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January 08, 2004
Shareowner Resolution Calls Costco on Cultural Crimes in Mexican Site Development
    by William Baue

Shareowners express concern that Costco, which demolished a culturally significant site in Mexico to build a store, may be demolishing its reputation in the process.

The Casino de la Selva in Cuernavaca, Mexico, has many claims to fame. Designed by renowned Valencian architect Felix Candela, the hotel was decorated with murals by David Alfaro Siquieros, Francisco Icaza, Josep Renau, and Benito Messeguer. Under the influence of Mexican mezcal, British author Malcolm Lowry wrote Under the Volcano while in residence at the hotel in 1939, and almost a half-century later John Huston directed a movie based on the novel using the hotel as his set. Furthermore, almost a thousand centenary trees grew on the hotel grounds, and pre-Columbian artifacts could be dug from the earth where indigenous Olmec people used to live.

Now, the site is infamous as a symbol of corporate disregard for cultural and environmental heritage, as Costco (ticker: COST) demolished the hotel to build a huge warehouse store and paved the wooded surroundings with a vast parking lot. The company's private security police have been indicted by a Mexican Human Rights Commission and Amnesty International of using excessive force against demonstrators peacefully protesting the construction in 2001. A study by the International Ombudsman Centre for the Environment and Development (OmCED), an independent nongovernmental organization (NGO), called the destruction of the hotel "a cultural (and to a lesser extent, environmental) crime of great proportions."

Shareowners have registered their concern over the fact that the company, which has grown from 292 stores in 1999 to 430 currently, lacks a land procurement and use policy that includes social and environmental factors. Christian Brothers Investment Services (CBIS), a socially responsible investment (SRI) firm that manages over $3 billion for Catholic organizations, has filed a resolution requesting a report on the development of such a policy. The resolution (number three on the proxy ballot) will come up for vote at the company's January 29 Annual Meeting in Seattle.

"Costco's controversial site procurement practice in Mexico has led to criticism from environmental groups, human rights organizations, and even a United Nations human rights commission," said Julie Tanner, corporate advocacy coordinator for CBIS. "We want to make sure that this situation does not blossom into a financial risk for Costco."

The resolution cites concrete financial risks. One muralist, Jose Reyes Meza, has filed a $15 million lawsuit against Costco for copyright infringement, as the company claims it is restoring some of the murals but refuses some of the artists access to their works.

The resolution also cites reputational risks. Allegations that the Mexican authorities who approved the project received bribes are widespread, and these authorities are facing a federal lawsuit in Mexico.

The issue of bribery is not unfamiliar to Costco. Domini Social Investments filed a resolution asking the company to develop an anti-bribery policy.

"Domini's resolution requesting an anti-bribery policy was excluded by the SEC," Adam Kanzer, Domini's general counsel and director of shareholder advocacy, told "However, Costco did adopt a policy, and appears to have appointed an International Ethics Compliance Officer, so we consider this a victory."

John Sullivan, Costco's assistant general counsel, did not respond to's requests for commentary.

"Companies like Costco must recognize that shareholders are no longer prepared to turn a blind eye to practices that raise ethical concerns and pose genuine reputational and financial risks," said Mr. Kanzer. "This problem is not going to go away unless Costco decides to take positive actions, starting with the land procurement report called for in the CBIS resolution."

Also on the Costco proxy ballot this year is a resolution filed by Walden Asset Management, a Boston-based SRI firm, asks the company to institute annual elections of directors. Walden filed a similar resolution that garnered 80.5 percent of the vote last year at Avon (AVP).


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