The Dow Chemical Company

Respecting Human Rights in the Dow Supply Chain Thomas

McMennaminJesse NishinagaHaas School of BusinessMonday, May 4, 2009

“Red in the Face” Company Events

Unsafe toys, 2007Estimated cost to company: Over $12 Million

Symbol of sweatshop labor, late 1990sEstimated cost to company: Millions of dollars; sales dropped, share price dropped

Sweatshop in Saipan, 1999Estimated cost to company: Millions of dollars in settlement costs plus severe impact to financial performance and brand image

Violations in the Supply

Chain!

Violation

Child Labor

Unlivable wages

Poor Working Conditions

Sweatshops

Anti-workers’ rights

Discrimination

InhumaneMistreatment

Project Scope

To ensure that Dow is supporting and living its values throughout the

supply chain in an ever-changing world of CSR principles

Combining the Power of Science and Technology with the “Human Element”

MissionConstantly improve what is essential to human progress

VisionBe the largest, most profitable, most respected chemical company

Values Actions are driven by values of integrity and respect for people

Sustainability at DowHuman Rights and Labor Standards fits neatly into Dow’s Sustainability Goals

Strategic Theme: “Set the Standard for Sustainability”

Dow’s 2015 Sustainabilit

yGoals

Dow’s Growth StrategyGrowth strategy makes Dow more vulnerable to supply chain violations

Additionally, there IS increased scrutiny on human rights all the way through the supply chain

• Operating in countries with less transparency and poor human rights records

• Harder for Dow to enforce or extend its business standards and codes of conduct

• Greater exposure to consumer scrutiny

Human Rights & Labor StandardsThe business case to embrace labor and human rights practices is strong

Operationalize Measure

Quantify Interpret

Project Deliverables

Develop a Multi-Generational Plan (MGP) that outlines the integration of a supply chain CSR management

program

Create a supply chain CSR management framework that addresses supplier’s performance on human

rights and labor standards

Identify best practices for addressing human rights in the supply chain management process

Best Practices

To provide Dow with best practices on how to evaluate and improve supplier’s performance on expectations related to human rights and

labor standards

CSR Practices BenchmarkedCompany CSR practices were reviewed and best practices benchmarked

CSR Practices Benchmarked Non-profit and intergovernmental organizations were reviewed and best practices benchmarked

Best Practices CompiledFour distinct buckets of best practices formed the outline of the recommended Dow model

Supplier Responsibility Management

Program (SRMP)

To enable Dow to systematically evaluate and improve

supplier’s performance on expectations related to human rights and labor

standards

Supplier CategoriesSuppliers divided into various categories are treated differently in the Supplier Responsibility Management Program

Supplier Responsibility Management ProgramCompliance Life Cycle

Supplier Responsibility Management Program Existing Suppliers

Step 1:ENGAGEABC Chemical

Supplier Responsibility Management Program Existing Suppliers

Step 2:PRIORITIZEABC Chemical

Supplier Responsibility Management Program Risk-Priority Matrix determines the tier in which the supplier falls

Tier 1: Immediate

action required

Tier 1: Immediate

action required

Tier 2: Reassess

relationship immediately

Tier 1: Immediate

action required

Tier 3:Action

required within 4-6 months

Tier 4:Regular annual review process

Tier 3:Action

required within 4-6 months

Tier 4:Regular annual review process

Tier 4:Regular annual review process

CSRRISK

Supplier Segmentation

Strategic

TacticalImportant/

Value

Supplier Responsibility Management Program Existing Suppliers (Tier 1)

Step 3:IMPLEMENTABC Chemical

Supplier Responsibility Management Program Existing Suppliers (Tier 1)

Step 4:VALIDATEABC Chemical

Supplier Responsibility Management ProgramA process has been developed for all tiers of suppliers for a defined timeframeTime

(month)0 1 2 3 4 5 6 7 8 9 10 11 12

Existing

Supplier

Tier 1

Tier 3

Tier 4

Conduct Auditand Develop

Plan Review/

Approve Plan

Review

Develop and Implement Plan (if

applicable)

Annu

al

Asse

ssment

Implement Plan

No Action

NoActio

n

Validate Planand Prepare for Annual Review

Tier 2

Discontinue

Validate Plan (Monthly Updates)

Multi-Generational Plan (MGP)

To provide specific guidelines for Dow to operationalize the SRMP

Set Expectations; Build

Infrastructure; Pilot New Process

Empower Suppliers; Recognize Suppliers;

Develop Multi-Stakeholder Initiatives

Require Mandatory

Compliance; Execute Audits;

Obtain Independent Third-Party Verification

Multi-Generational Plan (MGP)

Phase I Phase II Phase III

Operationalizing the Supplier Responsibility Management Program

Phase I: Outreach and Integration

Establish Establish ManagemeManagement Structure nt Structure

and/or and/or Executive Executive ChampionChampion

Establish Establish ManagemeManagement Structure nt Structure

and/or and/or Executive Executive ChampionChampion

AdoptAdoptCSR Data CSR Data

ManagemeManagement Systemnt System

AdoptAdoptCSR Data CSR Data

ManagemeManagement Systemnt System

CommunicaCommunicate Policies, te Policies,

Criteria, Criteria, and MGPand MGP

CommunicaCommunicate Policies, te Policies,

Criteria, Criteria, and MGPand MGP

Expectations are Clear

Phase I: Outreach and Integration

BuildBuildAuditing Auditing

CapabilitiesCapabilities

BuildBuildAuditing Auditing

CapabilitiesCapabilities

Establish Establish External External

RelationshiRelationshipsps

Establish Establish External External

RelationshiRelationshipsps

Pilot New Pilot New ProcessProcess

Pilot New Pilot New ProcessProcess

Infrastructure is Built

Phase II: Ownership and Accountability

Launch Launch SRMPSRMP

Launch Launch SRMPSRMP

Mandate Mandate Data Data

ManagemeManagement System nt System AdoptionAdoption

Mandate Mandate Data Data

ManagemeManagement System nt System AdoptionAdoption

Add CSR Add CSR Metrics to Metrics to

Performance Performance ReviewReview

Add CSR Add CSR Metrics to Metrics to

Performance Performance ReviewReview

Accountability is

Realized

Phase III: Beyond Monitoring

Empower Empower Suppliers Suppliers Empower Empower Suppliers Suppliers

Recognize Recognize Good Good

PerformancPerformancee

Recognize Recognize Good Good

PerformancPerformancee

Establish Establish LeadershipLeadershipEstablish Establish

LeadershipLeadership

Leadership is Achieved

Multi-Generational Plan (MGP)

Phase I Phase II Phase III

Operationalizing the Supplier Responsibility Management Program

Year 2

Year 4

Year 5+

A 5-year Program Integration Plan

Start

Expectations are Clear

Infrastructure is Built

Accountability is Realized

Leadership is Achieved

Multi-Generational Plan (MGP)

DOW

Actions are driven by values of integrity and respect for people

Violation

Child Labor

Unlivable wages

Poor Working Conditions

Sweatshops

Anti-workers’ rights

Discrimination

InhumaneIntegrity

Human RightsDignity

Fairness

Living Wages

Respect

Industry Leadership

Partnership

MistreatmentFreedom to Associate

Thank YouFor more details, please contact:thomas_mcmennamin@mba.berkeley.edu jesse_nishinaga@mba.berkeley.edu