Toyota Backpedals on Burma

If the Prius left you with a warm and fuzzy feeling for Toyota, you’re not alone. Noting that Toyota “has been a leader in both developing and promoting hybrid power-trains, the new industry standard, and is well advanced in overall R&D programs for future vehicle types,” the corporate responsibility research firm Innovest chose the company as the sole automotive representative in its top 100 most sustainable global companies in August 2007. We’re in agreement that Toyota deserves accolades for implementing sustainable business strategies that have led to the successful launch of hybrid fuel technology. But – and you sensed this “but” coming, didn’t you? – sustainability reaches beyond environmental practices.

After pledging it would not operate in Burma in 2001, it turns out that Toyota is still involved there.

Last summer, Domini Social Investments uncovered evidence linking Toyota to an auto and truck manufacturer in Burma (also known as Myanmar since the 1988 suppression of the democracy movement by the current military regime led by generals Than Shwe and Ne Win). Toyota Motors is not assembling vehicles in Burma, but its parts supplier, Toyota Tsusho, does so through a joint venture with Suzuki Motor and the military government-controlled Myanmar Auto & Diesel Engine Industries (MADI). Suppliers, often called trading companies, are more important than ever in global auto assembly. The widely admired pillars of Japanese manufacturing, “intelligent automation” and “just in time management,” are dependent on close relationships with suppliers. It’s no surprise then that Toyota owns the largest chunk of Toyota Tsusho shares, with a 22 percent stake in this trading company responsible for sourcing parts, electronics and metals for auto assembly.

Toyota Tsusho profits from a joint venture that builds Japanese motorcycles, light trucks and cars. With Myanmar ranking among the 20 poorest countries in the world (most people live on less than $200 a year), these vehicles are destined for the elite and those connected to the military. The Burmese military enjoys close ties with and influence over auto manufacturing. In fact, the Burmese general behind the gruesome attack on the convoy carrying the nation’s democratically elected leader, Aung San Suu Kyi, was seen as an invited guest at a Suzuki Motor-sponsored party marking the opening of an auto plant.

Acting on behalf of clients who are shareholders in Toyota, Trillium Asset Management Corporation (“Trillium”), the General Board of Pension & Health Benefits of the United Methodist Church and Winslow Management Company sent a strong letter of concern to Toyota Chairman Fujio Cho before last September’s “saffron revolt” when monks and ordinary citizens peacefully demonstrated against the regime. We requested information about the company’s ties to the joint venture and its role in providing autos and vehicle parts to the repressive regime.

Toyota wrote a short letter in response stating “Toyota shares [our] concerns about the human rights situation in Myanmar and we are carefully monitoring its ongoing status…Toyota’s global Guiding Principles [are] to honor the language and spirit of the law of every nation…Toyota has no partnership or contractual relationship with the Burmese government.”

As we evaluated this unsatisfactory response, media reports poured in about the stunning and brutal suppression of dissent. Reports estimate between 31 and 200 people, including a Japanese journalist, were killed in the September crackdown, while hundreds more were dragged from their homes.

Trillium and Domini wrote back to management, this time conveying our message to Toyota through a different entry point. As chance would have it, in November, the Japan Society in New York City invited Toyota’s Chairman Cho and several senior executives to celebrate the Society’s 100th anniversary. Before Chairman Cho delivered a lecture on the importance of local interaction to global success, Domini’s Asia analyst Shin Furuya and I hand-delivered our letter to a colleague of the Chairman.

In our letter we reminded Chairman Cho that Toyota set a precedent among Japanese companies in 2001 by publicly announcing it could not operate in Burma as originally believed. The company was among dozens recognizing the economic and political risks of doing business with a backward regime short on transparency and long on committing gross human rights violations. Companies left “not only because the Burmese junta violates human rights, but also because the junta violates (its own!) investment laws.”¹ At the time, Toyota heeded Aung San Suu Kyi’s statement that “investment merely strengthens dictatorship” as well as the International Labor Organization’s call in June 2000 for governments to cease any relations with Burma. Some corporations publicly denounced the business climate. The CEO of Reebok said outright in 2005, “It’s impossible to conduct business in Burma without supporting this regime.”

