On Your Behalf - October 2007 Report

Consumer Safety, Workers’ Rights and Shareholder Value: the Case for Strong Vendor Standards

Product recalls are a fact of life. The U.S. Consumer Product Safety Commission issued nearly 500 separate recall notices in 2006, involving more than 120 million product units. However, 2007 surely will be remembered as one of the most active recall years in recent history. From pet food to toothpaste, from tires to seafood, from toys to hamburger, large numbers of consumer products have been recalled due to safety and health concerns.

The toy industry has been especially hard hit. Mattel, Inc. (El Segundo, California), one of the largest toy manufacturers in the world, announced not one, but two major recalls in August. The first involved more than 1 million toys found to contain unacceptably high levels of lead-based paint. The second involved more than 18 million toys containing small magnets that could be swallowed by children.

These actions followed already widely publicized recalls of wheat gluten-tainted pet food in March, diethylene glycol-tainted toothpaste in May, and improperly manufactured tires and antibiotic-tainted seafood in June.

Product Recalls Affect More Than Just Consumers

Products are recalled for a very good and simple reason. They endanger the health and safety of those using them. At least three infants have been documented as needing intestinal surgery after ingesting magnets from Mattel-manufactured toys. Consumers, however, are not the only affected parties. Product recalls have wide-ranging ramifications with potentially adverse consequences for companies, company workers, shareholders and other stakeholders. Since May, the stock price of Mattel has declined more than 20%, and the company already faces a shareholder lawsuit alleging that investors were misled because of delays in reporting defects.

One of the more dramatic consequences of a product recall is bankruptcy. For example, the Topps Meat Company of Elizabeth, New Jersey, unable to accommodate the financial implications of the second-largest beef recall in U.S. history, closed its doors on October 5, leaving nearly 90 employees out of work.

Factory workers risk more than losing their jobs, however. If a manufactured item contains lead-based paint or other toxic chemicals, then workers may have handled these dangerous substances in the manufacturing process.

Many laborers around the world must work under unsafe, unhealthy and sometimes abusive working conditions. Protecting the rights and safety of these workers continues to be a major issue for The United Methodist Church. Resolution 234, Environmental Health and Safety in the Workplace and Community, declares that “the right to a healthy and safe workplace is a fundamental right. Employers must assume responsibility to eliminate hazards in their workplaces which cause death, injury, and disease.” (The Book of Resolutions of The United Methodist Church 2004).

What Are Vendor Standards?

An important way to work for employee safety is to encourage companies to adopt, maintain and continually monitor codes of conduct, usually called vendor standards. These codes specify the kind of working conditions that companies expect all of their suppliers to maintain. In general, they attempt to guarantee that workers are treated humanely, compensated fairly and allowed to organize without fear of intimidation or reprisal.

I discussed the issues related to vendor standards in an earlier column (see On Your Behalf, December 2006), but the recent product recalls within the toy industry illustrate that maintaining a safe working environment at supplier factories is far from easy. Organizations monitoring working conditions in overseas locations, such as China (where 80% of the world’s toys are manufactured), report increasing numbers of occupational injuries due to unsafe conditions. These injuries include severed fingers and exposure to lead, benzene and toxic chemicals (especially those used in the production of polyvinyl chloride, or PVC).

Recent General Board Advocacy

As an active advocate for vendor standards, the General Board has joined other socially responsible investors in calling upon toy manufacturers Mattel, JAKKS Pacific, LeapFrog Enterprises, Marvel Entertainment, RC2 and Russ Berrie and Company to take a closer look at the occupational safety issues at their supplier factories by identifying worker risks, monitoring exposure to toxic materials, emphasizing industrial hygiene, providing health and safety equipment training and working towards the elimination of PVC in the manufacturing process. (After years of discussions with medical products company Baxter International regarding PVC risks, the General Board was pleased to learn that Baxter introduced a PVC-free intravenous container to its catalog of products earlier this year.)

Similar letters on product and occupational safety have been sent to McDonald’s and the Walt Disney Company.

Unsafe products usually mean unsafe working conditions. Companies selling such products jeopardize workers, consumers, investors and the corporation itself. A firm commitment to vendor standards that honor and protect factory workers is essential to ensure a safe working environment, safe products, satisfied customers and content shareholders. The General Board will continue to encourage companies to adopt and monitor vendor standards.