The long and winding road

by Pat Zerega

Senior Director Shareholder Advocacy, Mercy Investment Services

This weekend, we saw Rocketman, the story of Elton John. It brought back memories of so many songs we grew up with.  For some reason I kept thinking of the song the long and winding road as a parallel to the story (even though it was written by the Beatles, Elton John performed it on occasion). Part of the reason it came to mind is that the song reflects how I feel about the private prison work and GEO specifically. It might be helpful to review some of the history that got us to today.

Around 2003, John Celichowski, O.F.M., Cap. and Valerie Heinonen, O.S.U., began approaching the private prison companies. At that point, their stock was considered ‘penny stock’ with few members at ICCR owning GEO, CCA or Cornell. The first resolution oat GEO received 3.2% and a similar resolution brought CCA to the table without going to vote. Fr. John moved on to leadership in the community and passed the mantle to Fr. Mike Crosby.  A variety of approaches including lobbying and human rights policy development continued with GEO and CoreCivic (formerly Corrections Corporation of America) through 2011. Dialogues were often contentious (my participation was through the Lutherans), and at one point the CEO of GEO wondered why we didn’t just “sell the stock and leave them alone.” We continued to focus concern with the people in custody.

In 2011, a resolution calling for a human rights policy was filed. At the same time, the Jesuit Social Research Center had obtained a grant to work with private prisons around human rights and training, so the Jesuits began to lead both dialogues. This grant brought in prison experts to help lead the way and both companies developed polices and entered into dialogue.  

We all know writing a policy is not the be all and end all of work. We need to see that the policy doesn’t sit on the shelf but is implemented, training occurring and the culture changing. Shareholders expected to be able to find that out through dialogue and increased transparency in reporting on the prison companies’ websites.

Since that time, the dialogues have focused on several issues including medical care and segregation from the general population, but shareholders felt like we were not seeing the real impact hoped for with a human rights policy. Abuse allegations remained high, and news coverage of these events continued. In the spring of 2018, we began to see many reports concerning immigration detention conditions in private prisons. ICCR hosted letters to both private prison companies with more 50 signatures asking for the prisons not to become involved with government detention contracts.

CoreCivic answered the letter and continued to engage in a meaningful way, this spring presented its first ESG report. They are working on other ways to be transparent on human rights issues.

In the late summer of 2018, GEO, however, put a ‘pause’ on dialogue. This was new to me. I’ve had companies stall or not answer letters, but to actually write and say they didn’t want to talk was new ground.

Our group was frustrated and decided to file a resolution in the fall of 2018 asking for a report (that was indicated in GEO’s own policy) concerning how implementation of the human rights policy. Many shareholders joined the group of Jesuits and Mercy Investment Services addressing this issue, and in November the resolution was filed.

As expected, the resolution was challenged, but the SEC denied the no action thus, agreeing it had to be on the ballot. Shareholders filed a proxy memo indicating reasons why it should be left on, alerted proxy advisors of the resolution, and the week before the AGM learned that both proxy advisory firms were supporting the resolution. As that information became public, we also received an unexpected email from GEO, telling us they would no longer oppose the resolution and filed such a statement with the SEC. The company never quite supported the resolution, nor changed the proxy on their site, nor put the SEC statement on their site, nor did they reach out to talk with us. So, we prepared to present at the AGM (a virtual-only AGM, but that too is for another day), and garnered nearly 88% of the vote.

(Photo by Pat Zerega, Door County Wisconsin 2016)

The story of course does not end there. Shareholders have met since then to discuss next steps and have sent a letter requesting to return to the dialogue table with all interested parties and explain what we are looking for in the requested human rights report. Thus far, there is no answer to that request, but we know there is always another twist in the road ahead.

Faith-Based Shareholders: In It for the Long Haul

While it may seem like a long time, it is heartening to recall that Moses and the Israelites spent 40 years in the desert, waiting to enter the promised land.

Almost 30 years ago, Fr. Mike Crosby, O.F.M., Cap. began a dialogue with executives from Wendy’s. Concerned that adequate progress was not being made on due diligence concerning potential and actual human rights issues, the Capuchin Province of St. Joseph filed a shareholder resolution on human rights this year. The company challenged the resolution, and the Securities Exchange Commission ruled that the resolution could be omitted. As our resolution had been omitted by the SEC, it would not be coming to a vote, but I attended the shareholder meeting in Dublin, OH on behalf of the Capuchins so as to make a statement to the board and the company officers about our concerns in the area of human rights due diligence.

