company report

You might think that a luxury apparel company could afford to make sure that the workers in its supply chain are treated with a bit more class. However, the French company PPR apparently thinks this is a luxury.

PPR is the world’s third-largest luxury group and among other luxury brands, the group has a 99% stake in Italian luxury goods company Gucci Group. The group’s other activities include Conforama chain of household furniture and appliance stores, auto sales in Africa through CFAO, and the German athletic shoemaker PUMA.

The Clean Clothes Campaign (CCC) states that “reports from trade unions and NGOs from Eastern Europe and all across Asia confirm PPR’s practice of producing goods in workplaces that violate local and international labor laws, leading to a downward spiral in living standards for workers.”

[click to continue...]

Popularity: 14% [?]

Nestle is a name we know and love. However, the company has a darker side with respect to its conduct as a corporate citizen. From a human rights perspective, we consider Nestle to be a high risk investment. [click to continue...]

Popularity: 26% [?]

In March 2008 Around 250 trade union representatives at France Telecom demonstrated outside the company’s headquarters yesterday. The workers were protesting against job cuts and the closure of sites. For a French based company, this is business as usual. Previously, in 2006 the company launched a restructuring plan that aims to achieve 22,000 voluntary redundancies over three years. Overall, FT has maintained a relatively cordial relationship with its workers and their representatives and has managed to demonstrate a modicum of corporate social responsibility. [click to continue...]

Popularity: 12% [?]

BAE Systems is Europe’s largest defense contractor and the largest foreign player in the U.S. defense market. Despite (or perhaps “because of”) its global presence, the company remains a troubling enterprise because of its business profile and its lack of transparency with respect to its global arms dealing in the third world. These factors make this company as risky investment from a human rights perspective.

Profile

BAE’s offerings include avionics, military aircraft, armored vehicles, air-defense systems, missiles, artillery locators, communications and navigation systems, radar, ships, space systems, and aerospace electronics. The company’s fighter aircraft include the Harrier, Hawk, Tornado, and the next-generation Eurofighter Typhoon. BAE operates in the U.S. through BAE Systems, Inc. In 2006 BEA divested its 20% stake in Airbus when it sold its shares back to EADS.

[click to continue...]

Popularity: 36% [?]

A major global company, Siemens faces challenges common to other companies of its size. In spite of recent labor protests, proposed strikes and union campaigns against Siemens AG, it appears workers have been able to negotiate with the company, and persuade it to address some major labor concerns. However, concerns about the Siemens’ global scale – particularly its operations in AFL-CIO watch list countries – and apparent lack of control over supply-chain labor issues suggests heightened risk for the company from a human rights perspective. Furthermore, the recent bribery scandal is indicative of Siemen’s lack of transparency as a company. [click to continue...]

Popularity: 21% [?]

Société Générale focuses on three activities: global investment management; retail banking and specialized financial services, including finance, leasing, and insurance; and corporate and investment banking, focusing on European capital markets, derivatives and structured finance. In the US, the company controls asset manager The TCW Group. Société Générale has nearly 2,900 branches in France and more than 1,700 locations worldwide. The Company, which has retail banking operations in more than 25 countries, is looking to boost its international franchise, both through organic growth and through acquisition. Key markets include Central and Eastern Europe, the Mediterranean, and Asia.

Recent Events

On January 24, 2008 the bank uncovered a fraud by one of its traders in what may be the world’s largest trading fraud to date. According to the AFP, Jerome Kerviel, a 31-year-old trader has been charged with breach of trust, fabricating documents and illegally accessing computers. Although he was initially allowed out on bail, a Paris appeals court upheld a plea from the state prosecutor that Kerviel be held in custody “to avoid any consultation with possible accomplices or conspirators.”  The French government has blamed Société Générale’s risk control mechanisms for failing to detect Kerviel’s activities. Prosecutors have said Kerviel sought huge profits to get a better bonus and to improve his own reputation in the hard-driving culture. Société Générale began raising funds to help cover the estimated $7.1 billion cost of the fraud. Additionally, chairman and co-CEO Daniel Bouton and co-CEO Philippe Citerne each gave up nearly six months’ salary to take responsibility for the company’s losses. The event has sparked talk that Société Générale will be taken over by another banking institution.

In February 2008 Agence France Presse reported that the embattled bank is facing other woes for alleged involvement in a vast money laundering scam between France and Israel. The trial is expected to last until July.   

According to the Financial TImes, Frédéric Oudéa, Société Générale’s chief executive, said France’s second-biggest bank would become stronger than before the rogue trading scandal that cost it €4.9bn ($7.6bn) of losses.

