GES takes a bite of the Big Apple

 By Tytti Kaasinen, Senior Engagement Manager at GES

New York is one of the most diverse cities in the world. It has a mix of people representing countless different backgrounds, cultures, religions, races, nationalities – and don’t even get me started on their affiliations to all imaginable sports teams! Likewise, it has a fantastic array of organisations who have distinct views and supreme expertise in their respective fields and who are as such extremely interesting sources for supplementing GES’ analysis and forming partnerships with. The diversity of issues we work on is certainly matched with the specialisms of these people on all the aspects linked to environmental, social and governance issues one might want further information on. And yes, you guessed it: I was determined to make the most of being in town and connect with as many of these great minds as possible, at the same time getting a flavour of the matters currently on the top of the agenda in the US.

One such issue, equally topical for GES and pretty much the whole rest of the world as well, is the changing political and business landscape in Burma. As the sanctions are being lifted more companies are planning to enter or expand in the country, and responsible investors can play a huge role in ensuring that this is done in a manner supporting Burma’s road towards democracy and sustainable development – in the economic sense and otherwise. Here in the US, the State Department has put together a proposal for Reporting Requirements on Responsible Investment in Burma which, in line with the US foreign policy concerns, set certain demands on companies with operations in Burma. These include disclosure on human rights, workers’ rights, anti-corruption and environmental policies and procedures. With the 60-day public comment period ending last Thursday, you can imagine how a number of NGOs and investors have been busy in the last few weeks in finalising their input to the State Department’s proposal.

Conflict Risk Network (CRN) has been particularly active in galvanising investor engagement on Burma and did an admirable job in compiling a substantive comment to the US Department of State, and so it was an obvious point of contact for me. GES is a member of CRN and has for years cooperated with the organisation on a number of issues, and so it was very much like reconnecting with an old friend, with the added bonus of this friend being an excellent expert on a topic which my employer just happens to be very active on. GES is supportive of CRN’s statement on the reporting requirements, as it is very well aligned with the spirit and objectives of our long-standing work on Burma. For further information on GES’ extensive Burma engagement, please don’t hesitate to contact my colleague Anna Bellander (who can be reached, like me, at firstname.surname@ges-invest.com).

Separately, I also attended a dinner with the Burma shareholder advocacy working group. Benchmarks are being refined for responsible commercial operations in the country, and many company engagements – both individual and collaborative – are under way, with more actions having been discussed among investors at the dinner. These are very exciting times for anyone investing, operating or interested in Burma.

Burma’s big neighbour, China, is another country firmly in responsible investors’ radar – but often for all the wrong reasons. GES has a number of related engagements linked to labour rights violations, and on many of them the source blowing the whistle has been the New York-based (albeit Chinese-driven) China Labour Watch. So of course I had to meet up with them! It was a fantastic opportunity to hear from CLW’s director and his colleagues about the way they work, the sector-wide problems they witness in electronics and apparel supply chains in particular, and the company-specific responses to the CLW reports. The NGO was keen to emphasise the material impact labour issues can have on companies and their share prices, making it just one example of organisations specifically making their reporting relevant to investors. This just goes to show how actors are recognising the importance of the financial community in effecting change in corporate practices.

Talking about organisations reaching out to responsible investors, I had also arranged a meeting with Robert F. Kennedy Center for Justice and Human Rights after having read about their widely publicised September visit to Western Sahara to evaluate the human rights situation there. GES has been investigating and talking to companies linked to this area – illegally occupied by Morocco – for years, and it is also the target of our ongoing targeted thematic engagement. As everyone who works with me knows probably a little too well, I am always keen to talk about Western Sahara, and those who aren’t familiar with the conflict should definitely check out the relevant article in our latest maGESine. Human rights violations in Western Sahara are way too little known and so it was great to have the power of the Kennedy name draw attention to the suffering of the Saharawi people. Moreover, just a few days before our meeting, the RFK Center’s delegation had submitted its preliminary findings to the Congressional Record, meaning that information on the circumstances in Western Sahara is now officially noted in the records of the proceedings and debates of the US Congress.

One of the other core programmes of this leading international human rights organisation focuses on advancing discussion of the connections among investment performance, fiduciary duty, and public interest issues to optimise risk-adjusted rates of returns and address current and future global challenges. That obviously gets a big thumbs-up from GES and, needless to say, we had a very interesting discussion sharing experiences from both sides of the Atlantic and exploring potential synergies for furthering our shared goals in the future.

