Human rights

Vanguard’s shame

July 3, 2009

Harvard, Yale and Stanford did it. So did the pension funds of 27 states, including California and New York. And investment firm TIAA-CREF.

So why won’t Vanguard, the big mutual fund company, agree to use its influence to get big companies to stop supporting the genocide in Darfur?

At Vanguard’s shareholders meeting last week, owners of the company’s mutual funds rejected a proposal that would have required the funds to come up with ways to avoid “holding investments in companies that, in the judgment of the Board, substantially contribute to genocide or crimes against humanity.”
Fidelity Genocide

The votes weren’t even close. For the the 21 Vanguard funds reporting results, affirmative votes ranged between 7 and 17%. On its website, the company said:

An average of 89% of Vanguard shareholders voted against this proposal. The vote demonstrates that Vanguard shareholders have confidence in the funds’ board of trustees and their judgment in fulfilling their fiduciary and investment responsibilities.

Not really. Investors Against Genocide, the shareholder group that submitted the proposal, never had a chance. Proxy votes like the ones at Vanguard are almost always won by management because most investors don’t pay attention to the packages they get at home by mail.
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Fidelity, Vanguard and the genocide in Darfur

June 18, 2009

Recently, I voted in a contested election with repercussions for a big Islamic nation. (No, not Iran.) As a shareholder in mutual funds run by Vanguard and Fidelity, I voted to ask both mutual fund companies to sell their holdings in companies doing substantial business with Sudan, and thereby helping to finance the genocide in the Darfur region.

If you own stocks or mutual funds, this is the time of year when shareholder proxy ballots arrive in the mail, usually accompanied by pages of small print asking you to change the corporate bylaws or “elect” a slate of directors who have already been chosen. They’re boring and easy to ignore.

This year, however, shareholders of Vanguard, Fidelity and other mutual fund groups should keep an eye out for the important shareholder proposals about genocide on the ballot. These proposals don’t mentions Sudan because they are broader in scope. They ask but the funds to refrain from investing in companies that “substantially contribute to genocide or crimes against humanity.”
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Perhaps surprisingly, Vanguard and Fidelity both recommend a “no” vote on the proposals.

“They don’t want to have limits on where they invest,” says Eric Cohen, the co-founder of Investors Against Genocide, a volunteer organization that got both proposals on the ballot.

Cohen, a retired tech executive, is a soft-spoken and usually understated guy but he says this of Vanguard and Fidelity: “Their lack of due diligence connects their customers to the very worst companies in the world.”

The Investors Against Genocide website puts it this way:

Looking back, who would support the idea of investing in firms that sought to make a profit by selling Zyklon-B gas to the Nazis or machetes for the genocide in Rwanda? Looking forward, who wants their personal savings and pension funds invested in companies that help fund genocide?

Investors Against Genocide was formed in January, 2007. (I wrote one of the first stories about the group, under the headline Fidelity’s Sudan Problem, for CNNmoney.com.) By then, campus activists had persuaded the endowment managers at Harvard, Yale and Stanford to sell stocks of companies that were doing business with the government of Sudan, which is responsible for the genocide that has now taken the lives of an estimated 300,000 people in the Darfur region. (Another 2.7 million have been forced out of their homes.) Pension funds in half a dozen states, including California, had also agreed to divest.
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Wal-Mart CEO has a problem with gays

May 4, 2009

Mike Duke, who has been chief executive of Wal-Mart Stores for just three months, is getting a lot of attention in the blogosphere. It’s not the kind of attention a new CEO wants.

“Shameful, bigoted and discriminatory” is the headline over one blog post about Duke.

Why? Because, it turns out, Duke signed a petition last year that put an initiative known as Act 1 on the ballot in his home state of Arkansas. The controversial initiative says that only married couples may become adoptive or foster parents in the state, closing the door for same-sex couples. It passed in November with 57 percent of the vote.

Mr, Duke, what on earth were you thinking?

Needless to say, this is unwelcome news for Wal-Mart, the world’s biggest retailer, and it’s especially hurtful to the company’s gay employees. Wal-Mart has struggled in recent years to figure out how to deal with LGBT (lesbian, gay, bisexual and transgender) issues. It supported an employee group called Wal-Mart Pride, which triggered a backlash, which subsequently caused the company to pull back its support for national gay-rights group. (See my 2007 FORTUNE.com column headlined Wal-Mart shuns gay groups.) More broadly, Wal-Mart has worked hard and for the most part effectively to position itself as a good corporate citizen as it tries to expand from its rural roots into urban, liberal areas. This will be a setback.

News that Duke had signed the petition caught the company flat-footed. When I asked a Wal-Mart spokesman for a comment, I got this response and no more:

I can confirm that Mr. Duke did sign the petition. Also, Wal-Mart did not take a position on the ballot initiative.

