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IBM agrees to engage with investors on prison labour in supply chains

Tech titan bows to pressure to avoid shareholder resolution

US SRI investor Northstar Asset Management has scored a victory at IBM, with the tech giant agreeing to address the issue of prison labour in its supply chains in a bid to prevent a shareholder resolution.
Northstar’s Director of Shareholder Activism and Engagement, Mari Schwartzer, told RI that she was unable to go into detail about what had been agreed, but said that IBM’s commitment included collaborating with the activist investor to support its work on the controversial issue.
The withdrawn resolution at IBM is one of several on the topic that Northstar has filed this year at US retailers, including Costco Wholesale, TJX, and Home Depot.
Each company, RI was told, was targeted due to reported instances of prison labour in their supply chains or the likelihood of such an instance due to their exposure to ‘high-risk’ sectors, such as agriculture.
Last month, 29% of shareholders backed the resolution at Costco, calling on it to ramp up its disclosure of prison labour audits into supply chains – a result Schwartzer described as “amazing”.
It was the second resolution on the issue to be filed at the retailer in consecutive years by Northstar.
The Boston-based investor also filed again this year at TJX, asking the fashion retailer to report on the effectiveness of its current prison labour policies, after it explicitly prohibited prison labour in its supply chains last year.
Last year’s resolution on prison labour was supported by 7.75% of shareholders at the TJX’s annual general meeting in June. Schwartzer told RI that Northstar is currently “at the beginning of an engagement” with the firm ahead of this year’s AGM.
She added that the resolution filed at home improvement retailer Home Depot is “most similar” to the resolution filed at Costco last year, which called on the firm to survey all its suppliers to identify sources of potential prison labour in its supply chain.Prison labour is legal in the US under the Constitution’s 13th amendment, which prohibits slavery “except as a punishment for a crime”, but is contentious.
In its white paper on the topic last year, Northstar described the use of the low-cost and “racially-skewed” labour force as “shrouded in secrecy”.
Despite Costco’s opposition to the 2018 resolution, which was supported by 5% of shareholders, and its reluctance to engage, it shortly afterwards introduced a new global policy on the issue, setting out its minimum requirements for purchasing products made by prison labour.
This year’s resolution called on the company to go further and introduce annual reporting on supplier compliance with that new policy.
Christine Jantz, Northstar’s CIO, told RI: “Companies need to recognise that if they are benefitting from prison labour that they also have a responsibility there too”.
In its response to the 2019 resolution, Costco’s board of directors argued that it has conducted “thousands” of audits since the policy was introduced, and that the use of prison labour in its supply chains is “extremely rare”.
But Jantz said, “as fiduciaries of companies we want to help companies reduce and manage their risk and make sure they have the policies in place that are going to protect them, that is the primary reason for these shareholder resolutions”.
Last year, RI highlighted US prisons as a growing ESG issue, following high-profile divestments from private prisons by several large US pension funds, citing concerns about human rights abuses.
In January, the board of CalSTRS reportedly voted to oppose a state bill that would require it and fellow giant Californian public pension fund CalPERS to divest investments in private prison companies by July 2020.