Going back to the topic of Western Sahara, we at GES have been doing our best to raise awareness of the difficult situation and its implications to companies and investors: writing and contributing to articles, speaking at events, leading a PRI collaboration on it and acted as one of the few investor representatives challenging companies’ involvement there. When I talked about the issue at the Interfaith Center on Corporate Responsibility’s (ICCR) conference in February I noticed there was a lot of interest in finding out more, and so this time round I arranged to chair a whole session on Western Sahara. With justice and social values at the core of ICCR’s mission, it is no surprise that its members appreciated the opportunity to listen in. Addressing the violation of human rights in the territory fits in well with their values and active ownership strategies and so I’m hopeful that our chat will have inspired more investor engagement on the issue, either individually or in collaboration with GES.

The ICCR conference is a triannual event whereby its members, such as GES, get together to discuss progress and plan the next steps on the key issues of shareholder activism during five days of fruitful and galvanising discussions. The event typically also offers a chance to hear from high level experts, with the UN Special Rapporteur on the Right to Food being just one of the fascinating speakers at this conference. With the food sector being one of my responsibilities at GES, it was particularly interesting for me to hear his thoughts on rural poverty, farmland investment, food security and the functioning of the global agricultural markets. With speculation artificially impacting the commodity prices and bubbles developing and bursting illogically, resulting in massive volatility and increased vulnerability of farmers and countries alike, it is no wonder that the overt influence of financial actors is starting to be perceived a serious problem. Responsible investors should be aware of the systemic problems and carefully consider their strategies so as to avoid perpetuating the problems.

On positive news from the agricultural sector, Hershey – a long term engagement target of ICCR – announced during the conference its aim to source 100% certified cocoa beans by 2020. This news was warmly welcomed by GES as well, in particular my colleague Stina Nilsson, who has been working hard with and without ICCR on the issue of child labour in cocoa supply chain. On another agricultural commodity, cotton, there have been fewer good news lately, but it is nevertheless an issue I love working on, especially when it comes to tackling the use child labour and forced labour in Uzbekistan. At the moment, I am focusing on engaging with three companies in particular but have found myself getting more and more involved in the theme more broadly as well. Apart from this issue being touched upon at the ICCR conference, I took the chance to catch up with two expert organisations on Uzbek cotton, the Responsible Sourcing Network (RSN) and International Labour Rights Forum (ILRF). GES has a history of working closely with both of these, but it is not that often that we get to see face to face – another bonus of me being in New York! I have found RSN and ILRF very knowledgeable and professional sources previously already and they did not fail to provide me with lots of useful information and ideas this time as well. Watch this space – the attention on the issue of Uzbek cotton and GES’ engagement on related companies at all levels is only going to intensify going forward.

There were loads of topics besides the above-mentioned ones discussed at the ICCR week but to write about them all would take about five more blog posts, so I’d better start putting all the inspiring information into practice instead. When it comes to my trip to New York overall: responsible investment in Burma, labour conditions in China, human rights in Western Sahara, links between the fiduciary duty and corporate responsibility, food security, slavery in Uzbek cotton production, and Wal-Mart – how many other cities could offer experts on all these, not to mention Yankees vs. Red Sox, to a certain Senior Engagement Manager on a mission to widen her horizons?! Actually, if you can think of one, please feel free to tip us off!

Making change at Wal-Mart

 By Tytti Kaasinen, Senior Engagement Manager at GES

Coinciding with Aung San Suu Kyi’s recent visit to New York and the United Nations’ 67th General Assembly currently taking place in the city, I crossed the Atlantic last week to connect with sources, experts and GES’ partners in the USA. While seeing heavily guarded blacked-out cars driving towards the UN headquarters has been as close as I have gotten to world leaders, I have had the pleasure of meeting plenty of other equally interesting people representing investors, UN organisations, trade unions and NGOs.

More of those encounters in due course. Right now, I want to share my experiences relating to one name rivalling Ban Ki-Moon’s in global recognition – Wal-Mart. You can always count on it being in the headlines and it is a company which GES and many of our clients also have a keen interest in. Accordingly, I have taken advantage of being on the retailer’s home ground to speak to people with first-hand experience of working with, for or on the company. Wal-Mart is the world’s third largest employer (after the US Department of Defence and the Chinese People’s Liberation Army, in case you were wondering) with its 2.1 million-strong workforce, and I have been fortunate enough to hear directly from seven of its associates in New York this week.