I learned from a source inside Wal-Mart that Duke was going to meet with the Wal-Mart Pride group to talk about the issue. (Note to Wal-Mart employees—feel free to let me know how that meeting went by email at marc.gunther@gmail.com.) A gay employee told me that he hopes that this incident will be a catalyst for positive change.
The story of how Duke’s name came to light—you can see a photocopy of the petition sheet (PDF) here—is the latest illustration of how digital media is exposing corporate and individual behavior.

Last week, a gay rights group i called KnowThyNeighbor.org posted online the names of the 83,000 Arkansas citizens who signed the petition, in a searchable database. The petitions are public records.

KnowThyNeighbor.org had previously published names of more than 500,000 people who signed anti-gay petitions in Massachusetts and Florida. In a press release about the Arkansas outing (my word), Tom Lang, the group’s director, says:

These petition signers need to stand behind their signatures and be responsible for this dehumanizing attack on the gay community. It’s disgraceful that they have chosen to exercise their prejudice at the expense of children who are now being denied access to loving adoptive and foster parents.

Lang urges family members, friends, co-workers and customers of those who signed the petition to confront them:

These conversations can be uncomfortable for both parties but they are desperately needed.  The more that gays and lesbians talk about the importance of their relationships and their love for their children, the faster stereotypes break down and both sides begin to realize how much they have in common.

Two days later, a reader identified as Concerned Arkansas Citizen posted a comment:

One VERY prominent person in Arkansas that has signed the petition is Michael Duke of Rogers, AR. He is the new CEO of Walmart Stores, Inc. He should explain himself.

By Monday, gay and liberal bloggers like Queerty and Daily Kos were running with the story and gettings lots of comments. Who says bloggers never dig up news?

For what it’s worth, Wal-Mart got a 40% rating in 2008 on the Corporate Equality Index published by the Human Rights Campaign, the nation’s biggest LGBT advocacy group. Target, a rival, got a 100% rating and Costco got a 93% rating.

Ellen Kahn, Director of the Human Rights Campaign’s Family Project, sent me this comment by email:

When Mike Duke voted in favor of ACT 1…he essentially closed the door to a hopeful future for the hundreds of children in Arkansas’s foster care system…Duke should think about the real lives of these kids and show some compassion.

Duke’s defenders including Jerry Cox, director of the Arkansas Family Council, who called it an invasion of privacy to publicize the names of citizens who are exercising their right to petition the government, according to the Arkansas Times. What’s more, he wrote, many voters will sign any petition based upon “one simple principle: that the people, whenever possible, have the right to vote on issues that could directly impact their lives.”

I’m not persuaded. Duke chose to sign a petition, which is a public document, so how has his privacy been invaded? What’s more, if you believe, as I do, that equality for LGBT people under the law is a civil rights issue, then there’s no reason to put it up to a popular vote.

At the very least, Duke’s decision to sign the petition reflects poor judgment. As a senior executive of Wal-Mart, he should have known that supporting a controversial measure widely seen as anti-gay could boomerang. (The Arkansas Democrat and Gazette called Act 1 “just another exercise in stirring up bad feelings.”) Duke has alienated LGBT customers and their allies, as well many of his own employees.

And if Duke figured that no one would ever know, well, that wasn’t very smart either. Several years ago, the writers Don Tapscott and David Ticoll wrote a book about transparency in business aptly called The Naked Corporation. There are few secrets these days in corporate America. CEOs (and future CEOs) need to pay close attention to how they behave—on and off the job.

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Investing in Genocide?

April 3, 2009

There was modestly good news about the crisis in Darfur last week, and I’ve been meaning to write about it. Unfortunately, I’ve been busy with other projects so the people at CSR Wire, a corporate responsibility newswire, and Bill Baue have kindly given me permission to post Bill’s CSR Wire story about developments at TIAA-CREF and Vanguard.

I’ve covered this story on and off for more than two years, sadly. Here’s a 2007 CNNMoney column and a  2007 blog posting about Fidelity’s ties to Sudan, and here’s a 2008 column that ran on  Huffington Post. The people at the Darfur divestment campaign deserve enormous credit for keeping the pressure on U.S. mutual funds that invest in companies that do business in Sudan.

Bill Baue has done a great job covering CSR issues for years. He’s also a host of a podcast and Internet radio program called Sea Change Radio, well worth checking out. I’m hoping to find time to work with Sea Change in the months ahead. In any event, here is Bill’s story:

Nothing could be more boring than proxy statements; on the other end of the spectrum, nothing could be more grim than the systematic murder of a population — genocide. These two worlds are colliding as the issue of genocide increasingly appears on proxies, awakening shareholders to the hidden link between their investments and serial rape, displacement, and killing in places such as Sudan. Now, two huge investment firms — TIAA-CREF and Vanguard — say they are severing this link through genocide-free investment policies promoted by Investors Against Genocide (IAG) shareholder resolutions.