Presenting second-quarter results that were better than expected, Mr Oudéa said the results showed “the impact of the Kerviel case is largely behind us”.

SocGen was fined €4m last month by the Banking Commission after the French regulator identified “serious shortcomings” in internal controls that had paved the way for Mr Kerviel to accumulate €50bn of allegedly unauthorised bets on futures markets under the noses of his managers.

“We will be stronger after Kerviel,” said Mr Oudéa, adding that the bank’s franchise had not been affected.

French private customers opened 23,100 current accounts in the three months to the end of June, but this was almost half the 45,400 opened in the same quarter last year.

Global Risk Factors

The company operates in China, Kazakhstan, Vietnam and The United Arab Emirates. These countries are either lacking labor legislation that recognizes fundamental worker rights or they have labor legislation, but it is not enforced.

Labor Relations

Société Générale workers in France are represented by Syndicat national des banques (SNB), Confédération Française des Travailleurs Chrétiens (CFTC) and Confédération générale du travail-Force ouvrière (CGT-FO). No labor issues have been noted.

Risk Assessment

Due to what recent events that may represent the world’s largest trading fraud to date, its status as a responsible comnpany is of concern. On a positive note, the company has robust unionization and its recent adoption of the Equator Principles bolsters its corporate responsibility practices. How the events related to the trading fraud play out at the company will ultimately determine whether the company remains a responsible company from a social responsibility perspective.

Popularity: 14% [?]

Toyota Motor Corporation is a leading auto maker. However, as a corporate citizen, the company poor and, in our opinion, poses serious human rights risk to investors.

It is Japan’s #1 carmaker. The company makes a hybrid-powered (gas and electric) sedan — the Prius — that is popular in US and European markets. Its gas-powered cars, pickups, minivans, and SUVs include such models as Camry, Corolla, 4Runner, Land Cruiser, Sienna, the luxury Lexus line, the Scion brand, and a full-sized pickup truck, the V-8 Tundra. Toyota also makes forklifts and manufactured housing, and offers consumer financial services. Toyota has already passed Chrysler and Ford and is closing in on General Motors. [click to continue...]

Popularity: 25% [?]

Company Background

The current conglomerate was formed when Australian minerals and oil company BHP Limited acquired UK mining company Billiton Plc back in 2001. The result of the merger is a two-headquartered company that is run as a single entity with the same board of directors and common management. The company is listed on both the ASX and LSE exchanges. The Melbourne side is called BHP Billiton Limited while the London business is BHP Billiton Plc. The two collectively are known as BHP Billiton. The company ranks among the world’s top producers of iron ore and coal (thermal and metallurgical) and is a major producer of petroleum products such as crude oil and natural gas. Other units produce aluminum, base metals, diamonds, manganese, and stainless steel.

[click to continue...]

Popularity: 12% [?]

Background

Tesco is the world’s third-largest grocer and operates 2,100 supermarkets and convenience shops in the UK (where it’s the #1 retailer), 1,600 stores in Ireland, Central Europe, and Asia, and Fresh & Easy stores in the US. Founded on the “pile it high, sell it cheap” creed of founder Sir Jack Cohen, Tesco abandoned its discount format with its down-market image for a variety of mid market formats. Its operations include convenience and gasoline retailing (Tesco Express), small urban stores (Tesco Metro), superstores (Tesco Extra), and financial services (Tesco Personal Finance). Tesco.com is Britain’s leading Internet delivery service.

While about 75% of Tesco’s sales are generated in the UK, the retailer is expanding faster away from home in about a dozen countries in Central Europe and Asia. While historically the company has relied on organic international growth, typically via joint ventures and store-by-store openings, it stepped out of that norm with a major acquisition of a chain of hypermarkets in South Korea from E-Land Group for about $2 billion in 2008.

In 2007 Tesco launched a convenience store chain called Fresh & Easy Neighborhood Market in the U.S. The aggressive store opening program resulted in about 60 shops open in Arizona, Nevada, and Southern California. The company has announced plans to add 18 stores sites in Northern California beginning in 2009. Thus far the company’s expansion into the U.S. has been been met with mixed reviews among customers and industry watchers.

Labor & Human Rights Factors

A February 2008 article in Ethical Corporation reported that for the past 3 years the UK based non-profit the Environmental Justice Foundation (EJF) has lobbied clothing retailers and manufacturers, using testimonies from children who are forcibly enlisted into an underpaid, overworked army of cotton pickers in Uzbekistan. The response was slow, but now, Tesco has announced a pioneering ban on the purchase of Uzbek cotton. The company also announced a new process to allow them to examine their supply chain to be sure they really do know where their cotton comes from.

