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September 15, 2004
About Face: Cintas Settles Lawsuit and Supports Vendor Standards Resolution
    by William Baue

In his apology, Tim Smith of Walden Asset Management highlights the need for accurate information, which Cintas promises to supply in the report requested by the resolution.


Very rarely do corporations recommend voting for shareowner resolutions, which by definition request changes the company has not made voluntarily--even after dialogue with resolution proponents, in most cases. It is even more exceptional for a corporation to recommend supporting a resolution it vehemently opposed the previous year, to the point of filing a lawsuit against one of the resolution filers.


Extraordinary as it may seem, this is what Cintas (ticker: CTAS) is doing. In Cintas' September 1 proxy filing with the Securities and Exchange Commission (SEC), the board of directors recommends voting for a resolution requesting a report on adherence to the Code of Conduct for Vendors. The next day, Cintas settled a lawsuit against Walden Asset Management over comments made by its senior vice president Tim Smith at the Cintas annual meeting last year. While introducing a very similar resolution, Mr. Smith characterized a Haitian Cintas supplier as a "poster child for sweatshops."

"This is a 180-degree change for the company," said Adam Kanzer, general counsel and director of shareholder advocacy for Domini Social Investments, which co-filed the resolution with Walden. "Last year, we filed a resolution requesting virtually the same report and were met with a brick wall: first, they tried to keep the resolution off the proxy, then they refused to talk to us, even after repeated requests for dialogue with management, then they sued Walden and Tim Smith for critical statements he made while moving the resolution."

In settling the suit, the sides exchanged no money but rather information. Cintas supplied Walden with materials from its audit of the Haitian supplier in question. In an August 20 letter to the company, Mr. Smith apologized.

"In short, based on these materials, I would not have described this facility as a sweatshop, and I regret any harm that may have been caused to Cintas by the reporting of my remarks outside the shareholder meeting at which they were delivered," wrote Mr. Smith, who is not otherwise commenting on the settlement.

Paradoxically, Cintas may have caused itself more harm than Mr. Smith, whose comments were not widely reprinted until the lawsuit propelled the issue into the international spotlight.

"If you do a Google search on 'Cintas' and 'sweatshop,' you get a lot of hits, most of them from after the lawsuit was filed--a lot more people are now questioning how Cintas runs its supply chain than there were before the lawsuit," Mr. Kanzer told SocialFunds.com. "I think Cintas did an exceptional job of spreading the sweatshop allegation far and wide," he added with a note of irony.


For its part, Walden provided Cintas with the research on which Mr. Smith based his allegations. In his letter, Mr. Smith noted the difficulty of obtaining accurate information on corporate supply chains, which is one of the driving reasons for the resolution requesting such information from the company itself.

"As I am sure you can understand, Walden is not in a position to monitor directly the workplace conditions of companies or their suppliers," wrote Mr. Smith.

While the two camps settled the suit amicably, differences persist in how Cintas characterizes its response to last year's resolution and this year's, and the how the resolution filers see things.

"We see the two resolutions as being very similar--the difference is the company's response," said David Schilling, global corporate accountability program director for the Interfaith Center on corporate Responsibility (ICCR). Mr. Schilling worked with the primary filers of this year's resolution, the General Board of Pension and Health Benefits for the United Methodist Church (GBOPHB) and the New York City Employees Retirement System (NYCERS).

Cintas spokeperson Wade Gates begs to differ.

"The decision to recommend approval of the resolution this year does not reflect a change in commitment to the Code of Conduct program, but reflected our work in finding a way to provide the information in a public report while protecting our suppliers' confidential information," Mr. Gates told SocialFunds.com. "Through continuing discussions during the past year, we've been able to develop an envisioned format for a report that provides the information referenced in the resolutions, while protecting the suppliers' sensitive data contained in the audit."

Regardless of whether Cintas is safeguarding proprietary data or saving face, resolution filers are glad the company is disclosing information more transparently.

"We're pleased Cintas is finally doing the requested report, and asking investors to vote for the resolution--of course, the devil is in the details," said Mr. Kanzer. "We hope the company will work with this year's proponents to produce a meaningful report, and that the report will specifically address conditions at factories it sources from, including those in Haiti."

"According to a public company statement, the factory they source from in Haiti pays, on average, double the local minimum wage," Mr. Kanzer added. "The minimum wage in Haiti, however, is shockingly low--Cintas should take a hard look at what it means to pay a sustainable living wage in Haiti, and elsewhere around the world."

 

 
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