Proxy Alert: Human Rights Due Diligence at Dollarama Inc.

Dollarama Inc.
Symbol: TSX:DOL
Annual Meeting Date: June 13, 2019
Filer: The Pension Plan of the United Church of Canada (“The PPUCC”), facilitated by SHARE

Recommendation:
Vote FOR shareholder proposal on human rights due diligence at Dollarama Inc.

Shareholder proposal on Human Rights Due Diligence at Dollarama Inc.

Dollarama sources more than half of its products from over 25 different countries, primarily from China. Overseas sourcing can expose the business to human rights-related risks, particularly if due diligence is not adequately conducted by a company.

Effective due diligence, management and remedy throughout the supply chain is essential to preventing and mitigating the risks of this business model to both the company and the workers making its products.

The PPUCC filed a shareholder proposal related to human rights due diligence at Dollarama. The shareholder proposal reads:

RESOLVED that the Board of Directors provide a report to shareholders by December 2019 and updated annually, detailing the due diligence process used by Dollarama Inc. (“Dollarama”) to identify and address risks to human rights from Dollarama’s business.

The report, prepared at reasonable cost and omitting proprietary or confidential information, should address how Dollarama identifies risks to human rights, identifies root causes of adverse human rights impacts, integrates the findings into its decision-making and actions to prevent and mitigate adverse human rights impacts, tracks the effectiveness of these measures, and remedies any adverse human rights impacts that it causes or contributes to. The report should cover all aspects of Dollarama’s business including its own operations, its direct sourcing and importing business, as well as its contracting and supply chains.

Relevance of the issue for investors

The latest report from the International Labor Organization estimates the number of victims of forced labor in the world at 24.9 million. Among them, 16 million people are exploited in the private sector, including in the manufacturing industry.[1] Workers’ rights are particularly at risk in China and developing countries. Unscrupulous labour providers develop elaborate tactics to trap workers in conditions of forced labour through usurious fees, withholding of personal papers/passports and the refusal to provide workers with written contracts.

Failure to properly manage the labour and other human rights risks that can arise in a company’s supply chain may affect the company’s brand, reputation, sales, and employee recruitment and retention.[2] Further, it is an issue attracting increasing regulatory attention including customs controls, reporting and due diligence requirements in many jurisdictions.

Human rights in the supply chain is therefore a growing concern for investors. Investors are asking companies to implement proper due diligence process to assess human rights risks in their supply chain, take steps to prevent and monitor for them, provide remedy to workers where they occur, and to increase corporate transparency on this issue.

Vote recommendation and rationale

Companies focused on securing the lowest-cost supply of goods and services need to pay even closer attention to prevention and remediation of human rights risks within those supply chains. Many will have only minimal understanding of broader labour market dynamics when they conduct due diligence and analyse the risks of forced labour. Short lead-time on orders and demands for low cost production generates pressure on suppliers to be flexible and capable of ramping up or down their workforce at short notice. This dynamic encourages short-term and temporary contracts and expands the scope for labour brokering, all of which may increase risks of forced labour.[3]

In the case of Dollarama, this market-wide trend is compounded by the fact that Dollarama does not enter into long-term contracts with suppliers. The company’s strategy is based on direct relationship with overseas suppliers on an order-by-order basis.[4] This model makes it more difficult to detect and remediate labour rights violations because suppliers have little incentive to collaborate on identifying and mitigating problems, especially if they are concerned that future orders will be withheld if violations are uncovered.

Dollarama management responded to this shareholder proposal by enumerating the various initiatives the company has implemented. These initiatives include the adoption of a Vendor Code of Conduct and Ethics, the setup of whistleblower channels and a vendor self-assessment survey. While we acknowledge the steps Dollarama has taken, they are not sufficient to identify and mitigate human rights risks that may occur within the company’s supply chain.

Although the Vendor Code includes references to prohibiting forced labour and child labour, Dollarama has not yet adopted a policy explicitly prohibiting the common drivers of forced labour, including the payment of recruitment fees by workers. The adoption of a policy is recognized as a key component of an effective supply chain due diligence program, and helps suppliers to understand and recognize the specific employment practices that are at issue. A supplier may easily agree not to use forced labour as a general rule, without ever asking their labour broker whether they charge workers recruitment fees.

Enforcement of the Vendor Code currently relies on the vendor signing an assurance of compliance, and participating in a self-assessment survey to identify any potential non-compliance. There is no program of external verification, effective processes to receive and address worker grievances, nor program to remedy violations when they are uncovered.

Dollarama’s Vendor Code states that the company “reserves the right to assess and monitor compliance” with the standards outlined, but it does not as yet have a program to conduct monitoring or verification. Management states that “audits are currently aimed primarily at assessing product quality compliance but they also provide an opportunity to observe working conditions and other labour-related factors”. Forced labour and other labour rights violations can result from a combination of pressures, abuses and exploitation that are not easily observable in a simple factory visit by buyers or quality control personnel. To be effective, audits must be conducted by personnel trained to include recruitment processes and signs of forced labour in their assessment.[5]

Concerns about these issues have led companies across the world that source in high-risk countries to adopt these steps. For instance, Unilever, M&S, Walmart, Tesco and Target have implemented policies and procedures to identify, prevent and remedy forced labour in their supply chain.

The request for Dollarama to implement a clear policy and program that addresses forced labour risks in its supply chain addresses a gap in the company’s human rights due diligence for which multiple options and best practices are available that can work within this company’s specific context.

In light of the elements outlined above, SHARE recommend a vote in favour of this proposal.  

For Further Information:

Sarah Couturier-Tanoh
Analyst, Shareholder Engagement and Policy
[email protected]
(416) 306-8073

Link to full proposal:  

https://share.ca/share-proposals/annual-reporting-to-identify-and-address-risks-to-human-rights-from-dollarama-inc-s-business/


[1] ILO, Global estimates of modern slavery: forced labour and forced marriage, 2017

[2] Thomson Reuters. (2016) How can you eliminate modern slavery in complex supply chains?

[3] Auret Van Heerden, Identifying, managing, mitigating and preventing forced labour and modern slavery, Commissioned by the Ethical Trading Initiative

[4] Dollarama Inc. (2019) Annual Information Form

[5] IHRB, Six Steps to Responsible Recruitment