Gildan shareholders set to vote on proposal to investigate allegations of human-rights abuses

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The fate of a shareholder resolution concerning Gildan Activewear Inc.’s GIL-T human-rights and labour record abroad is the one unknown heading into the company’s annual meeting in Montreal on Tuesday.

The question of leadership was settled last week after Gildan’s board resigned en masse, ensuring that company co-founder Glenn Chamandy will return as chief executive officer. The outstanding question is what investors think about a resolution from the BC General Employees’ Union (BCGEU), which has asked Gildan to assess the effectiveness of its human-rights infrastructure.

The proposal follows complaints from factory workers in Honduras, which were recently documented in The Globe and Mail.

One worker, Rosa Dalila López Corea, described long workdays – 11½ hours curled over a sewing machine – and debilitating production quotas that she says have left her with chronic injuries in her shoulders, arms and hands. Last year, Ms. López Corea and four other workers won a case against Gildan at Honduras’s Supreme Court of Justice over labour-rights violations.

Emma Pullman, the head of shareholder engagement and ESG at the BCGEU, which is one of Gildan’s investors, said their resolution will almost certainly fail – but even a small amount of support can be significant.

“Shareholder resolutions by their very nature are advisory,” she said. “They are essentially a litmus test of investor sentiment, investor confidence in management, and when a sizable proportion of investors – which doesn’t need to be a majority – vote in favour of a resolution, it is often enough to signal to the company that this issue warrants further examination.”

Among the investors supporting the resolution are the Investment Management Corporation of Ontario, Vancity Investment Management, Desjardins and Azzad Asset Management – a financial planning and investing firm based outside Washington, with US$1.5-billion in assets.

Joshua Brockwell, director of investment communications at Azzad, said Gildan’s public disclosure on its labour practices doesn’t run afoul of his firm’s screening methodology, but whenever there are opportunities to improve diligence on supply chains, Azzad is supportive. He added that there is a business case for supporting these types of resolutions.

“A lot revolves around concerns related to reputational risks. A negative headline can have a negative effect on share price,” he said. “But just as important, there is an ethical case to be made.”

Earlier this month, proxy advisory firms Glass Lewis and Institutional Shareholder Services Inc. (ISS) came out against the BCGEU resolution.

“At this time, we find the company’s current human-rights-related disclosure and policies to be adequate and do not believe the proponent has provided compelling evidence that the company’s current policies, procedures, or practices with respect to human rights represent an imminent threat to shareholder value,” the Glass Lewis report said.

For Ms. Pullman, this is exactly the issue. Gildan’s labour and supply chain disclosures are excellent, she said. In fact, they are best in class. But a series of recent events, particularly in the T-shirt manufacturer’s Honduras factories, has raised questions with the BCGEU and other labour organizations and advocates.

As an example, Gildan has promoted the fact that its factory workers are given access to doctors, free lunches and two breaks outside of the lunch period. However, Ms. López Corea told The Globe that after she began experiencing pain, she went to a Gildan-supplied doctor for help. All that happened, she said, is that he gave her “an injection for pain so I could go back to work.” She said workers have to work through breaks in order to hit their quotas, otherwise their pay is affected. And the lunch is only provided to those who meet their targets, she said.

A second worker confirmed this. Gildan did not respond to questions about the doctors or lunches but defended its labour record. “The health and safety of our employees is of paramount importance,” Gildan spokesperson Geneviève Gosselin said in a statement.

Last year, about four months after Ms. López Corea returned to work after her Supreme Court win, Gildan abruptly announced it was closing the San Miguel factory where she and 2,700 others were employed. She is now out of a job and says it is difficult to find another one because of her injuries. The plant closing was viewed as a retaliation for the court case – an allegation Gildan has vigorously denied, saying the decision was made owing to “challenging market conditions.”

Gildan’s previous board had also recommended that investors reject the union proposal.

Last December, Gildan’s board shocked investors by announcing that Mr. Chamandy, who had been CEO for 20 years, was leaving the company. In his place, Gildan had hired a former president of Fruit of the Loom, Vince Tyra. Within days, a shareholder revolt led by Los Angeles-based investment firm Browning West was under way. The battle has been messy, with each side accusing the other of impropriety.