Wal-Mart’s 2008 Shareholder Resolutions: Human Rights Committee

This is the third in a series of posts on Wal-Mart’s 2008 shareholder resolutions. The full list of resolutions - and Wal-Mart’s statements regarding them - can be found in the company’s 2008 proxy here (PDF).

Resolution #7 on this year’s proxy proposes the establishment of a human rights committee at Wal-Mart. Below, the details of the proposition, why Wal-Mart’s shareholders would benefit and how the company has reacted to the proposal.

Wal-Mart’s Public Image Problem
Reports of human rights violations have dogged Wal-Mart for years - particularly in the company’s supplier factories, most of which are overseas. These violations have thoroughly damaged Wal-Mart’s reputation, with everyone from U.S Senators to Wal-Mart employees to factory workers themselves speaking out about the inhumane conditions in Wal-Mart’s supplier factories. Bama Athreya, director of the International Labor Rights Forum, testified before Congress on the issue of toy safety, explaining that “Wal-Mart bears a lion share of responsibility for pushing the toy industry to a place where worker health and safety are basically nonexistent.”

Wal-Mart also holds the ignominious title of being the only company investigated by Human Rights Watch for its domestic labor practices. The group’s 2007 report labeled Wal-Mart’s union-busting policies a violation of basic human rights, saying:

It pursues its anti-union agenda relentlessly, often from the day a new worker is hired, devoting considerable time and resources at all levels of the company to the anti-union drumbeat.

The constant stream of allegations have damaged Wal-Mart’s reputation and in turn, its profits. In 2007, a Bank of America analyst’ report found that Wal-Mart’s profits had suffered as a result of organized labor’s opposition to the company and its unethical labor practices.  The report noted that the union’s campaign “has cost WMT [Wal-Mart] real estate sites in key locations, adversely impacted comp store sales to some degree, and has distracted m management from focusing on its retail strategy. Additionally, Lee Scott now spends a large amount of time improving WMT’s image domestically and abroad, and WMT has been forced to focus advertising dollars on defending their brand.”

The Human Rights Committee Proposal
In order to increase shareholder value by improving Wal-Mart’s public image, Harrington Investments has placed a resolution on this year’s proxy proposing the institution of a human rights committee as part of Wal-Mart’s Board.

Harrington Investments argues in its supporting statement: “Wal-Mart Stores, Inc. and its suppliers have been associated with labor and human rights controversies both inside and outside the U.S. Such attention damages our brand and thereby long-term shareholder value.”

Harrington’s proposal calls for the creation of a human rights committee that would “review the implications of company policies…for human rights of individuals in the U.S. and worldwide.” The committee would examine issues “above and beyond matters of legal compliance.”

Wal-Mart: “Human Rights Oversight Already Exists”
Wal-Mart disagrees that this human rights committee would meaningfully contribute to the company’s ability to monitor its human rights practices. Citing its Standards for Suppliers, a code of conduct it adopted in 1992, and its Ethical Standards Program, which verifies the suppliers’ compliance, Wal-Mart makes the case that it already has an oversight structure in place. The company further notes that it publishes an annual Report on Ethical Sourcing, where it “outlines our plans aimed at improving our sourcing practices, through which we seek to have a positive effect on workers’ lives and the environment.” Wal-Mart asserts that its entire Board reviews this report.

Noted Oversight Failures
Despite Wal-Mart’s assertion that its human rights oversight structure is already functional, a number of indicators illustrate that there’s still plenty of room for improvement.

Wal-Mart’s record for factory inspections – a critical component to labor law enforcement – remains shamefully poor. Of the company’s factory inspections, a paltry 26% are unannounced . Unannounced inspections are crucial to a fair assessment of factory conditions, as announced inspections inevitably give managers time to cover up abuses. The company’s human rights record has been slammed by United Students Against Sweatshops, Co-op America, the National Labor Committee, the UFCW, Sweat Free Communities, China Labor Watch, and the AFL-CIO, among others.

Limitations of the Committee
While there is clear need for greater human rights oversight at Wal-Mart, the proposal by Harrington Investments has three significant limitations. First, it allows Wal-Mart’s Board to select the members of the committee, and second, it requires that the Board approve the committee’s budget and operating procedures. Thirdly, the committee has no decision-making power – the proposal explicitly states that the committee will not “restrict the power of the Board of Directors to manage the business and affairs of the company.”

With such limited independence, and with solely an advisory role, it seems questionable that in its proposed form the human rights committee would have enough agency to affect Wal-Mart’s business practices.

Improved Image, Improved Shareholder Returns
Whether or not the proposed human rights committee is able to substantially improve Wal-Mart’s labor practices, the appearance that the company is taking action would advance the company’s reputation, which could translate into greater profits and an increase in shareholder returns.

Posted by Research Team on Tuesday, May 13, 2008