Company engagement helps to improve worker protections

Top Glove is one company identified as part of this engagement as having high exposure to modern slavery risk in light of the COVID-19 pandemic. The company is the world’s largest manufacturer of rubber gloves, specialising in examination, surgical, household and industrial gloves.

It produces over 45 billion gloves per year and has around 25% global market share1. The FSSA team first met management in 2003 and has been a shareholder at various times in the years since.

Top Glove was a clear beneficiary of the surging demand for PPE as the pandemic began to unfold. We had first engaged with this company on modern slavery risks in late 2018 after a number of allegations, reported in the British press, about practices that could constitute modern slavery. The four key issues were: debt bondage; workers exceeding overtime limits; retention of passports; and unsafe factory conditions.

Our conversations with the CFO at the time helped us make our own independent assessment and we were encouraged by notable changes the company was making with regard to its treatment of its workers. These included a mandatory rest day, workers no longer paying recruitment fees and passports being kept safe in workers’ dormitories.

We wrote to Top Glove in June 2020 regarding the heightened risk of modern slavery risk in their supply chain. The company provided answers, but our assessment was that these were fairly limited and that the supplier engagement/labour sourcing policies could have been more robust.

Following this, and ahead of our reengagement, the US Customs and Border Protection (CBP) ordered a Withhold Release Order (WRO) on two of Top Glove’s largest subsidiaries. The WRO targeted recruitment fees (believed to facilitate debt bondage) that had not been remediated to workers hired before January 2019. This is significant as 80% of Top Glove’s workforce were hired between 2015-2019 and hadn’t yet been reimbursed. The Ministry of Manpower in Malaysia investigated Top Glove’s factories (as it had in response to the 2018 allegations) and declared that there were no instances of ‘modern slavery’. However, it was clear to us that recruitment fees must be reimbursed for the WRO to be lifted.

Following the company’s reply to our letter and the CBP action, we spoke with management to hear further details first-hand and encourage better practice. The company disclosed that it had set aside RM50m for remediation and shared a third-party audit with us. We did not view the RM50m as sufficient, given the average fee paid, nor did we find the audit to be comprehensive. While we felt the company wanted to do right by its workers, there was clearly a large discrepancy between Malaysian foreign worker standards and international expectations.

We spoke to management about our experience with the Indian Generic Pharma industry which had faced similar issues in the past, and had notably improved since then. We encouraged Top Glove to have more extensive and unannounced auditing and further remediation.

At this point, we made a decision to sell the last of our shares based on both valuation and ESG concerns.

Nonetheless, we have since followed up with the company to ensure total remediation is carried out. We are pleased to confirm that an independent report has been submitted to the CBP. More importantly, the remediation fees have been revised up to RM136m, which we believe will be sufficient to cover all 11,000 workers. Lastly, the company has committed to working with the independent consultant to regularly assess the welfare of workers. We welcome the positive steps being implemented by the company to take care of its workers. 

 

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1. All company information referenced has come from the Company Report unless otherwise stated

 

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