The Dow Chemical Company Respecting Human Rights in the Dow Supply Chain

1. The Dow Chemical Company Respecting Human Rights in the Dow Supply Chain Thomas McMennamin Jesse Nishinaga Haas School of Business Monday, May 4, 2009

2. “Red in the Face” Company Events Symbol of sweatshop labor, late 1990s Estimated cost to company: Millions of dollars; sales dropped, share price dropped Violations in the Supply Chain! Unsafe toys, 2007 Estimated cost to company: Over $12 Million Sweatshop in Saipan, 1999 Estimated cost to company: Millions of dollars in settlement costs plus severe impact to financial performance and brand image

3. Violation Unlivable wages Inhumane Mistreatment Sweatshops Discrimination Poor Working Conditions Child Labor Anti-workers’ rights

4. Project Scope To ensure that Dow is supporting and living its values throughout the supply chain in an ever-changing world of CSR principles

5. Combining the Power of Science and Technology with the “Human Element” Mission Constantly improve what is essential to human progress Vision Be the largest, most profitable, most respected chemical company Values Actions are driven by values of integrity and respect for people

6. Sustainability at DowHuman Rights and Labor Standards fits neatly into Dow’s Sustainability Goals Strategic Theme: “Set the Standard for Sustainability” Dow’s 2015 Sustainability Goals

7. Global Expansion (in Emerging Regions) • Operating in countries with less transparency and poor human rights records Dow’s Growth StrategyGrowth strategy makes Dow more vulnerable to supply chain violations More joint ventures and partnerships • Harder for Dow to enforce or extend its business standards and codes of conduct More consumer-facing lines of business • Greater exposure to consumer scrutiny Additionally, there IS increased scrutiny on human rights all the way through the supply chain

8. Human Rights & Labor StandardsThe business case to embrace labor and human rights practices is strong Operationalize Measure Quantify Interpret

9. 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

10. 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

11. CSR Practices BenchmarkedCompany CSR practices were reviewed and best practices benchmarked

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

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

14. 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

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

16. Supplier Responsibility Management ProgramCompliance Life Cycle

17. Supplier Responsibility Management Program Existing Suppliers

18. Supplier Responsibility Management Program Existing Suppliers

19. Supplier Responsibility Management Program Risk-Priority Matrix determines the tier in which the supplier falls Supplier Segmentation Important/ Value Strategic Tactical High Medium CSR RISK Low

20. Supplier Responsibility Management Program Existing Suppliers (Tier 1)

21. Supplier Responsibility Management Program Existing Suppliers (Tier 1)

22. Supplier Responsibility Management Program A process has been developed for all tiers of suppliers for a defined timeframe 0 1 2 3 4 5 6 7 8 9 10 11 12 Time (month) No Action Tier 1 Conduct Audit and Develop Plan Review/ Approve Plan Implement Plan Validate Plan (Monthly Updates) Annual Assessment Tier 2 No Action Existing Supplier Discontinue Tier 3 Review Develop and Implement Plan (if applicable) Validate Plan and Prepare for Annual Review Tier 4

23. Multi-Generational Plan (MGP) To provide specific guidelines for Dow to operationalize the SRMP

24. Multi-Generational Plan (MGP) Operationalizing the Supplier Responsibility Management Program Set Expectations; Build Infrastructure; Pilot New Process Require Mandatory Compliance; Execute Audits; Obtain Independent Third-Party Verification Empower Suppliers; Recognize Suppliers; Develop Multi-Stakeholder Initiatives Phase I Phase II Phase III

25. Phase I: Outreach and Integration Establish Management Structure and/or Executive Champion Adopt CSR Data Management System Expectations are Clear Communicate Policies, Criteria, and MGP

26. Phase I: Outreach and Integration Build Auditing Capabilities Establish External Relationships Infrastructure is Built Pilot New Process

27. Phase II: Ownership and Accountability Launch SRMP Mandate Data Management System Adoption Accountability is Realized Add CSR Metrics to Performance Review

28. Phase III: Beyond Monitoring Empower Suppliers Recognize Good Performance Leadership is Achieved Establish Leadership

29. Multi-Generational Plan (MGP) Operationalizing the Supplier Responsibility Management Program Phase I Phase II Phase III Start Year 2 Year 4 Year 5+ A 5-year Program Integration Plan

30. Multi-Generational Plan (MGP) DOW Expectations are Clear Infrastructure is Built Accountability is Realized Leadership is Achieved Actions are driven by values of integrity and respect for people

31. Violation Industry Leadership Unlivable wages Integrity Inhumane Mistreatment Freedom to Associate Sweatshops Human Rights Discrimination Dignity Poor Working Conditions Fairness Respect Child Labor Living Wages Anti-workers’ rights Partnership

32. Thank You For more details, please contact: thomas_mcmennamin@mba.berkeley.edu jesse_nishinaga@mba.berkeley.edu