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Wal-Mart removed from DSI: Burma co

Wal-Mart removed from DSI: Burma contracting cited

Domini 400 Social IndexSM Decision Series:
                           Number Three

                      Wal-Mart Stores Inc.,

                     Kyle J. Johnson, Peter D. Kinder

                  Kinder, Lydenberg, Domini & Co., Inc.

     On February 1, 2001, KLD removed Wal-Mart Stores, Inc. from the Domini
     400 Social IndexSM (herein referred to as "DSI" or "the Index"), KLD's
     proprietary socially screened equity index. KLD removed Wal-Mart from
     the DSI primarily because the company has not done enough to ensure
     that its domestic and international vendors operate factories that meet
     adequate human rights and labor standards. Wal-Mart is the second
     company that KLD has removed from the DSI for vendor contracting
     problems. KLD removed Nike from the DSI in 1997.

     In determining whether Wal-Mart's vendor contracting record constituted
     grounds for removal from the DSI, KLD principally considered:

          Wal-Mart's documented contracting with vendors that operate
          "sweatshops" or that were based in Myanmar (formerly Burma)

          Wal-Mart's vendor contracting policies and practices

          Wal-Mart's unresponsiveness to shareholders on this issue

           Wal-Mart's role as a market leader

     Vendor Contracting Issues

     In the 1980s and 1990s, the practice of sourcing products from factories
     in developing countries became prevalent in the US retail and apparel
     industries. Such factories commonly pay wages that are far below those
     paid to workers in similar occupations in the US. In addition, many of
     these factories operate as "sweatshops." Sweatshops are factories that
     subject their workers to one or more inhumane working conditions such
     as forced, prison, or child labor; physical and mental abuse; exceedingly
     long hours; unhealthy and unsafe working environments; and/or pay
     wages that do not support workers' basic needs.

     Numerous firms have also regularly purchased products made at factories
     based in Myanmar. The government of Myanmar is a military dictatorship
     that has been accused of perpetrating grave human rights abuses. In the
     early 1990's, Aung San Suu Kyi, the leader of the country's
     pro-democracy movement and winner of the 1991 Nobel Peace Prize,
     called for companies to pull out of Burma until the political climate 

     Both of these issues have been of major concern to a number of
     constituencies, including social investors. These groups have called on
     companies to work to improve conditions in their vendors' factories and
     to cease contracting with Myanmar-based facilities until that country's
     regime is ousted.

     Wal-Mart was a constituent of the Domini 400 Social Index from the
     DSI's launch in May 1990 until its removal in February 2001. At the point
     of its inclusion on the Index, Wal-Mart was regarded favorably by social
     investors as a leader in its industry in areas such as employee relations
     and community involvement. Over the past decade a number of
     controversies and concerns have arisen over Wal-Mart's practices in
     several areas, particularly its vendor contracting policies and practices.

     Wal-Mart's Vendor Controversies

     Wal-Mart's involvement in high profile vendor contracting controversies
     extends back to 1992. At that time, NBC's television news magazine
     Dateline reported that some of the company's clothing had been made by
     Bangladeshi children, despite being advertised as being "Made in the
     U.S.A." Another major controversy erupted in 1996, after the National
     Labor Committee, a US anti-sweatshop non-profit organization,
     discovered that some of the company's Kathie Lee Gifford clothing line
     had been made in Honduran sweatshops.

     However, three more recent incidents compelled KLD to take a harder
     look at Wal-Mart's vendor contracting record and its implications for the
     company's standing on the DSI.

     First, in July 2000, the National Labor Committee reported that Wal-Mart
     Canada had been purchasing products from factories based in Myanmar
     through December 1999. Numerous firms of similar stature (Levi Strauss,
     Liz Claiborne, Walt Disney, etc.) had terminated their relationships with
     suppliers in Myanmar by 1997. These purchases seemed to contradict
     Wal-Mart's stated policy to "favor Vendors who have a social and
     political commitment to basic principles of human rights . . ." Wal-Mart
     Canada has since stated that it will no longer purchase from factories
     based in Myanmar. Wal-Mart USA's position remains unclear.

     Second, an October 2000 article in Business Week reported that
     Wal-Mart lied about its involvement with the Chun Si Enterprise Handbag
     Factory, a sweatshop based in China. In early 2000, the National Labor
     Committee accused Wal-Mart of contracting with this factory, which
     subjected its workers to 90-hour work-weeks, beatings by factory
     guards, exceptionally low-wages, and prison-like conditions. Wal-Mart
     adamantly denied that it had ever had a relationship with the factory
     until BusinessWeek confirmed the company's involvement with Chun Si
     through December 1999.

     Third, Wal-Mart decided against piloting a third-party independent
     monitoring program (IMP), using locally based NGOs, at its vendors'
     facilities in Central America. Religious, human rights, and labor groups
     agree that IMPs provide the most effective means to ensure that vendor
     factories avoid labor and human rights abuses. In November 2000,
     Wal-Mart had entered into protracted negotiations with the Interfaith
     Center for Corporate Responsibility (ICCR), the leading organization 
in the
     shareholder resolution process, on the issue of independent monitoring.
     Although Wal-Mart had hinted that it planned to move ahead with such a
     program in the BusinessWeek article referenced above, it ultimately
     rejected the idea.

     Wal-Mart's Vendor Contracting Policies and Practices

     These incidents led KLD to re-examine Wal-Mart's vendor contracting
     policies and practices. The company's code of conduct for vendors does
     not stipulate that its vendors permit workers to bargain collectively, nor
     does it require them to pay laborers a sustainable living wage. The
     company does not issue any public reports on the working conditions at
     its vendors' factories. Other companies that have been similarly exposed
     to sweatshop and Myanmar controversies, including The Gap, Liz
     Claiborne, Nike, Timberland, and Reebok, have taken steps to improve
     their records on these issues. In contrast, Wal-Mart's progress has been

     Wal-Mart's vendor contracting record is particularly troubling in light of
     its position as the largest retailer in the world. As a market leader,
     Wal-Mart wields tremendous influence over its industry. As a result,
     advocacy groups believe that Wal-Mart's example compels other
     companies to set a similarly low bar for monitoring labor conditions at
     their vendor's factories. Furthermore, given its sales volume, a move to
     ratchet up the standards in its vendor contracting policies and practices
     could improve the lives of proportionately more laborers than similar
     operational changes at Wal-Mart's smaller peers.

     KLD is cautious about removing companies from the DSI for social
     reasons, preferring instead to communicate with companies to advocate
     for change and monitor companies' efforts to improve. However,
     Wal-Mart's sub-par vendor contracting policies and practices and its
     unresponsiveness to calls for change, amplified by its role as the retail
     industry's market leader, convinced KLD that Wal-Mart's removal from the
     DSI was the most appropriate course of action.

 From the KLD website: