Boston Common Engages Apple

In January, 2012, electronics and media giant Apple Inc. took a major step toward transparency by revealing its full list of Asian supply chain partners.  At the same time, the company has faced strong criticism over reports of poor working conditions at the sites that manufacture and assemble Apple products.   The company has taken notable steps to address these concerns, becoming the first in its industry to join the Fair Labor Association in January, and committing to publicly disclosed supplier audits.   The same month however, the New York Times published a front-page expose of egregious working conditions at supplier factories making Apple iPads.

Apple’s important position in the market, coupled with a history of supply chain controversies has spurred Boston Common’s shareholder advocacy with Apple for the past 7 years. We view transparency and effective supply chain social compliance policies as indicators of good supply chain management.  Working in league with other investors we have encouraged these practices by Apple and other companies.  Below is a history of our engagement with Apple.

Since 2004, Boston Common has engaged Apple directly as part of a group of U.S. investors concerned about the company’s supply chain practices.  At the time, Apple did not have public CSR vendor standards like its peers IBM, Hewlett-Packard (H-P), and Dell. Our initial engagement focused on asking Apple to include the ILO core labor standards in Apple’s vendor policies, and to commit to independent monitoring and public reporting.

Boston Common co-filed shareholder proposals with Apple in 2004 and 2005, and sought an open dialogue on how Apple ensures decent working conditions throughout its global supply chain.  With other investors, all members of the Interfaith Center on Corporate Responsibility, we pushed Apple to commit to clear guidelines modeled after the code of conduct of the Electronics Industry Citizenship Coalition (EICC), which had been adopted by IBM, Dell, H-P and other companies.  Later Boston Common successfully encouraged Samsung and Sun Microsystems to join the EICC.

Although the EICC code addresses freedom of association, it does not include the right to collective bargaining as one of its principles. On a conference call in 2005, Boston Common’s Steven Heim directly secured an Apple senior executive’s agreement to include this provision in Apple’s revision of its internal supplier code of conduct.  We wanted to provide Apple the opportunity to raise the bar for its industry.  In November 2005, Apple formally adopted its supplier code of conduct, and has highlighted this key difference. In its 2011 Supplier Responsibility Progress Report, Apple states: “while similar to the EICC Code of Conduct, Apple’s Code is more stringent in several important areas, for example, requiring collective bargaining practices and prohibiting any form of involuntary labor.”

The January 2012 New York Times article on Apple reported on the troublesome history of workplace and safety violations by some of Apple’s key suppliers, and in particular Foxconn.  According to press reports, Foxconn is among Apple’s largest suppliers, and manufactures products for many other major OEM brands.   Apple has disputed the findings of the article.

Boston Common raised concerns with Apple about its relationship with Foxconn as early as 2006, months before an expose on abusive working conditions at a Foxconn plant that manufactured iPods and products for other companies.   An investigation conducted byVerité found excessive overtime at the factory, but concluded that it was not mandatory.

We focused on Foxconn again in 2010 in the wake of a rash of suicides among Foxconn workers that some linked to low pay, excessive overtime, and worker abuse.  Boston Common co-drafted and published an investor statement on improving poor working conditions in electronics factories in China.  We helped to recruit more than 50 global investor signatories to the statement, which encouraged the electronics industry, investors, and governments to seriously address working conditions at Foxconn and other Chinese factories.  Both Foxconn and the EICC issued formal responses, and investors sent the statement to other Foxconn customers including H-P, Dell and Apple.   Lauren Compere of Boston Common later raised these issues directly with Samsung Electronics and Sony at our meetings with them in South Korea and Japan.

Apple’s 2011 and 2012 global suppliers reports showed progress, but also revealed both minor and serious violations of the terms of the company’s supplier code at sites throughout its network. The company states that it will cut ties with any suppliers that fail to meet its expectations on sustainability performance, including in their labor practices.  Our engagement with Apple now focuses on urging the company to strengthen its global social compliance capabilities, and to follow through on the commitments outlined in its code, including ending working relationships with offending suppliers.

Nearly eight years later Apple has come a long way from where it was when we began our dialogue with them in 2004.  Apple has joined the EICC at the urging of key investors, including Boston Common. Through EICC, the company is involved in industry-wide sustainability initiatives.   Apple has also started communicating the impact of its sustainability efforts.  In its 2012 Progress Report on Supplier Responsibility, the company disclosed that audits have lead to $6.7 million being reimbursed to migrant workers who had been overcharged by labor contractors in countries like Singapore and Malaysia.  The company also reports that more than 60,000 individuals have taken advantage of the Apple Supplier Employee Education and Development program extended to workers at all final assembly facilities.

Responding  to stakeholder concerns, Apple joined the Fair Labor Association (FLA) in January 2012.  FLA seeks to improve working conditions for laborers in factories. Members are required to agree to audits of their suppliers, and to allow reports on working conditions to be posted on the FLA website.  However, we note that this group has limited experience in the electronics industry, as most FLA members are footwear and apparel companies. Some critics also question FLA’s degree of independence from corporations themselves.

Next Steps:
Apple has committed to discussing supply chain management issues with Boston Common and other key investors, and we are aiming for a meeting in April 2012.  We plan to push the company to employ its great talents for innovation toward adopting long-term solutions to address its supply chain issues. These solutions should include sending non-conflicting messages to suppliers from Apple’s procurement and supplier sustainability teams, to ensure that expectations on price and productivity do not lead to egregious practices at the factory level.  In short, we will continue to push Apple to use its new market stature to improve supply chain practices at the company itself and across the industry.

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