The team from Wendy’s were very gracious hosts. Having arrived early, a member of the investor relations team took me to visit what had been the office of Wendy’s founder Dave Thomas. I had the opportunity to meet executives who have been on calls with us. Personally, I find it helpful to have a face to put to the voice that I hear on the phone. I also had the opportunity to meet CEO Todd Penegor, board chair Nelson Peltz, and chief legal officer E.J. Wunsch, as well as other members of the board.

The meeting itself lasted a bit over 75 minutes. After a brief video highlighting Wendy’s 50 years, Mr. Peltz opened the meeting. Three items of business were conducted: a vote concerning the board of directors, a vote concerning the company’s auditors, and, finally, an advisory vote concerning executive compensation. The video to the voting was completed within a swift 11 minutes. Next, Mr. Penegor gave an overview of the company’s business plan. Following Mr. Penegor, Liliana Esposito, the chief communications officer, addressed corporate social responsibility and gave an ESG update.

Upon the conclusion of Ms. Esposito’s remarks, the floor was opened to general questions and comments. First, Kerry Kennedy, daughter to the late Robert F. Kennedy, spoke in favor of the Coalition of Immokalee Workers (CIW) and the Fair Food Program. Next, Mr. Peltz recognized me, and I approached the microphone to offer my statement.

My remarks aimed to accomplish four things:

  • To identify the abundant risks for human trafficking and forced labor in agricultural supply chains;
  • To describe the fundamental shift effected by laws here in the U.S. and abroad that, while good and necessary, codes of conduct and audits are no longer sufficient;
  • To outline a better process, employed by many leading companies: a human rights risk assessment that incorporates the U.N. Guiding Principles on Business and Human Rights;
  • And to encourage Wendy’s to take these necessary steps that, at heart, are in accord with the deepest values of the founder, Dave Thomas, and the company.

Subsequently, Chelsea Rudman of the Workers Rights Consortium spoke similarly of the value of worker-driven social responsibility efforts. Lena Brook of the Natural Resources Defense Council spoke about the use of medically-important antibiotics in meat and poultry served at Wendy’s. A shareholder asked a question concerning the updating of restaurant infrastructures. Mike Telford of the National Pork Producers Council thanked Wendy’s for their relationship with pork producers. Nelly Rodriguez, from the CIW, offered a moving witness, in Spanish, about the importance of the Fair Food Program. Another shareholder asked a question concerning non-meat substitutes. Finally, a shareholder, who is also an adoption assessor, rose to speak a word of thanks for Wendy’s commitment to the Dave Thomas Foundation for Adoption. Soon thereafter, the meeting was adjourned.

While the meeting maintained its decorum, no attendee could be blind to the concerns raised by the different voices. While I am disappointed that our resolution did not come to a vote this year, SGI remain committed to working with Wendy’s to improve their practices in the area of human rights.

As the saying goes, Rome was not built in a day. Even after a 40-year sojourn in the desert, the fact is that Moses never made it into the promised land, but he did see it before he died. Faith-based shareholders differ from day traders. We are in it for the long haul. We genuinely care about the companies we engage. We will bring items to their attention that may make company leadership uncomfortable. We do so, because we are committed to protecting people and the planet. We believe that the interests of the company, through the long haul, align with the interests of people and the planet.

The statement prepared for the 2019 Wendy’s shareholder meeting can be found here.

The surprisingly powerful voice of shareholders

By Mark Peters, Director of Justice, Peace and Reconciliation, Priests of the Sacred Heart, US Province, Member, SGI Board

How did I, someone who’s never been much into shopping and stores and has gotten his clothes from Kohl’s since junior high, find myself addressing the CEO, Board and a smattering of shareholders of Macy’s, Inc. in Cincinnati last month? It’s all thanks to a Capuchin priest who had the foresight to see how important corporations would become in the 21st Century.

Fr. Mike Crosby, OFM Cap, died two years ago, but he lives on in the work of Seventh Generation Interfaith Coalition for Responsible Investment. Fr. Mike recruited me back in 2014 and coached me through my first shareholder resolution, which was with TJX, the company that owns TJMaxx, Homegoods and Marshalls. We got 3% of the vote, a victory because you needed that much to bring it back the next year. That time we got under the next benchmark and that was the end of that campaign, though not of our continuing dialogue with TJX. Votes under 5% are not unusual in this line of work! We often plant seeds that don’t bear immediate fruit.

