to conduct independent supplier audits, but audits alone have proven insufficient. Therefore, increasing daylight on tech
suppliers is not only a global moral imperative but the basis of sound
business.
The proposal calls on the companies to have their suppliers track workplace safety and human and worker rights based on international standards. The suppliers should then publish their findings in independently verifiable reports. The proposal asked that the companies use the internationally recognized Sustainability Reporting Guidelines of the Global Reporting Initiative (GRI).
Companies That Have Adopted Shareholder Proposal
Apple
As a result of extended discussions with the Comptroller’s office, Apple agreed to increase the transparency of its suppliers on December 19. This year Apple will require 90% of the companies it hires for final assembly of its products to publish annual sustainability reports based on the internationally recognized standards set out by the GRI. The reports will describe the suppliers’ ability to comply with international standards of human and workers’ rights. As a result of Apple’s changes, the shareholder proposal was withdrawn.
Hewlett Packard
On November 14, Hewlett Packard agreed to “encourage” its suppliers to demonstrate “continual improvement” by publishing annual sustainability reports based on GRI standards. HP stated that it would show preference to suppliers that “meet or exceed” its expectations. As a result the shareholder proposal was withdrawn.
Microsoft
Following discussions with the Comptroller’s office, Microsoft announced on October 13, 2011 that it would require its key hardware suppliers — including all suppliers for the Xbox — to prepare annual sustainability reports. In addition, starting in 2013, Microsoft will require a cross section of its suppliers to provide reports on their adherence to the requirements listed in the existing Microsoft Vendor Code of Conduct. The code of conduct sets standards for legal compliance, business ethics, labor and human rights standards, environmental protection, and respect for intellectual property. As a result, the Pension Funds withdrew the shareholder proposal.
The New York City Comptroller serves as the investment advisor to, custodian and trustee of the New York City Pension Funds. The New York City Pension Funds are composed of the New York City Employees’
Retirement System, Teachers’ Retirement System, New York City Police Pension Fund, New York City Fire Department Pension Fund and the Board of Education Retirement System. The New York City Pension Funds as of 2/6/2012 held a combined 46,272,577 shares at the six firms valued at $2,299,946,740.50, which includes 2,326,561 shares of Apple (NASDAQ: AAPL) valued at $1,079,454,507; 5,019,990 shares of Dell (NASDAQ: DELL) valued at $88,602,823.50; 5,034,585 shares of Hewlett Packard (NYSE: HPQ) valued at $144,794,664.60; 13,891,735 shares of Intel (NASDAQ: INTC) valued at $371,187,159.20; 19,277,496 shares of Microsoft (NYSE: MSFT) valued at $582,180,379.20; and 722,210 shares of Motorola Solutions (NYSE: MSI) valued at $33,727,207.00.
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TEXT IN FULL OF THE SHAREHOLDER PROPOSAL:
Encourage Supplier(s) to Publish an Annual Sustainability Report
WHEREAS, increasingly, multinational companies are realizing that their suppliers’ impacts and sustainability are inextricably intertwined with their own; and
WHEREAS, the UN Global Compact-Accenture CEO Study 2010, “A New Era of Sustainability”, found that 93% of surveyed CEOs believe that sustainability issues will be critical to the future success of their
business, and 88% believe that they should be integrating sustainability through their supply chain, where the most significant performance gap is seen; and
WHEREAS, a study by Aaron Bernstein and Christopher Greenwald, “Benchmarking Corporate Policies on Labor and Human Rights in Global Supply Chains,” (Pension and Capital Stewardship Project Labor and Work-Life Program Harvard Law School, Nov. 2009), found a significant gap between general policies against labor and human rights abuse and more detailed standards and enforcement mechanism required to carry them out; and
WHEREAS, in 2010, PUMA, the Sport lifestyle company, in cooperation with the Global Reporting Initiative’s (GRI’s) Global Action Network for Transparency in the Supply Chain, which provides GRI certified training on transparent measurement and reporting to supplier factories, expanded its strategic suppliers sustainability reporting project with commitments from 20 suppliers in South East Asia and
other major sourcing regions that they will issue their own sustainability reports from 2011 on; and
WHEREAS, given the merit of the old adage, “What Gets Measured Gets Done”, the long-term interests of multinational companies and their shareholders would be enhanced if companies were to urge their suppliers to establish performance goals on human and worker rights, and to measure and publicly report on performance using internationally recognized standards and measurement protocols;
THEREFORE, BE IT RESOLVED: the shareholders request that the Board of Directors, using a phased, tiered approach that the Company deems reasonable and practical, take the necessary steps to help move the
Company’s supplier(s) to begin publishing annual, independently verifiable, sustainability reports. Among other important disclosures, reports should include the suppliers’ objective assessments and measurements of performance on workplace safety, and human and worker rights, using internationally recognized standards,
indicators and measurement protocols. In addition, reports should include incidents of non-compliance, actions taken to remedy those incidents, and measures taken to contribute to long-term prevention and mitigation.