Toyota dismissed its ties to Toyota Tsusho in an earlier correspondence, so our second letter detailed the relationship between the two companies. While Toyota claims no contractual relationship with the Burmese government, financial documents filed with Japanese regulators indicate Toyota exercises significant influence over Toyota Tsusho.

Toyota Motor owns 22 percent of Toyota Tsusho, and another 11 percent of Tsusho is held by Toyota Industries, one of the member companies of the Toyota Motor Group. Companies in the Toyota Motor Group are linked by complex crossholdings, very strong supplier/customer relationships and a shared leadership group. As a result, the various companies operate in close cooperation. The fact that Toyota Motor owns more than one-fifth, and the companies of the Toyota Motor Group collectively own more than one-third of Toyota Tsusho, suggest to us that Toyota Motor bears some responsibility for Toyota Tsusho’s actions.

“Clearly, any link to providing vehicles to aid the military government’s brutal suppression in this impoverished state calls into question our company’s respect for the Principles of the United Nations Universal Declaration of Human Rights,” our letter stated. “Any link has a detrimental effect on the value of our investment in Toyota Motor Corporation.”

In a stroke of irony, in Burma, the “Toyota” name is linked to a ceremonial bureaucracy devised by the military. The military wanted to include an element of moral authority in their rule, so they created an elite order comprising 47 monks subservient to the military. To recognize their faithful service to the state, the junta awards these monks with dozens of prestigious ceremonial titles. The most well known title, Bhaddanta, is given to old monks loyal to the regime. The Burmese people mockingly nickname these prelates Bhaddanta Toyota or Bhaddanta Toshiba in reference to the lavish gifts of cars, TVs and big houses they receive in exchange for giving speeches of obedience and holding silent on issues of repression. Cars manufactured by the Suzuki/Toyota Tsusho/Myanmar joint venture may not display the Toyota brand but it’s readily on display in the nickname for the select monks known for aiding the grip of dictatorship.

As the owner of the largest block of Toyota Tsusho shares, Toyota must send a strong signal to the regime that responsible corporations in Burma cannot remain silent in the face of widespread abuses of human rights. Just before we went to press, Toyota wrote back that “Toyota has carefully considered the current environment in Burma, has conveyed to Toyota Tsusho Corporation its concerns about that environment, and has asked Toyota Tsusho to reconsider its business activities in the country.”

Toyota says its shares our concerns about the human rights situation in Myanmar. We believe they do. We look forward to learning of the results of Toyota’s letter, and what further options it is willing.

Notes
1. Legal Issues on Burma Journal, August 2001, No. 9.

From the President

One of the most amaz­ing days of my professional life was the day more than a decade ago that I spent as keynote speaker for a conference of the people in charge of General Motors’ environmental policies and procedures in plants around North America. There were hundreds of them, many of whom had Ph.D.’s. They were very interested and supportive when faced with an unedited speaker advocating stronger environmental policies and complete disclosure of results. On another day, a visit with the General Motors’ crash test dummies, watching steering wheel columns hurtle into the surrogate humans in car seats at various speeds, became a memorable experience. It was pretty ugly and very sobering. Those of us on the Ceres dialogue team probably all changed our driving habits that day.

In dealing with General Motors through Ceres, the people we met were often second or third-generation, really terrific, farsighted GM people who would retire from the company on what used to be generous benefits.

But I have also watched the top management of this giant company veer from one policy to another, clumsily, in an effort to survive the serious global transportation and energy ques­tions that seemed to surprise many of them. Their reactions have often seemed primitive and shortsighted or even, at times, mean-spirited. General Motors is a company of contradictions.

The latest weird, attention-getting gaffe came from one Robert Lutz, Vice Chairman of Global Product Development, who recently called climate change a “crock of shit.” He has had a reputation of ignoring environmental concerns; years ago, at the 2004 Detroit Auto Show, Lutz had said that the hybrid did not “make environmental or economic sense.” In the past few days, the company has attempted to paper over these statements through an aggressive campaign claiming that Lutz’s opinion about climate change “doesn’t count” and, from his own blog, “my goal is to take the automotive industry out of the debate entirely. GM is working on just that – and we’re going to keep working on it – via E85, hybrids, hydrogen, and fuel cells, and the electrification of the automobile.”