This past week, TIAA-CREF upped the ante in its anti-genocide activism by pledging to push companies supporting the genocidal Darfur regime to reverse this complicity — or face divestment. This applies immediately if invitations to meet with TIAA-CREF go unanswered by “target” companies that provide most support to the regime: PetroChina, CNPC Hong Kong, Oil and Natural Gas Corporation, Sinopec, and PETRONAS. Seven other companies have nine months to publicly announce “significant progress” before TIAA-CREF yanks them from its portfolios.

In 2006, TIAA-CREF began engaging with 22 companies, encouraging them to steer clear of genocide — and 10 companies pulled out of Sudan, or committed to humanitarian initiatives there. A quant analyst examining “just-the-numbers” would see some of this behind-the-scenes engagement reflected in TIAA-CREF’s holdings, as it almost halved its PetroChina stake from 38.5 million shares at year-end 2006 to 21.2 million shares at year-end 2008. However, TIAA-CREF more than doubled its Sinopec holdings over the same period, from 7.7 to 16.9 million shares, according to IAG data. All the more reason for bright-line commitments.

Congress members applauded TIAA-CREF’s move. “I am hopeful that TIAA-CREF’s decision to divest from companies that do business with the government of Sudan will inspire other companies to follow suit,” said Representative Melvin Watt (D-NC) of the House Financial Services Committee. IAG also welcomes the “me-too” phenomenon.

In fact, TIAA-CREF piggybacked Vanguard’s genocide-free commitment. Earlier this month, Vanguard’s proxy boldly stated that its existing procedures are “substantially identical” with an IAG shareholder resolution seeking “procedures to prevent holding investments in companies that…substantially contribute to genocide or crimes against humanity.” While IAG filed the resolution with 30 funds, Vanguard asserts its procedure applies to all of its 157 funds.

IAG withdrew its resolution with TIAA-CREF, and promises to do the same at Vanguard if the Emerging Markets Stock Index Fund “shows a significant reduction in its holdings of PetroChina,” according to IAG Chair Eric Cohen. However, Vanguard just disclosed in its first quarter SEC filings an increase of its holdings of PetroChina in its Emerging Markets Stock Index Fund from 149.6 million shares worth $112.5 million at year-end 2008 to 155.7 million shares worth $114.9 million now. So much for “substantially identical”!

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Shaky foundations & Bernard Madoff

December 28, 2008

How could smart people be so dumb? That’s the overarching question raised by the Bernie Madoff-with-the-money affair. But because the decision to entrust one’s entire fortune to a black-box operation like Madoff’s is a triumph of greed over common sense, it’s hard for me to get worked up about the suffering of the Palm Beach society types who invested millions with Madoff.

Far more troubling are the losses suffered by foundations and nonprofits—because they raise important questions about how these institutions invest their money. Among those that have been forced to shut down are The Picower Foundation and the JEHT Foundation (the name stands for justice, equality, human dignity and tolerance) and the Fair Food Foundation. Others that have suffered substantial losses include The Elie Wiesel Foundation for Humanity, the Ramaz School, Yeshiva University, Stephen Spielberg’s Wunderkinder Foundation, Hadassah and the Carl and Ruth Shapiro Family Foundation, according to this roundup in The Washington Post.

There is lots to say about all this. See, for example, this excellent story in The New York Times about the campus debates at Yeshiva University, about the scandal and Jewish values. But the screamingly obvious lesson, to me, is that nonprofits and foundations have been woefully deficient when it comes to aligning their investments with their broader purpose. This problem extends well beyond Madoff.

Think, for instance, of that JEHT Foundation, which supported such human rights groups as Amnesty International, Human Rights Watch and Human Rights First. You’d think a group like that would want to invest its money only with companies that respect human rights by, for example, refusing to do business with Sudan, or pressing for freedoms in China. But there’s a disconnect between the way groups like JEHT invest their money and how they give it away.

The same goes for Jeanne and Kenneth Levy-Church, who were behind the Fair Food Foundation, a group that had generated lots of buzz in the sustainable food world. You would think the couple would want to make sure that their money was invested in companies that respect the environment. Instead, they turned it over to Madoff, and like everyone else, had no idea how he made his money.

This isn’t a new issue. You may recall that a few years ago the Los Angeles Times looked into the investments of The Gates Foundation and found that some of the companies it was supporting undermined the purposes of the foundation. For example:

The Gates Foundation has poured $218 million into polio and measles immunization and research worldwide, including in the Niger Delta. At the same time that the foundation is funding inoculations to protect health, The Times found, it has invested $423 million in Eni, Royal Dutch Shell, Exxon Mobil Corp., Chevron Corp. and Total of France — the companies responsible for most of the flares blanketing the delta with pollution, beyond anything permitted in the United States or Europe.