Statement in Support
A company’s best opportunity for early identification and mitigation of the risks posed by the human and labor rights violations of its suppliers is the development and rigorous implementation of a risk-management framework to enable its monitoring and verification of its suppliers’ performance against internationally recognized standards of human and labor rights, using measurable and verifiable indicators of performance. Annual sustainability reporting by its supplier(s) would strengthen the company’s ability to assess its suppliers’ performance, to hold its suppliers accountable, help to drive performance improvements, and enable investors to better understand and assess potential reputational and /or operational risks.
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In addition to Comptroller Liu, the New York City Pension Funds trustees are:
New York City Employees’ Retirement System: Ranji Nagaswami, Mayor’s Representative (Chair); New York City Public Advocate Bill de Blasio; Borough Presidents: Scott Stringer (Manhattan), Helen Marshall
(Queens), Marty Markowitz (Brooklyn), James Molinaro (Staten Island), and Ruben Diaz, Jr. (Bronx); Lillian Roberts, Executive Director, District Council 37, AFSCME; John Samuelsen, President Transport Workers Union Local 100; Gregory Floyd, President, International Brotherhood of Teamsters, Local 237.
Teachers’ Retirement System: Ranji Nagaswami, Mayor’s Representative; Deputy Chancellor Kathleen Grimm, New York City Department of Education; Mayoral appointee Lisete Nieves and Sandra March, Melvyn Aaronson (Chair) and Mona Romain, all of the United Federation of Teachers.
New York City Police Pension Fund: Mayor Michael Bloomberg; New York City Finance Commissioner David Frankel; New York City Police Commissioner Raymond Kelly (Chair); Patrick Lynch, Patrolmen’s
Benevolent Association; Michael Palladino, Detectives Endowment Association; Edward D. Mullins, Sergeants Benevolent Association; Thomas Sullivan, Lieutenants Benevolent Association; and, Roy T. Richter, Captain’s Endowment Association.
New York City Fire Department Pension Fund: Mayor Michael Bloomberg; New York City Fire Commissioner Salvatore Cassano (Chair); New York City Finance Commissioner David Frankel; Stephen Cassidy, President, James Slevin, Vice President, Robert Straub, Treasurer, and John Kelly, Brooklyn Representative and Chair, Uniformed Firefighters Association of Greater New York; John Dunne, Captains’ Rep.; James Lemonda, Chiefs’ Rep., and James J. McGowan, Lieutenants’ Rep., Uniformed Fire Officers Association; and, Sean O’Connor, Marine Engineers Association.
Board of Education Retirement System: Schools Chancellor Dennis Walcott; Mayoral: Eduardo Marti, Gitte Peng, Jeff Kay; Tino Hernandez, Judy Bergtraum, Freida Foster, Linda Laursell Bryant, and Lisette Nieves; Patrick Sullivan (Manhattan BP), Gbubemi Okotieuro (Brooklyn BP), Dmytro Fedkowskyj (Queens BP), Wilfredo Pagan (Bronx BP) and Diane Peruggia (Staten Island BP); and employee members Joseph D’Amico of the IUOE Local 891 and Milagros Rodriguez of District Council 37, Local 372.
