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March 08, 2007

Chocolate Giant Commits to Responsible Supplier Code
    by Anne Moore Odell

The Hershey Company is working to create a supplier code of conduct that goes above and beyond just cocoa suppliers. -- America devours more chocolate than any other country. At the same time, candy has tasted less-than-sweet for many with the exposure of unfair labor practices used in manufacturing chocolate. In 2001, the US chocolate industry signed the Harkin-Engel Protocol that outlined the end of child slavery on cocoa farms by July 2005. In 2005, the chocolate industry asked for more time to fulfill their original agreement, and most labor activists believe more needs to be done to end child labor in the chocolate supply.

However, cocoa alone does not a candy bar make. Concerned shareholders and candy consumers are now asking for chocolate companies to work on their entire vendor supply chains, including sugar, nuts, dairy and packaging supply chains. The Hershey Company (HSY), in response to a shareholder proposal from Walden Asset Management has agreed to create a broad-based supplier code of conduct that also includes an implementation and monitoring plan.

Walden has withdrawn its 2007 proposal after establishing a constructive, on-going dialogue with Hershey�s on this issue, as well as other areas of social responsibility. Walden is the SRI division of Boston Trust & Investment Management Company.

The broad-based vendor supply chain will go beyond fair labor practices to include the workplace, health and safety, the environment, food safety and quality. The code will also address implementation and auditing plans.

"We are working with the code to build compliance from inside the company as well as our suppliers," said John Long, Hershey�s Vice President of Corporate Affairs. "We plan to be transparent about the code with shareholders. Our plan is to post it on our web site, posting it as we roll it out. Our objective is to be successful."

Hershey�s plans to work with the non-profit Verit� and continue their partnership with the non-profit Business for Social Responsibility (BSR) to create and implement its supplier code. The goal of the new code is to expand its existing auditing process. Hershey�s calls the code a "living document" because it will grow and change as Hershey�s gains experience. This code is part of Hershey�s broader commitment to corporate social responsibility.

Verit�s mission is to make sure that workers have safe, fair and legal working conditions. Started in 1995, it works directly with companies, workers, labor unions and non-governmental organizations and has conducted more than 1,300 factory audits in over 60 countries. Helping companies gain control over conditions in international supply chains, Verit� aims to facilitate sustainable improvements in working conditions through worker-focused monitoring, implementation of remediation programs, and capacity building for a variety of workplace stakeholders.

Dan Viederman of Verit� spoke to generally on the role Verit� plays when helping companies create fair working conditions: "Though social auditing has generally been the place that most companies start, it is just part of the process. An audit is asking questions - what you do with the answers to those questions determines whether working conditions improve or not. Our aim is for companies to ask the right questions in the right way. Part of that is helping them look at their own business practices, the management capacity of the factory, and a variety of other complex factors that guide our approach to improving working conditions."

Long points to Hershey�s unique commitment to the community from its earliest days. In 1910, company founder Milton Hershey and his wife Catherine chartered the Milton Hershey School in Hershey, Pennsylvania. Milton Hershey put all of his common stock in a trust to support the school. Today, the trust controls 79% of the company�s voting shares.

"Hershey�s has always given back to the community as part of the fabric of who we are. Now we are thinking more broadly of what community means," Long said.

The largest US manufacturer of chocolate and candy, The Hershey Company has yearly revenues of $5 billion and over 13,000 employees globally. Beside the well-known candy bars and confectioneries that are branded with Hershey�s name, Hershey's also wholly owns Artisan Confections Company, which markets products under the names Scharffen Berger, Joseph Schmidt, and Dagoba.

In February, Hershey�s announced a comprehensive supply chain transformation. The vendor supplier code created with its work with Walden Asset is a separate issue than the new supply chain transformation. Hershey�s states the goals of its global supply chain transformation as reducing production lines by more than a third as it increases manufacturing capacity, outsourcing low value-added items and building a facility in Monterrey, Mexico. When the plan is completed, 80% of Hershey�s production volume will be in the US and Canada. Although Hershey�s estimates the implementation costs of the program will be between $525-$572 million over the next three years, they also expect an annual savings of $170-$190 million generated by 2010.

Another route for concerned chocolate lovers to take is to buy Fair Trade certified cocoa. Fair Trade farmers are audited annually by third party inspectors to ensure that farms meet stringent standards, including a prohibition on child labor and slavery. Adrienne Fitch-Frankel, Fair Trade Cocoa Campaigner with the Global Exchange Organization stated, "Stakeholders throughout the cocoa supply chain need to hear loud and clear from investors that shareholders will not tolerate profits at the expense of African child slaves and that investors demand Fair Trade cocoa, an established and cost-effective system for auditing cocoa production."

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