Nestlé’s ‘New Reality’ looks a lot like the old – squeezing workers to squeeze out cash

Nestlé’s recently published Annual Report for 2011, introduced by the familiar ‘Fellow Shareholder’ letter, seeks to engage readers (who in any event will skip the hype and head for the hard figures) by alerting them up front to a ‘New Reality’. For workers, however, the New Reality looks like more of the same, with rights under attack to generate cash for the investor payout.

“The New Reality”, according to Nestlé, “is characterised by political upheavals, economic uncertainty, lacklustre growth in developed markets, high levels of volatility in commodity, currency and stock markets… but also by dynamic growth in emerging markets, increasing affluence, step changes in technology and digital communication, new markets and new ways to reach consumers and, indeed, by increasing numbers of consumers.”

Take a closer look at the figures, adjust for exchange rates, and the dynamic growth is in one principal area: the dividend payout. Nestlé recommends that “fellow shareholders” raise the dividend by 5.4%, from CHF 1.85 to 1.95. Shareholders will undoubtedly welcome the proposal at April’s shareholder meeting. It follows on the 2010 great leap forward from 1.60 to 1.85. Add to this the tens of billions in share buybacks in recent years, and it’s clear that Nestlé is returning cash faster than it can grow anything else.

A Financial Times writer pointed out on February 16, in an article astutely entitled ‘Nestlé: peeling back the wrapper’, that “Cash from operations last year fell one-fifth excluding the effect of disposals. Nestlé’s insistence on raising its dividend means its pay-out now represents 60 per cent of operating cash flow, twice the level of four years ago [our emphasis].” Here is the locomotive of “dynamic growth”. Good food, good life, big dividends.

Nestlé’s expansion has always been characterized by flexible adaptation to regulatory and legal environments which are often less than rigorous in enforcing compliance with international standards, including international labour standards. The annual report informs readers that Nestlé “recognizes” the UN Framework on Business and Human Rights. In fact they have no choice – the Principles have been incorporated into the OECD Guidelines for Multinational Enterprises. “Our human rights due diligence programme”, the Report continues, “includes risk assessments, impact evaluation, training and monitoring. It is coordinated by our Human Rights Working Group.”

This shadowy Working Group managed to miss a dairy production system in Kabirwala, Pakistan, built on the squalid exploitation of many hundreds of casual workers (the company calls them “contractors”) working on a no work, no pay basis, performing the same jobs for years as direct employees at a fraction of the pay and benefits.

Human rights risk assessments apparently saw no risks when the company dismissed hundreds of these workers for exercising their legal rights, repeatedly ignored and violated court orders and criminalized the workers’ legal claims against the company by initiating police charges.

For years, the IUF’s affiliate at the Nescafé factory in Panjang, Indonesia was denied the right to bargain their wages. The company last year finally conceded that collective bargaining indeed included wage negotiations. When negotiations broke down and the union took strike action, management arbitrarily and vindictively fired 53 union members  – after an agreement had been signed to end the strike and workers were back on the job!

Human rights risk assessment at Nestlé failed to detect these and other long-standing abuses, and apparently is comfortable with vicious management responses when abuses are brought to the company’s attention. For Nestlé workers, the new reality looks just like the old one: squeezing cash means squeezing rights.

How many similar human rights “risks” are lurking in the Nestlé system? Don’t look to the Human Rights Working Group, or Nestlé’s ‘internal audits’, to come up with the answer. Investors should take a closer look.