Mattel Will Unveil Plan to Detect Abuses

Faced with a shareholder proposal that would link executive pay to fair labor practices, Mattel Inc. today will unveil an unusual monitoring plan under which outsiders such as community groups will inspect production sites to weed out any labor abuse.

Although monitors at other companies report directly to the company--and their findings are not released--inspection reports for Mattel will be made public by an independent commission that will manage the monitoring program.

The shareholder resolution, proposed by a stock-owning union that represents some of Mattel’s U.S. workers, is also designed to prevent the kinds of compliance problems that Mattel has discovered at some foreign production facilities since 1997.

Among the violations: the use of child labor by one Indonesian contractor that supplied Mattel with toys. Mattel severed ties with that contractor and with 15 foreign suppliers that violated other standards on working conditions and wages. The company also issued a code of conduct that includes a provision prohibiting the use of workers under the age of 16.

“Simply stated, Mattel creates products for children around the world--not jobs” for children, Mattel Chairman Jill Barad said when the code was announced last November.

Barad’s pay could be affected if shareholders approved the proposal to link compensation and labor standards. The resolution asks Mattel’s board to “adopt executive compensation policies that reward executives for enforcing standards ensuring that Mattel and its suppliers employ no child labor . . . and observe all applicable laws and standards protecting employees’ wages, benefits, health, safety and working conditions.”

The proposal was submitted by Nashville-based United Paperworkers International, which has a small stake of 126 shares of Mattel stock. Union officials were not available for comment Tuesday.

U.S. unions traditionally support efforts to improve pay and conditions for workers abroad. Economists note that they have a vested interest in such improvements because they want to reduce the disparities between domestic production and the low-cost foreign operations that lure U.S. companies.

In an earlier statement about its Mattel proposal, the paper workers union said it is “especially crucial” to use the compensation lever to ensure against any child labor, “given Mattel’s position as the world’s leading producer of children’s toys.”

Shareholder resolutions seldom pass without a company’s support, and Mattel’s management will urge its shareholders to vote against the resolution at its annual meeting today.

The El Segundo-based toy maker’s new monitoring plan is the brainchild of Prakash Sethi, a City University of New York management professor who has helped major corporations develop ethics programs for their operations in developing countries.

The Mattel plan, to start later this year, calls for the hiring of community-based organizations to inspect plants in their areas. Those inspectors will present their findings to the independent commissioners, who will manage the monitoring program.

That system of reporting, Sethi notes, is very different from existing programs, which use in-house employees, accounting firms or consultants--all of whom report directly to the company.

Unlike other existing programs, Mattel will release to the public an annual report on inspection findings, said Sethi.

“Without the accountability that comes with a public report, inspections are meaningless,” Sethi said.

He and two others will make up the panel that supervises the inspectors and issues the report.

Some observers, however, say Mattel should respond to the labor standards issue immediately by endorsing the shareholder resolution linking executive compensation to labor standards. Among those recommending such a stand is David Simerman,an analyst at Proxy Monitor, a New York-based firm that advises institutional investors on how to vote on shareholder resolutions.

“Mattel really lost an opportunity to put itself in a positive light,” said Simerman. “This is a very important issue these days.”