This year Chris Cox, Associate Director of SGI (along with Executive Director Frank Sherman, who was mentored by Mike), directed our resolution with Macy’s, requesting a report on their process for ensuring that no vendor is engaged in forced labor (their byzantine supply chains are the reason their clothes are so cheap and the company is so profitable). Chris consulted with experts in the drafting of the resolution and provided me with lots of material for the dialogue that the company agreed to after we filed. But ultimately the company would not agree to undertake the report, so we did not withdraw, as is sometimes done when a company does make a good faith beginning.

That’s what brought me to Cincinnati on May 17. Someone needed to be present to “move” the proposal, as the Board had made known it’s opposition to it and it would be dropped if no one spoke for it. However, Macy’s was stingier than most with the time they allot speakers, and we were told we had only one minute. So 800 miles driving and a hotel stay, all for the sake of 90 seconds (try and keep me to 60!) of opportunity to sway the votes of a mere handful of shareholders present at the (to me) surprisingly sparsely-attended AGM (annual general meeting) — all of whom, as it turned out, had apparently already voted their shares prior to the meeting.  So I was basically just talking to the board.

But in the end the shareholders spoke to them as well, because our proposal received 40% of the vote!  Chris and I were shocked, but very pleasantly so, as this ensures us a continued seat at the table with the company, and the very real chance of a win next year. Apparently investors are starting to care about human trafficking!

As often happens (and as someone else has done for us with this same proposal at the TJX AGM this week outside of Boston), we’d been asked to move another group’s proposal, this one on transparency on political contributions. I read their statement as well, and that proposal actually received 53% of the vote. I spoke to the Corporate Counsel afterward, and she said the company would likely implement the proposal because of that showing.

A number of other SGI members have had successful outings this proxy season, especially those working on climate change-related resolutions, which for most investors is now clearly a strong value. Now begins the work of readying ourselves for the next season!

Mark’s statement at the annual shareholder meeting can be found here.

Global companies and global problems

We have come to take for granted the size and sweep of modern multinational corporations. As companies merge to gain scale, it’s difficult to keep track of the corporation behind the brands we buy. Daily, we dress ourselves in clothes bearing labels of “made in” notices for countries that may be difficult to place on a map. We know that our vehicle, as well as our cell phone, was not made in an individual factory but assembled from components and parts made across a dispersed global supply chain. When out of season locally, we may notice that our fruit and vegetables may have come from distant lands. Multinational corporations seamlessly bring together many essential things in our daily lives.

Over the years, these multinational companies have grown to scales that may surprise us. While not an apples to apples comparison, the largest companies have annual revenues that dwarf the gross domestic product (GDP) of many countries. Some may be able to recite the top five global economies:

  1. United States ($20.5 trillion)
  2. China ($13.5 trillion)
  3. Japan ($5 trillion)
  4. Germany ($4 trillion)
  5. United Kingdom ($2.8 trillion)

Readers may be surprised to learn that Walmart, with over $500 billion in annual revenue, would rank #25, displacing Thailand. The fourth largest company, Royal Dutch Shell, displaces the Philippines at #40. The ninth largest company, Exxon Mobil, comes in just behind the Czech Republic, the 46th largest economy. At #11 among companies, Apple had a billion dollars more in revenue than Peru (#51 among countries) had in GDP. Foxconn, the 24th largest company, has greater annual revenue than the GDP of Kuwait (#58 in GDP). In all, 41 of the 100 largest economic entities on the planet would be corporations.

So, what does that mean for us? While policies and laws and regulations from countries are essential, companies play a critical role in addressing environmental and social issues such as climate change, food justice, health, human rights, and water stewardship. At bottom, the decisions that companies make have a tremendous impact on the most vexing global issues. In fact, choices made by companies, in many contexts, have greater impact than individual countries.

Michael Porter, in a 2015 TED Talk, underscored the importance of business in addressing critical problems. Global norms have been shifting. It is no longer acceptable for multi-national companies to simply meet the legal minimums set by local governments. Today, many international standards, including the UN Guiding Principles for Business and Human Rights, underscore the role of companies. Some of our resolutions with companies this year reflect this emerging understanding of the role of companies in addressing human rights.

The work of SGI contributes to the work of so many others– socially-conscious consumers, non-profit organizations, workers in the supply chain, and ethical executives– in seeking a more just and sustainable world.
Given the scale of multinational corporations and global nature of our economy, our mission is more critical than ever.

