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Activist Shareholders and Labor Issues – Staying Ahead but Staying Honest

A growing number of organizations and institutional investors concerned about international human rights — particularly forced labor or modern slavery — are using their status as shareholders to pressure public companies to take action on these issues. When such pressure is brought to bear, companies are well advised to respond quickly and with precision. Making unsupported statements in a human rights policy can lead to claims by both shareholders and consumers.

In some situations an investor may only ask for a board resolution stating that the company will not support the use of forced labor or modern slavery. In other cases, however, the investors may ask for a meaningful plan to address these issues. Such a plan can take months to put in place.  Making good on broad promises to avoid the use of forced labor or modern slavery will include multiple steps, including due diligence processes, establishment of contacts who can internally monitor affiliate or supply chain issues in various countries, and the resolution of issues when they are identified.

One activist group recently took a company to task on its human rights policies, but gave the company over eight months to develop the following:

  • a statement of company policy on human trafficking;
  • an overview of employee and customer awareness, education and training on the issue of human trafficking;
  • a plan for communicating information to customers; and
  • methods of informing employees of “key persons” at any destination who can address the issue.

As companies respond to reporting requirements from California to the UK to France (see our posts about the UK and French laws here [French Law: https://www.velaw.com/Blogs/Labor/A-French-Revolution-in-the-World-of-Human-Rights-Law/] [UK Law: https://www.velaw.com/Blogs/Labor/UK-Modern-Slavery-Act-Obligations-Take-Effect/]), the resources activists can use to identify companies with potential shortcomings in their international human rights policies and programs are only growing. For example, the Corporate Human Rights Benchmark, a group supported by several investor organizations, recently published a report that ranks 98 publicly-traded companies on their level of attention to international human rights issues.

As the pressure grows to make some public statement related to international business and human rights, companies need to be careful not to publish statements or policies without being able to back them up with action. So-called corporate social responsibility statements are increasingly becoming the target of lawsuits by shareholders and consumers who allege these statements are misleading. While these kinds of broad statements might be tempting for boards of directors hoping to buy more time in developing more concrete plans, companies should make sure they follow through on any initial statements like these to avoid creating problems for themselves down the road.

Now is the time to address policies and procedures that companies should have in place to ensure to the extent they can that they have removed international human rights issues from their worldwide operations and supply chain. Otherwise, companies risk their shareholder meetings being turned into referendums on their international human rights policies by shareholder groups or having these same groups send out materials critical of  the companies’labor practices to other shareholders. The bottom line is that, when it comes to human rights issues, companies increasingly need to make sure they mean what they say, say what they mean, and stick to any plans they make.

This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.