More generally:

The Times found that the Gates Foundation has holdings in many companies that have failed tests of social responsibility because of environmental lapses, employment discrimination, disregard for worker rights, or unethical practices.

You can read the long L.A. Times series here.

Steve Viederman, the former president of the Jessie Smith Noyes Foundation, has for years been calling upon foundations to align their investments with their mission. Foundations, he has noted, tend to be passive investors. They rarely throw their weight around when it comes to shareholder resolutions aimed at getting companies to be more socially and environmentally responsible. Here’s an essay by Steve about the issue.

Another who has sounded this alarm for years is the shareholder activist Robert A.G. Monks. Monks has griped that university endowments manage investments that are entirely unrelated to their values and missions. See, for example, To Harvard With Love, a letter that Bob wrote to Larry Summer, who was then the president of his beloved alma mater, back in 2003. He wrote:

Harvard has become an “owner” of virtually all of those enterprises whose collective functioning impacts life on earth perhaps more than any other institutions. The question is the extent of Harvard’s responsibility as owner. What is Harvard doing now? Does she ensure optimum value? What should she do in the future?

The fact that people like Steve Viederman and Bob Monks and a group called the Sustainable Endowment Institute have been making this argument for so long and getting so little traction is, among other things, a reflection of the weakness of the socially responsible investment industry. SRI investment pros have simply failed to make the case that values-driven investing is the best way to invest.

If there is any benefit from the Madoff scandal, it will be that nonprofits and  foundations pay a lot more attention to how and where their money is invested. They can’t just be responsible donors. They need to be responsible owners as well.

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Marriott and Milk

December 8, 2008

Last month’s passage of California’s Proposition 8, which banned same-sex marriage, unleashed anger among gay and lesbian Americans. One target: Marriott Corp., mostly because the company’s founding family and current CEO, Bill Marriott, are members of the Church of Jesus Christ of Latter Days Saints. See this and this and this.

Mormons, of course, played a crucial role in passing Prop 8. News reports say that half of the $40 million spent to support Prop 8 came from LDS members, who also canvassed neighborhoods and staffed phone banks. This is ironic, at the very least, as Hendrik Hertzberg noted in The New Yorker:

You might think that an organization that for most of the first of its not yet two centuries of existence was the world’s most notorious proponent of startlingly unconventional forms of wedded bliss would be a little reticent about issuing orders to the rest of humanity specifying exactly who should be legally entitled to marry whom But no.

But why go after Marriott? According to my friend Bob Witeck, who runs a consulting firm called Witeck-Combs that specializes in gay issues and advises Marriott, neither Bill Marriott nor members of his immediate family donated to the campaign on behalf of Prop 8. What’s more (and this is undisputed), Marriott as an employer has an exemplary record around diversity in general and LGBT employees in particular. It gets a 100% rating in the Corporate Equality Index (PDF), an annual survey of corporate practices done by the Human Rights Campaign, an LGBT advocacy group. The HRC’s inaugural gala next month will be held at the Mayflower Hotel, a Marriott property in Washington. GLAAD, an activist group that focuses on the media portrayals of gays, has held its awards ceremony at Manhattan’s Marriott Marquis.

So it would appear that the Marriott Corp. is under fire only because the family belongs to the Mormon church. Bob Witeck says this is unfair. “Their policies and practices have been good for a long time,” he told me. “This notion of targeting people because of their faith is deeply troubling.”

At first, I agreed. Anti-Mormon bias is no less troubling that anti-gay bias. Then I saw Milk, the wonderful new movie about the life of Harvey Milk, the first openly gay man elected to public office in America. Part of it is about a notorious California ballot proposal to ban gay teachers from schools that was defeated in the 1970s. Milk argues, persuasively, that singling out gays and lesbians for discrimination in any way, shape or form is simply un-American.

The broad issue raised by the backlash against Marriott is this: What role should CEOS and big companies play when confronted with controversial issues? Certainly they make themselves heard when it comes to the issues directly affecting them, like taxes, trade, labor and environmental laws, not to mention multibillion dollar bailouts. Ought they not take a stand on social issues, too? Indeed, some do—Microsoft endorsed a gay-rights measure in the state of Washington and Procter & Gamble donated money to a gay rights group to help defeat an anti-gay law in its hometown of Cincinnati, as I wrote in a FORTUNE story called Queer Inc. in 20006.

Bill Marriott responded to the boycott threats last month on his blog. “Neither I, nor the company, contributed to the campaign to pass Proposition 8,” he wrote. “We embrace all people as our customers, associates, owners and franchisees regardless of race, sex, gender identity or sexual orientation.” Later, he recorded a Thanksgiving message around the diversity theme, mentioning sexual orientation. Clearly the company is worried about the gay backlash.