Supply Chain Human Rights Webinar

Dispersed global supply chains for many items in our daily lives veil immense violations of human rights. This webinar cuts to the heart of many SGI corporate engagements. Pat Zerega, director of Shareholder Advocacy at Mercy Investment Services, speaks about ethical recruitment (which reduces human trafficking). We hear, as well, from Mary Beth Gallagher of the Tri-State Coalition for Responsible Investment, of her work with Tyson and the poultry sector.

We are so very grateful for the presence of our colleagues from Mercy Investment Services and Tri-State in this webinar.

As always, we welcome your feedback via a confidential evaluation found here. Slides from the webinar are found here.

ICCR Human Rights/Human Trafficking Strategic Review

Two weeks ago, Frank Sherman and I participated in the ICCR Program Strategy Week. The Program Directors met with their Work groups in NYC to evaluate the progress over the past year and chart out a path forward for the 2018-19 corporate engagement season. This article will summarize the human rights/human trafficking session.

Estimates indicate that 27 million victims fall prey to trafficking and slavery each year and that it is a global trade valued at $32 billion dollars. But due to the clandestine nature of these crimes and the reluctance of victims to speak out because they live in fear of physical retribution and/or deportation, trafficking and slavery are typically very difficult to uncover and prosecute. Through the Human Rights/Human Trafficking (HR/HT) Work Group, ICCR members ask the companies they hold to adopt human rights policies that formally recognize human trafficking and slavery and to train their personnel and their suppliers to safeguard against these risks throughout their supply chains. Human rights provides an umbrella for all ICCR efforts.

Investor Alliance for Human Rights (IAHR)

The day prior to our session, the Alliance met as well. It will take some time to define action that corresponds to IAHR or to the HR/HT work group as both groups are concerned with issues that overlap. The Alliance has three components: Human rights responsibilities of investors, collective action, and multi-stakeholder engagement.

The IAHR:

  • Promotes implementation of human rights due diligence by companies
  • Encourages the creation of enabling environment for responsible business conduct through awareness raising, standard setting, and regulatory development – states, multi-lateral institutions, the UN, development banks and, of course, investors
  • Encourages engaged companies to develop and strengthen activities and process to provide remedy
  • Builds partnerships with business community, NGOs, trade unions, local communities and others to leverage this work

It seems likely that the IAHR will focus, this year, on Banking and Tech sectors as it relates to salient human rights issues. Again, it will take some time to develop the necessary coordination between the efforts of IAHR and ICCR working groups.

Ethical Recruitment

Even though we no longer have a full-time staff position, ICCR will sustain efforts in this area. Significant progress has been made, but more work remains to be done.

Companies face significant challenges related to ethical recruitment strategies. Historically, it has been difficult to make progress on labor rights/working conditions for companies in their first tier. Now there is a new paradigm where companies need to think about their labor supply chains in every tier. There is a state of paralysis and it is hard to make progress. While there are leaders who are making progress, not enough companies are following. Most companies focus on attending conferences and webinars and think of a legal response: “What is the shape of the risk to the company?”

When the companies attempt to assess their risk, they often rely on risk-mapping platforms that all tend to give a sense of the country risks (using the State Department’s Trafficking in Persons Report and/or the Labor Department’s child and forced labor report listing countries and commodities), but not go any deeper. Further, the auditing systems need training and refinement: If you don’t ask the right questions, you won’t find forced labor. Occasionally, corporate legal counsel can suggest that the company may not want more information about recruitment as it may open the company to litigation concerning what is discovered. As well, we need to develop clear standards to separate the good from the bad recruiters. Currently, only certain sectors and commodities have been the focus of recruitment: ICT, seafood sector and palm oil sector, and coffee. This work will need to be broadened.

A critical question for work: what is the true cost of recruitment? There is the cost of recruitment, and there are charges that migrant workers pay that are not recruitment costs but the cost of corruption. More focus on this issue is needed plus an emphasis on companies sharing the cost of recruitment with suppliers as well as workers who have paid getting reimbursements. Again, progress has been made, but we must deepen and extend that progress.

Sex Trafficking

We spent some time in discussion about how we might engage companies in the airline industry, hotel industry, transportation sector, and the tech sector. We assessed some of the corporate engagements in recent years as well as identified some of our allies in this work.

