24 deleted from FTSE4Good index amid controversy over Smithfield Foods

The latest review of the FTSE4Good index has seen 24 companies expelled for no longer meeting its corporate responsibility standards. These include Honda and Toyota, which failed to meet human rights criteria, and Alltel and Capital One Financial, did not meet environmental standards.

The review also admitted 42 new companies to the Index. These include four from the US – Dell, McAfee, MEMC Electronics Materials and NYSE Euronext – as well as nine from Japan and 22 from the UK. However, the bulk of companies deleted from the index – 16 out of the 24 – were also from the US.

It is not the deletion or admittance of new companies that has proved particularly controversial, but the maintenance of US meat processor Smithfield Foods as a constituent of the index. In a letter to Mark Makepeace, chief executive of the FTSE group, campaigning organisation Human Rights Watch argued the decision to retain Smithfield in the index raises serious questions about the interpretation and application of its social screening criteria.

The letter stated that Smithfield has on numerous occasions been found liable for violations of US labour law, highlighting one instance when the company allegedly threatened to fire employees who voted for the union at its Tar Heel plant, to freeze wages and shut the plant if employees unionised, and to discipline employees who engaged in union activity.

These violations, the letter stated, contravene the International Labour Organization’s (ILO’s) core labour rights of freedom of association and collective bargaining. FTSE4Good requires meat processing companies to commit to uphold ILO standards and to implement that commitment through appropriate internal corporate systems. Human Rights Watch suggested that given Smithfield’s workers’ rights record, its inclusion in the index misleads investors and undermines the credibility of FTSE4Good.

In his 22 August reply, Makepeace said FTSE’s responsible investment unit initiated engagement with Smithfield in September 2006, and that in July 2007 Smithfield published a human rights policy. Smithfield, said Makepeace, still hopes to prove this policy is being fully implemented and the FTSE4Good committee will review the company’s progress.

Smithfield, however, was absent from the list of companies deleted from the index at its latest update.

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