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Costco – Land Procurement Policy (2005)

Costco – Land Procurement Policy (2005)

Outcome: 4.2%

In 2001, Costco and a Mexican partner, Comercial Mexicana, purchased public land in Cuernavaca, Mexico. The plan to build two megastores there provoked strong community opposition because the site contained what we believe to be an architecturally significant hotel, the Casino de la Selva, that had long been an artistic center and contained what we believe to be renowned murals. Residents were also concerned about the loss of the hotel’s wooded grounds, the presence of pre-Columbian artifacts at the site, and the project’s impact on traffic.

Thousands of Cuernavacans demonstrated against the project in 2001.

At one demonstration, peaceful protestors were beaten and arrested. A Mexican Human Rights Commission stated: “It was demonstrated that members of the private security police employed by the Costco company, which was undertaking construction on the indicated establishment, also participated in the events suffered by Ignacio Rodriguez Oliveros.” Amnesty International stated in its 2003 International Report: “In August and October plans to develop an environmentally sensitive site, Casino de la Selva, in Cuernavaca, Morelos State, led to protesters being detained, allegedly with excessive use of force.”

As Costco proceeded to demolish the hotel, a number of elected officials, academics, environmentalists, clergy and other public figures expressed opposition to the project.

A study by the International Ombudsman Centre for the Environment and Development, a respected, independent non-governmental organization, concluded that the destruction of the hotel was “a cultural (and to a lesser extent, environmental) crime of great proportions”.

One muralists who decorated the hotel filed a $15 million suit against Costco for copyright infringement. Costco claims the murals are undergoing restoration, but has refused some of the artists access to them.

A federal lawsuit is pending in Mexico against the authorities who approved Costco’s project.

Costco has also been involved in domestic land use controversies. In Cypress, California, city plans to use eminent domain powers to transfer church-owned land to Costco were criticized by observers. The Wall Street Journal called the use of eminent domain on behalf of a private business “the worst form of political collusion.” In Lancaster, California, residents contested for years a plan to transfer parkland to Costco.

We believe negative publicity surrounding these ventures has damaged Costco’s reputation, endangering shareholder value.

We believe these controversies could have been avoided with proper due diligence.

Costco’s Code of Ethics does not appear to provide guidance as to how to avoid future controversies like these.

The shareholders request the Board of Directors of Costco to develop a policy for land procurement and use that incorporates social and environmental factors. A report on this policy and its implementation shall be prepared at reasonable expense, omitting proprietary information, and made available to shareholders by July 1, 2005.

Supporting Statement

Our company asserts that it complies with all relevant laws and has made significant alterations to its original plans in Cuernavaca. The conflicts surrounding its California stores were eventually resolved. However, we believe significant damage to our company’s reputation has been done. The policy requested should include guidelines to

ensure preservation of communities’ cultural heritage and natural environment and respect for human rights;

consult with affected communities and maintain high ethical standards when working with governments and partners.

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