Prison labour in retail supply chains now on shareholders’ radar

Northstar resolution gets 5% support at Costco

US prison labour in supply chains has entered the spotlight as the first ever shareholder proposal on the issue was taken to a vote at US retailer Costco’s annual meeting on January 30 – receiving 5% shareholder support.

It was filed by US SRI investor Northstar Asset Management and called on the company to go beyond superficial policy changes and commit to identifying where prison labour exists in its supply chains and engage with suppliers to develop best practice around the controversial issue.

RI was told that a similar resolution has also been filed with US clothes retailer TJX, owner of the TJ Maxx chain. The date of the annual meeting has not yet been announced but is expected around June.

Mari Schwartzer, Assistant Director of Shareholder Activism, Engagement, and Social Research at Boston-based Northstar, said it was “an admirable vote for a first-time proposal dealing with a controversial issue”. One which, she said, allowed them to continue to engage with the company, consider re-filing next year, and to continue to “further educate on this issue with shareholders”.

The resolution called on Costco to survey all suppliers to identify sources of prison labour in its supply chain – and develop and apply additional criteria or guidelines for suppliers.

Speaking to Julie Goodridge, Northstar’s CEO ahead of the vote, RI was told that despite Costco’s claims to the contrary and its recent action to develop rules around the issue, “it absolutely has no idea how prison labour works in any of the states of its suppliers”.

“It is complicated but what we are trying to do is to have conversations with these companies to get them to understand what best practice is and to think about incorporating it in their sustainability documents, their documents around human rights; to create some sort of protocol and supply chain evaluation that would contain best practices regarding prison labour.”This issue first came to Northstar’s attention following the revelation that Whole Foods – the US food firm bought by Amazon last year – was found (in 2015) to have prison labour in its supply chain, which it subsequently removed. This prompted Northstar to question, according to Goodridge, “what would constitute acceptable – if there is any such a thing – prison labour” in the companies they own.

She added, “when we file such resolutions we are looking at the interaction of key social issues and the companies that we invest in”.

Costco declined to comment on the resolution and directed RI to the proxy statement, which states its internal supplier code of conduct prohibits prison labor that is unlawful in the country where it is performed. “In early 2017, the company began a closer examination of the use of lawful prison labor in its supply chain,” it adds.

US prisons – particularly private ones – are a growing issue for responsible investors.

In December 2017, US based Amalgamated Bank, as Trustee for the LongView Collective Investment Fund, defeated a motion to dismiss its class action lawsuit against Corrections Corporation of America (CCA) – the largest private corrections company in the US – over allegations that it violated the Securities Exchange Act by making “materially false and misleading statements and omissions to investors regarding CCA’s business and operations”. The lawsuit reportedly centres on claims that CCA exaggerated the faith in its services held by its US government partners.

And last October, the Philadelphia Board of Pensions and Retirement divested its investments US private prisons over its concerns. Scott Stringer, the New York City State Comptroller, congratulated it at the time, saying the industry is “morally bankrupt” and “financially risky”. The New York City Pension Fund itself became the first major public pension system in the US to completely divest from private prison companies earlier that year.