My guess is that Bill Marriott, who is 76 and a political conservative, has come a long way on the issue of gay rights. But for all his talk about diversity, he has yet to take a position on gay marriage or Prop 8. He has no obligation to do so, but if you believe that gay marriage is a civil rights issue, just as interracial marriage was once a civil rights issue, silence or neutrality is unacceptable. On this point, Milk the movie and Milk the activist are unequivocal. Either you’re for us or against us, Harvey Milk would have said.

As one commenter to Bill Marriott’s blog wrote:

When it comes to gay issues, Marriott is conveniently a hotel chain that is welcoming and accepting of all travelers. When it comes to Mormon issues, Marriott is conveniently a company founded and led by members of the LDS church and fully supportive of church doctrine. Marriott can’t play it both ways. Through this posting, Bill Marriott is attempting to salvage Marriott’s reputation with a PR diversion. As Margaret Thatcher once said, “Standing in the middle of the road is very dangerous; you get knocked down by the traffic from both sides”.

Another disagreed:

It is amazing to me that in this great country, where we prize the precious freedoms of religion and speech, that a man can be criticized and attacked for his personal beliefs and religion. Mr. Marriott didn’t contribute to the Prop 8 campaign. His personal beliefs are irrelevant, because those are his PERSONAL beliefs… I’m just so saddened to see such hate and bigotry from a community who proclaims tolerance and love.

My own thoughts, which are subject to change: I’ve met Bill Marriott, who is an extraordinarily decent man, and I know from hearing from employees that Marriott is a gay-friendly company that values all of its workers. I know that it’s a lot to ask of the Marriott CEO to support gay marriage. But Prop 8 is a hateful and hurtful law, designed to take away the right of gay marriage granted by California courts. It was opposed by mainstream pols including President-elect Obama and Gov. Schwarzenegger.

Bill Marriot has the right to try to finesse the controversy. But gays and lesbians have the right to spend their money with companies that fully and openly support their cause.

A final thought: The future of the gay marriage issue could not be clearer—the younger you are, the more likely you are to support equality for gays in public and private life. Smart companies see where the world is going.

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Wal-Mart, bully for good

December 3, 2008

The two most influential companies in America, I’d argue, are GE and Wal-Mart. GE has clout because of the respect accorded its managers, even after a tough run under Jeff Immelt. Wal-Mart matters because of its scale, meaning that most everyone in the consumer products business wants to do business with Wal-Mart. Both have wrestled seriously the idea of sustainability in the last few years. I never tire of writing about either company.

You’ll get lots of arguments about Wal-Mart, but I think the company has changed dramatically for the better under Lee Scott, who announced last month that he is stepping down as CEO. The company engaged with its critics, took a systematic look at its environmental impact and began an ambitious and far-reaching effort to become more sustainable. Its impact is felt in unexpected places. Did you know, for example, that Wal-Mart has taken on the repressive government of Uzbekhistan over the issue of child labor? I’ve taken an anecdotal look at a few of Wal-Mart’s initiatives in today’s Sustainability column.

Here’s how the column begins:

Children who are forced to pick cotton in Uzbekistan, farmers scratching out a living in Guatemala and salmon fishermen in Bristol Bay, Alaska, would not seem to have much in common. But all are feeling the global impact of Wal-Mart.

As the world’s largest retailer, with $379 billion in revenues last year, Wal-Mart has long been a powerful force in the global economy – a bully, its critics would say. For years, they assailed Wal-Mart for squeezing suppliers over costs, driving mom-and-pop stores out of business or crushing efforts to organize its workers.

These days, though, the company is winning praise for using its leverage – that’s a polite term for bullying – to protect the environment and help the poor.

The more people I meet who work Wal-Mart, and the more I talk with the company’s critics and partners, whether from environmental NGOS or socially-responsible investment funds–and their role as agents of change is vital–the more I am convinced that Wal-Mart is thinking expansively and creatively about its responsibility.

You can read the rest of the column here.

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Lost in Shenzhen

November 22, 2008

Half an hour before an interview that I’ve flown 8,000 miles to do, the driver of the Toyota SUV that’s taking me there pulls to the side of a dusty and crowded highway. He’s yelling in Cantonese into his cell phone and madly sketching Chinese characters onto the touch screen of his GPS navigator. The PR woman seated beside me is lost, too. “The GPS isn’t working,” she says. “Too many new roads.”

I can’t blame the driver, the PR woman or the GPS—which, it occurs to me, was probably made nearby, since we are in Shenzhen, the Chinese mega-city that is the hub of the global electronics manufacturing industry. They simply can’t keep up with China’s growth.