Legislative Priorities

We also discussed legislative and regulatory priorities in the upcoming year concerning human trafficking. A significant priority is the re-authorization of the Trafficking Victims Protection Act (TVPA). In the U.S. House (HR 2200)
and in the U.S. Senate (S1311, S 1312, S 1862), bills may come to the floor during this year. Given the mid-term elections and other factors, these bills may not be considered, but advocates are continuing to call for this. Additionally, we want to be mindful of the appropriations process in a few areas: State Department programs to end human trafficking; State and foreign appropriations; some provisions in the Department of Labor as well as Health and Human Services; and appropriations for Homeland Security’s enforcement of the ban on forced and child labor.

In the fight against human trafficking, a critical role for faith-based investors, then, is to continue to work with “Know the Chain,” engaging corporations and boards in conversations about supply chain and due diligence. These efforts keep the issue spotlighted.

Supporting Materials

  1. Materials on the U.N. Sustainable Development Goals:
  1. Know the Chain Benchmarks – 2018 Benchmarks Company Lists (ICT, F&B, Apparel and Footwear)
  2. International Tourism Partnership’s Principles on Forced Labor launched June 12th: http://www.greenhotelier.org/our-news/industry-news/hotel-sector-unites-under-itp-to-tackle-forced-labour/
  3. “Ripe for Change: Ending Human Suffering in Supermarket Supply Chains” Oxfam’s new report, June 21, 2018
  4. One page summary of Global Forum on Responsible Recruitment In Singapore,  June 11-12, 2018

Member statement at Kohl’s AGM

Yesterday, Frank Sherman, Chris Cox, and Tim Dewane attended the annual shareholder meeting at Kohl’s. For Kohl’s, the shareholder meeting was the closing of a significant chapter in the company’s history and the beginning of a new chapter. Having begun his career with the company in 1982, Kohl’s CEO Kevin Mansell retired, a post he has held since 2008. With the retirement, Michelle Gass is the company’s new CEO.

Tim Dewane

ICCR and SGI have a long history of engagement with Kohl’s. At the shareholder meeting, Tim Dewane, the JPIC director for the School Sisters of Notre Dame of the Central Pacific Province offered a statement:

Good morning Mr. Chairman and Kohl’s Board members. My name is Tim Dewane, I am the JPIC Director for the School Sisters of Notre Dame of the Central Pacific Province. The School Sisters of Notre Dame CPP are a long time shareholder of Kohl’s and a member of Seventh Generation Interfaith, an ICCR-affiliated coalition of faith-based institutional investors that has engaged in positive dialogue with Kohl’s for nearly 20 years. Our members first sat down with Kevin Mansell and Rick Schepp in 2000 to provide input into the language of Kohl’s Terms of Engagement, a set of standards on worker rights and working conditions for its suppliers throughout the world. Since 2000, faith-based shareholders have met with the company annually and have seen improvements its supplier’s performance on workplace human rights as well as significant improvement in its’ environmental sustainability of your operations through a variety of programs that are described in its 2017 CSR report.

We welcome Michelle Gass as Kohl’s new Chief Executive Officer, the first woman to occupy this important position at the company. We look forward to working with you and your staff. As you build on the legacy of Kevin Mansell we encourage you to expand and deepen the integration of Kohl’s commitment to corporate social responsibility throughout the company’s business strategy and messaging to customers, investors and to society. In the current environment, stakeholders and rating agencies, who have incorporated social and environmental criteria into their valuation of companies, are expecting more transparency of Kohl’s and other companies. Kohl’s has a good story to tell, one that we are working on to improve with every meeting we have with you.

We encourage you to apply ‘human rights due diligence,’ based on the UN Guiding Principles on Business and Human Rights, the new global norm, to identify potential risks to people and communities, especially where your business partners operate in high risk countries where rule of law is weak. In addition, we encourage Kohl’s to join a number of companies in aligning its CSR strategies to the realization of the UN Sustainable Development Goals adopted in 2015 to eradicate poverty, gender inequity, child and forced labor, adverse impacts of climate change, among others, by 2030.

Larry Fink, Chair and CEO of Blackrock, stated in his Letter to CEOs entitled, A Sense of Purpose, “Society is demanding that companies, both public and private, serve a social purpose. To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society.” Pope Francis has echoed the understanding of many our own Kohl’s customers when he said that purchasing is not simply an economic act, but also a moral one. We are called to love and care for our neighbors as our selves and in today’s world our neighbor includes not only the folks in this room, or those here in Menominee Falls, but all those whose lives touch ours – including the garment workers in Bangladesh and elsewhere.

We look forward to working with you to build on Kohl’s solid commitment to quality and community – with profits we can all live with. Thank you!

A PDF version of Tim’s statement can be found here.