In its 2007 Corporate Responsibility Statement the company states: “This year we have faced accusations of poor labour standards in some of the factories, farms and plantations that form part of our supply chain. Some NGOs have claimed that our low prices inevitably lead to worker exploitation. Faced with these allegations, it would be easy to walk away from sourcing in the developing world and leave its problems to others. But we believe that international trade is the key to helping hundreds of millions of ordinary people escape poverty and build better lives for their families. Tesco has strong employment and environmental standards and we are confident that trading with us can be an important force for good anywhere in the world. We also understand that although our customers want low prices, they also want fair prices and decent standards. Although we have a major economic impact, we alone cannot change the political and social conditions of the countries in which we do business. What we can and must do, however, is ensure that everyone involved in our supply chain – and the communities they live in – truly benefits from their relationship with Tesco.”

In May 2007 The Guardian reported that a small shareholder had amassed enough support to force the issue of ethical trading with suppliers onto the agenda at Tesco’s annual shareholders’ meeting. The shareholder won the support of more than 100 shareholders and the group tried to force Tesco to include a resolution demanding higher standards to be put to shareholders. Company secretary Jonathan Lloyd turned down the request, claiming it was “not valid”.  

In December 2006 the UK’s The Independent cited Tesco among other companies in a report called “The real price of cheap clothes: Bangladeshi sweatshop labourers paid just 3p an hour.” Tesco stated that its affordable clothing was not achieved through poor working conditions at suppliers. In October 2006, the UK’s Channel 4 News filmed footage that captured child workers producing Tesco clothes in Bangladesh. Tesco claimed to not know that two of the factories were manufacturing its clothes. As a result, Tesco had never ethically audited them. Both Bangladeshi suppliers have denied the existence of any child workers within their factories, stating the ages of all workers are independently verified. In a statement to Channel 4 News Tesco said it: “… abhors the use of child labour and is at the forefront of industry efforts to stamp it out through systematic investigations of its suppliers…” Tesco is a founder member of the Ethical Trading Initiative which bans child labour. According to Channel 4, the investigation raises questions about Tesco’s ability to actually enforce the ethical standards it claims to insist upon.

Geographic Risk

The company operates in China, which is on the AFL-CIO Country Watch List. Countries on this list are either lacking labor legislation that recognizes fundamental worker rights or they have labor legislation, but it is not enforced.

Union & Employee Relations

It appears that Tesco has a history of tense labor relations, and not just in the U.S.

A February 2008 article in London’s The Evening Standard reported that TESCO is facing growing industrial unrest in Poland after a two-hour strike at a hypermarket in the southern town of Tychy. The strike by cashiers followed protests over pay from unionized workers in its store in Czestochowa. Tesco has been accused of exploiting its Polish workforce. It claimed the Tychy strike last week was illegal.Tesco spokesman Przemyslaw Skory said: “We do not know yet what action we will be taking against the participants in the strike but we will be considering each individual involved.” A Tesco employee in Warsaw said: “Managers can do what they like, and the workers are treated like cattle. There is no respect for us as individuals or even as human beings as far as I can tell. We are treated like some kind of sub-species. We work our guts out and do everything they say and what do we get in return?”

In April 2007 the UK’s Transport and General Workers union reported that drivers at Tesco’s distribution depot at Livingston in Scotland started a strike action ballot this Monday, were sent a strong message of support by their colleagues in the Transport and General Workers Union today. Shop stewards representing over 5,000 key workers at Tesco’s main distribution depots rejected the supermarket chain’s “divide and rule” tactic. At the close of their meeting in London, they agreed to launch a national campaign against Tesco to defend against changes to their pay, terms and conditions. “The shop stewards were very clear that they saw the attack on their colleagues in Scotland as a first step by Tesco against all the plants,” said Ron Webb, T&G national secretary for transport. “The reports we had from the rest of the country strongly indicated that Tesco are aggravating the concerns of our members.”

Findings

Tesco is presently under very close scrutiny in the U.S. and abroad. Although the company appears to be a responsible corporate citizen on paper and says all the right things publicly, the company’s blatant disregard for fostering congenial union relationships for its U.S. workforce is a serious concern and represents a real risk for shareholders. Additionally, the company is not a signatory to the UN Global Compact and there are questions about whether the company is able to enforce the ethical standards it has established in its policies.

Popularity: 12% [?]