You can’t appreciate the scale of a place like Shenzhen until you’ve seen it for yourself. Think of high rises, really high rises, stretching into the distance for as far as the eye can see. Factory after factory, in all directions. Cranes everywhere. Roads too new to have signs. Of course the old roads don’t have signs either.

On the factory gates are the names of companies you’ve probably never heard of: TianMa, NeoPhotonics, TCL, Skyworth, Fangda, Dawning, Tencent, Shima, Microtec, Ohimo Eyewear, Glory Medical, NCBC, Sisemi, Trony. They make things for the companies you know: Apple, Dell, Sony, Hewlett Packard and Nokia.

Shenzhen is a city of about 14 million people, bigger than New York or London, that most of us couldn’t place on a map. The most amazing thing about Shenzjen isn’t its size, though. What’s amazing is how quickly Shenzhen has grown up. Back in 1980, when the city (which is just north of Hong Kong, by the way) was designated as a special economic zone by Deng Xiaoping it was a fishing town of about 30,000 people and the tallest building was a three-story guest house, according to the South China Morning Post, which, by coincidence, published a weeklong series about Shenzhen during my visit.

Shenzhen is the creation of an economic miracle. The government invited in capitalists, cleared land for factories, brought in masses of rural migrants and housed them in vast dormitories. Their jobs pay $200 a month or less but they are so desirable that the authorities built a wire fence, 85 kilometers long, to keep out illegal immigrants. From the factories sprung other opportunities. Today, there are enough middle managers, engineers, shopkeepers, developers and entrepreneurs so that the average per capita income in Shenzhen has grown $10,628 a year, the highest of any city in China. The city has its own vast shopping malls, theme parks, luxury hotels and a stock exchange.

“Pursuit of money has pushed aside Maoist principles,” said one headline in the newspaper series. You don’t say! Still, there was a wistful tone to some of the coverage. An early settler named Fang Xioa, who worked as a salesclerk at a state-owned department store and then got rich trading IPOs, said that her husband, who also made money in the market, then left her for a young mistress:

We have been overwhelmed by numerous unexpected freedoms and opportunities since the economic reform launched. But many have also lost their inner peace and traditional values amid dazzling fortunes.

Right now, there are more pressing concerns than the loss of inner peace in Shenzhen and the rest of Pearl River Delta. No. 1 is the global recession. China’s growth is slowing, and several people told me during my brief visit that they are worried about the stresses that a downturn will place on the ruling Communist Party, as workers lost their jobs and become disgruntled.

Over lunch one day at the Hong Kong Jockey Club, one of the city’s most prominent PR women drew the Chinese characters for the word harmony on a scrap of paper. Turns out that one of the characters represents “grain” and the other represents “mouth.” So long as people are fed, she explained, there will be harmony in China. But already hundreds of thousands of people in the Pearl River Delta have lost their jobs because global demand for electronics, cars and toys is declining. Taxi drivers and bus drivers have gone on strike, and thousands of people in one city (elsewhere in China) attacked government offices and burned cars to protest the confiscation of their land.

The Chinese government is responding with a carrot, a stick and, most interestingly, some small steps towards openness.

The national and provincial governments are rolling out economic stimulus packages. The government is holding down fuel prices, helping the newly-employed collect back pay and putting off wage increases to keep more people on the job. That’s the carrot.

The government is also demanding law and order. “We have to strengthen public security forces in rural areas, carry out crackdowns on crimes in high-risk places and punish those who endanger our social stability,” said a top party official. That’s the stick.

As for the openness, the state-owned media is reporting more on land, labor and social problems because acknowledging bad news is a way to contain it, according to Reuters:

Propaganda authorities have issued a writ authorizing news organizations to report on unrest, rather than allow rumours to take hold among a public worried about the impact of the global financial crisis on the country’s economy.

This partly reflects the difficulty of suppressing negative news as rumors spread quickly across the Internet. China’s digital media businesses are flourishing.

I asked a young marketing executive for a Chinese company whether the country needed to become more open, to deal with corruption, debate the government’s economic policy or, for that matter, learn from experiences in the private sector. He responded that he thought it would be difficult to take China’s companies to the next level so long as the society that stifles argument and dissent. Marketing, he added, is one area where China’s companies lag well behind because the state-run education system discourages creativity or thinking outside the box.

Big companies, he noted, have been built in China but the economy has yet to create a global brand. I thought about that for a moment, recalled all those unfamiliar names on the factory gates, and realized he was right. (No, Lenovo is not a global brand.)

By the way, after 40 minutes of driving around and a couple of fruitless attempts to ask people for directions—apparently no one can keep up–I made it to the interview. Given the slowdown, maybe the government should hire some people to put up street signs.

P.S. I had an email after this posted letting me know that Ritz Carlton is opening a hotel in Shenzhen next year.

