Thursday, October 22, 2015

Trick or Treat- A New Scary California Lawsuit Claims Failure to Disclose

Regular readers know that I write a lot about business and human rights and that I have posted about a number of lawsuits brought in California alleging violations of consumer protection statutes and false advertising claiming that companies fail to disclose the use of child slavery on their packaging. The complaints allege that consumers are deceived into "supporting" the child slave labor trade. The latest class action has been filed against Hershey, Mars, and Nestle. Back in 2001, these companies and several others signed the Engel-Harkin Protocol (drafted by Congressman Engel) in an effort to avoid actual FDA legislation regarding "slave-free" labeling. Nestle has touted its work with some of the world's biggest NGOs to help clean up its supply chain for all of its human rights issues, not just in the cocoa industry. Nestle denies the allegations and actually has an extensive action plan related to child labor. Mars and Hershey also denied the allegations.

I am curious as to whether shareholders demand action from the boards of these companies or if the steady stream of litigation being filed in California causes companies to invest more in supply chain due diligence or to change where and how they source their materials. The real question is whether consumers actually care. Today I conducted an unscientific poll. I asked my business associations and civil procedure students to vote on whether they would continue to buy their favorite chocolate if they knew that child slaves were used in the cocoa harvesting. I made them close their eyes so they wouldn't feel self-conscious about their answers and asked for their honest feedback. About 90% of students in both classes said that they wouldn't buy the products. We will see what happens to their moral outrage if I bring in Halloween candy next week. My business associations students also believed that shoppers who saw signs in grocery stores about child slaves wouldn't buy the candy either. This is in fact the theory behind many of the name and shame campaigns such as Dodd-Frank conflict minerals. 

Maybe it does work. I am against the Dodd-Frank legislation for a variety of reasons, but when one of my students came in my office a few minutes ago and pointed out my Soda Stream bottle she said "you know that there is a huge conflict with that company and Israel, right"? I admitted that I knew. And yes, I am going to Bed, Bath, and Beyond this weekend to buy another brand. I have been shamed, even if she didn't intend to so do.

Business Associations, Compliance, Corporate Governance, Corporations, CSR, Current Affairs, Human Rights, Legislation, Marcia Narine Weldon, Shareholders | Permalink


Thanks for posting.

Whether consumers really care? As a general proposition, I would argue that price, quality and availability are ultimately the driving force in consumption. Having observed numerous Buy USA or Buy State X initiatives, the preceding measures seem to ultimately prevail over patriotism. I am quite certain that VW is still selling vehicles despite its admission of wrong-doing. Conversely, I agree that “slave labor” is sufficiently repugnant to sway a vast majority’s judgment.

I would argue that morality and ethics (revulsion to slave labor) are far more persuasive in altering consumption than whether something is legal or illegal. However, we have – based on my anecdotal observations - an increasingly undereducated, uninformed and disengaged public. It is hard to shame if the audience is disengaged and uninformed. Your unscientific poll reflects that of a presumptively educated, informed and engaged sample.

It would be an interesting study to measure the “price point” versus the disclosure that the product was brought to market through slave labor. I would assert that economic demographic would have some pretty significant influence. Would Wal-Mart shoppers turn away from Mars, Nestle and Hershey? I doubt that Quik, Snickers/M & M’s and Hershey bars would see any measureable decline in sales.

Based on the preceding, I would posit that the effect of the litigation will have far more influence on boards than the potential for shareholder demands.

Posted by: Tom N. | Oct 23, 2015 8:26:22 AM

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