This is a critical time for the company, as worker unrest and stoppages are spreading to Wal-Mart’s distribution system while the community opposition continues to undermine its expansion efforts in US urban markets. The negative reputation following Wal-Mart everywhere is also hindering its ability to implement its business plan at certain markets overseas. These issues potentially affecting the company’s growth and profitability obviously pose very material risks to Wal-Mart and thereby also to those invested in it.

I got invited to a panel discussion for Wal-Mart investors and sell side analysts covering the company on Monday, an event also attended and subsequently reported on by Reuters. The five current Wal-Mart employees on the panel spoke about their experiences on the job, with some of them able to reflect on the changes that have taken place at the company during their 24-year-long careers on the retailer’s payroll. They described the feeling of being proud of working at Wal-Mart disappearing as the company has changed for worse, while other accounts covered issues such as employees not receiving appropriate training or equipment for doing their jobs; understaffing leaving associates unable do their jobs well, let alone providing good customer service; being ignored or disrespected by their superiors; lack of opportunities for rising up the ranks; the company’s “open door policy” not quite living up to its name; and retaliation against colleagues who have spoken out about the working conditions.

Nevertheless, these people stressed that they are not on a mission to tear the company down. Quite the opposite; they talked about their love for their jobs and about how the objective of the employee-centred OUR Walmart (Organization United for Respect at Walmart) Campaign is to challenge the company to improve its treatment of people and community relations, and to persuade it to become a better employer.

The Wal-Mart veterans on the panel have taken advantage of the company’s share plan to become stockholders, with one of them in fact having presented OUR Walmart’s shareholder resolution at the company’s 2012 AGM. Indeed, as the event on Monday was aimed at representatives of the mainstream investor community, we also heard about the impact of the company’s alleged labour mismanagement on its bottom line and share price development. The argument goes that the broken productivity loop due to the lack of investment in the quantity and quality of workforce and the resulting understaffing is having a negative effect on customer service. This both in the form of reduced interaction between employees and shoppers as well as through logistical issues whereby Wal-Mart struggles to keep the shelves stocked with the right products in the right place at the right time, with the latter leading to a waste of produce and missed sales opportunities.

Zeynep Ton, a professor in operations management also speaking at the event, highlighted the trade-off between low prices and bad jobs in retail, describing how companies often perceive labour as a large cost to be minimised when there is pressure to cut costs and/or achieve earnings increase even when the company is not growing. In her view, this is due to labour having clear, direct, short-term costs while its benefits are indirect, difficult to measure and transpire over a long term. This is an equation which the company managements as well as investors frequently have a poor understanding of according to professor Ton.

The following day, I attended another discussion with Wal-Mart employees and OUR Wal-Mart campaign representatives, this time organised by the Interfaith Worker Justice and focused on the working conditions and wages in Wal-Mart’s direct operations as well as in the warehouses supplying it with goods. Again, the employees shared with us their stories entailing feelings of mistreatment, inequality and lack of respect, with two warehouse workers also describing working conditions and arrangements in the US facilities not unlike something one might expect from Mexican maquiladoras or other similar export processing zones in developing countries.

Completing my run of three Wal-Mart sessions in consecutive days, the company was on Wednesday discussed at the triannual conference for the members of the Interfaith Center on Corporate Responsibility (ICCR). ICCR’s Wal-Mart group has a long history of engagement with the company over various issues, and this is something GES has also benefited from over the years through our cooperation with the organisation. ICCR continues to have regular meetings with Wal-Mart top executives and is frequently reached out to by the company seeking input and feedback on its corporate responsibility management and reporting. Yesterday, the group leading the engagement with Wal-Mart shared information on the issues most recently raised and detailed the company response to the ICCR comments along with the investors’ key expectations going forward.

Apart from keeping updated on ICCR’s work on Wal-Mart, I will continue my dialogue with the company, with GES’ focus being firmly on labour standards among Wal-Mart’s direct operations and supply chain alike. Hearing the workers’ and OUR Walmart’s views has been very useful for understanding what everyday life at its stores may look like and what is prompting the recurring negative headlines and fuelling the company’s persistently bad reputation. The concrete examples of the challenges Wal-Mart faces in the field of employee relations and their potentially material significance to shareholders are something I will certainly invite the company to comment on in the conference call I am due to have with its investor relations in the next few weeks.