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Helping companies fight sweatshops

November 17, 2008

On a 15-hour flight from Chicago to Hong Kong (in coach), it helps to have some distractions. The movie Get Smart? Nah. Instead, I spent time talking with Dan Viederman, the leader of an NGO called Verite, who I’ve gotten to know in recent years because he works with U.S. companies that want to improve conditions in factories in poor countries where their products are made.

Dan, who is 45, happens to be an old China hand. He first traveled to China in 1985, after college, to spend a couple of years teaching English. “I was one of 50 foreigners in a city of 9 million people and 30 of them were Korean,” he tells me. He also lived in China during the 1990s, first as a development worker with Catholic Relief Services and then as the director of World Wildlife Fund’s offices in Beijing. He’s been back many times since.

We ran into each other by chance, but we were both headed for the Pearl River Delta area of southern China, the world’s biggest manufacturing hub, where many millions of mostly young workers make the clothes, shoes, furniture and electronics we use every day. (I’m typing this blogpost on a MacBook Air; odds are some or all of it was made here. Same with the Gap jeans and shirt I’m wearing.) These huge facilities—with dormitories for the production workers, apartments or homes for middle managers, cafeterias and restaurants, stores and athletic facilities—are more like company towns than mere workplaces.

Consider: Shenzhen, which is just north of Hong Kong, was a fishing town of about 30,000 people when “paramount leader Deng Xiao-ping” (as he’s called in this morning’s South China Morning Post) designated the area as a “Special Economic Zone” to promote foreign trade in 1980. Today, Shenzhen is bigger than New York or Paris, with about 14 million people, and it’s one of China’s wealthiest cities.

This has been a boon to U.S. companies and consumers. But it has also led to scandals around sweatshop labor that embarrassed Nike and Kathie Lee Gifford and Disney and Wal-Mart, most in the 1990s, some more recent. Since then, U.S. companies have been looking for ways to stay out of that particular spotlight. Many have written labor standards and codes of conduct that they impose on their suppliers, after which they hire inspectors to monitor factory conditions. These U.S. and European brands function, informally and imperfectly, as the Department of Labor in China, which has pretty good labor laws on the books but enforces them erratically at best.

As executive director of Verite since 2004, Dan has tried to improve that system. He has worked with a host of companies – Timberland, Disney, Gap, Apple, a coalition of firms called the Electronics Industry Citizenship Coalition and others—around labor practices in the developing world. Verite does auditing, training, worker empowerment programs, research and investigations. Verite also has contracts with the U.S. government (labor and state) to look at issues like migrant labor and slave labor, and it’s part of a chocolate industry effort to do something about child labor in the cocoa industry in West Africa. The NGO is headquartered in Amherst, MA, with offices in China and Manila.

No one who knows anything about this system of factory monitoring, inspection and compliance will tell you that it is ideal but in China, at least, it’s about all we’ve got. Dan’s job is to make it better, and he says the obstacles are many—suppliers keep two sets of books to fool auditors, they monkey around with workers’ pay stubs by deducting funds for housing or uniforms, they track hours poorly or don’t pay overtime, etc. “There’s built-in underpayment of wages,” Dan says. Besides that, some auditors who work for U.S. brands may not be fully committed to the task—they are paid, after all, by the companies, and they may not know or care how to do inspections right. Think of how Arthur Anderson “audited” Enron.

As a nonprofit, Verite’s loyalty is to the workers, and its credibility is key. That’s one reason why Dan is refreshingly honest about the flaws of the system. “We don’t really believe you can certify a factory as complaint,” he says, because conditions change all the time as new orders come in. A more sustainable approach would be to educate workers to look out for their own rights—Timberland hired Verite to try that at some factories a few years ago, and Reebok has taken similar steps. But the Chinese government permits only one trade union, and Dan tells me that the government-controlled All China Federation of Trade Unions has never, as far as he can recall, organized a strike or fought hard for its members.

Despite all the problems, there’s little doubt that the massive industrialization of China has been good for its people. Hundreds of millions have lifted themselves out of poverty through factory work—more than in any other place at any other time. This is the upside of globalization.

“By almost any measure, except maybe environmental quality, China’s a better country for most people than it was in 1985,” Dan says. “I think that has a lot to do with its openness to the world and its role in the global economy.”

What’s more, before we smugly assume a position of moral superiority when it comes to cheap labor in China, we should remembering that it wasn’t all that long ago that rapid industrialization and unfettered capitalism created terrible factory conditions in American cities. (The Triangle Shirtwaist factory fire caused the death of 146 garment workers in 1911.) It took a robust union movement, aided by progressive politicians, to protect American workers from exploitation.

Something similar will have to happen in China before we can feel entirely comfortable when we pay “bargain” prices for laptops or jeans. Interestingly, the Chinese government has been more willing to allow dissent and permit the growth of vibrant NGOs in the environmental arena—where the problems are dire—than it has been to promote independent labor unions.