But piling right on this annoying verbosity from Lutz was the announcement that GM is rearranging the duties of the three top managers in part to give CEO Rick Wagoner more time for “environmental lobbying,” which would include defeating clean air legisla­tion. Wagoner was quoted in the Wall Street Journal last week as saying there’s more “advocacy work” to be done with regard to California’s attempt to implement its own tough tailpipe emissions rules.

GM lost their place as the number one automobile manufacturer in the world to Toyota in 2007. Toyota is no angel company (see Susan Baker Martin’s cover story), with a fleet that includes some huge cars, but they scored with the Prius and helped move the public to accept hybrid cars on the road. I have no idea, after years of working around General Motors, what makes them tick – or not tick! I know one thing, though. I hope the smart women and men with imagination and foresight at GM prevail because I don’t want to see this company disappear.

Uncovering Slavery in Steel

How far up a supply chain should a company be held accountable?

In Carajas in Brazil’s eastern Amazon region, work is scarce and poverty and lawlessness are widespread. Opportunistic hacienda owners lure the desperate and unemployed to distant charcoal camps with promises of work, wages and shelter. Once at the camp, the owners levy illegal charges on the workers for transportation, equipment, lodging and food. Mario Osava, reporting for Inter Press Service last July described the debt as “pretext to keep laborers on the camp under threat and often under armed guard.” Deep in debt, workers succumb to involuntary servitude, a form of modern day slavery.

Charcoal is the cheapest fuel around to feed pig iron plants. Pig iron is gold to steel manufactures, as it gives mills using scrap higher iron content and durability. Over 1,400 charcoal camps dot the Amazon. Laborers collect hardwood and pile it into kilns. They shovel cured charcoal, through smoke and heat, and load it for travel to pig iron plants. The Carajas region alone exports six million tons of pig iron every year, sending nearly all to the thirsty U.S. iron and steel industry.

Over the past decade, government inspectors have worked to eradicate slave labor with moderate success. Local NGOs complain resources are scarce, inspections are sporadic, and fines and orders to pay back wages are minimally effective penalties. Last year, Bloomberg News investigated reports of slave labor and with the help of government inspectors mapped the life cycle of slave made coal (The Secret World of Modern Slavery December 2006). Bloomberg found unpaid laborers at a work camp making charcoal for Cosipar, a major pig iron exporter. Cosipar exports to Nucor, the second largest U.S. steel company, and to National Material Trading (‘NMTC’) and Intermet, two U.S. brokers who contract with Ford, GM, Toyota, Nissan, and Whirlpool. “Brazilian pig iron is part of almost any product in the U.S. that uses steel,” says a NMTC spokesperson.

As Nucor shareholders, we and investor partners contacted the company to learn how it would prevent future incidents of slave and forced labor in their supply chain. The discovery of slave labor was not new to Nucor. The issue came up a few years ago and CEO Daniel DiMicco told Bloomberg “we were hopeful the government would have remedied this situation.” Nucor told me this summer they were talking with Brazilian officials again, using ‘certified’ suppliers, and asking the Brazil government to keep an accurate list of tainted and untainted charcoal camps. When we and investor partners pressed Nucor on specifics of their certification process and policies the company surprised us by declining to talk further.

If a company has the means to prevent egregious violations in its supply chain, we believe that it has the obligation to do so. Companies should build policies, investigate their supply chains, and use their influence to effect government reforms. Those that source from low cost countries often find themselves operating in environments with weakly enforced local laws. If policies are not adequately set and enforced in their supply chains, companies are ultimately exposed to reputational, financial, and legal risks that can erode shareholder value. Supply chain policies should be transparent and available to investors.

Trillium Asset Management Corporation is co-filing a shareholder resolution with a coalition of investors at Nucor led by Domini Social Investments. We are asking the company to review its human rights policy as it relates to supply chain standards. We are requesting a report on the current system and assurances that the company and its suppliers are implementing human rights policies, monitoring them effectively, and engaging local authorities. With the quest for human dignity at stake, Nucor must set and meet higher standards.