“In the long run, things will change because the society demands change,” Dan says. “This can’t be the responsibility of business alone.”

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Big Business and gay rights

September 2, 2008

You won’t hear much about gay marriage this week at the Republican convention, but it remains a hotly-contested political issue, particularly in California, where a fall ballot initiative would overturn the state Supreme Court decision giving same-sex couples the right to wed. John McCain supports the ballot Proposition 8 while Barack Obama and California Gov. Arnold Schwarzenegger oppose it. A recent poll shows that most Californians side with their governor, Obama and gay rights groups like Equality for All. Should gay marriage win at the ballot box in the nation’s most populous state, that would be big news.

A political win for same-sex marriage would also reflect the fact that in corporate America, support for gay marriage – or at least workplace policies that treat same-sex couples the same as they treat heterosexuals – is fast becoming business as usual. Indeed, the shifting political tides are being driven, in part, by business.

Two new reports, released on the day after Labor Day, point to the changes unfolding in hundreds of American workplaces.

The Human Rights Campaign, in its seventh annual Corporate Equality Index, awarded 259 businesses, each with at least 500 employees, a 100% score for their treatment of LGBT (lesbian, gay, bisexual and transgender) workers. These business collectively employ 9 million people, and among them are dozens of household names, some of which may surprise you—Shell Oil, which is based in Houston, Texas (Bush country the last time I looked), Lockheed Martin, America’s biggest defense contractor, and Marriott Corp., which is led by the politically conservative and Mormon Marriott family. Longtime gay-friendly companies like AMR Corp. (American Airlines), Eastman Kodak, Intel, JP Morgan Chase, Nike and Xerox also notched perfect scores, even as HRC has raised its benchmarks over the years.

Joe Solomonese, president of the Human Rights Campaign, writes in his intro:

Since (our) first report in 2002, the rates at which corporate America has expanded policies, practices and benefits to include LGBT employees have been faster than perhaps many thought possible.

All 259 companies with perfect scores support domestic partner benefits for same-sex couples. They stand behind their LGBT workers for pragmatic business reasons, as Marvin Odum, president of Shell, told the Human Rights Campaign: “A 100-percent rating helps us to better attract, recruit and retain diverse talent.”

These 259 companies are part of a self-selected group that chooses to work with HRC. But Daryl Herrschaft, director of the HRC’s Workplace Project, who oversees the report, tells me that 283 of the FORTUNE 500 companies now provide domestic partner benefits for same-sex couples. Think of that as a majority vote of Big Business for gay rights.

Companies that scored 100% also provide employment protection for transgender workers. The transgender issue is contentious inside the LGBT community because some gay rights groups supported the idea of removing protection for transgender workers from ENDA, the Employment Non-Discrimination Act, a proposed federal law that was passed last year by Congress but vetoed by President Bush. Removing transgender protection was seen as making the bill more palatable to moderates.

Transgender issues are also highlighted in a new survey from Out & Equal, a nonprofit network of workplace LGBT networks and their supporters. The online opinion survey found that “seven out of ten heterosexual adults (71%) agree that how an employee performs at their job should be the standard for judging an employee, not whether or not they are transgender.”

“A lot of people now have colleagues who have transitioned on the job, and life goes on,” says Selisse Berry, executive director of Out & Equal. Of course, professing to be fair-minded in a survey is a different thing from going to work on a Monday morning to learn that Grace from accounting has turned into George.

The Out & Equal report itself demonstrates that surveys are an imperfect measure of workplace behavior: Nine out of 10 heterosexual adults said they would feel indifferent or positively upon learning that a co-worker was lesbian or gay, and only 10% said they would feel negatively. Yet about 20% of gays and lesbians report being harassed on the job by co-workers and two-thirds say they have faced some sort of discrimination at work. So it appears that the bigoted 10% minority have been pretty vocal.

Still, both surveys make clear that all the trends are moving in the right direction for supporters of gay rights. Other research indicates that people who actually know other people who are gay tend to be far more supportive of gay rights than those who don’t.

As Selisse Berry told me:

Because we all spend so much time at work, and people are sitting in meetings and cubicles next to people of different races and gender and sexual orientation, we’ve come a long way. People get to know a person as a person and, by the way, she’s a lesbian.

The Out & Equal survey was conducted by Harris Interactive in conjunction with Witeck-Combs Communications, a Washington D.C.-based marketing and consulting firm that specializes in the LGBT market and advises such big companies as Wal-Mart and American Airlines. Bob Witeck, a founder of Witeck-Combs and all-around good guy, has a column addressing these issues on Huffington Post.

Here’s a graphic from the Human Rights Campaign report that shows which way things are going:

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