Reprisk Special Report the Most Controversial Companies of 2014

ESG Business Intelligence

RepRisk Special Report The Most Controversial Companies of 2014

February 2015 Foreword from the CEO

I am pleased to announce the release of the fifth edition of our annual Most Contro- versial Companies Report, which focuses on the companies that were most exposed to environmental, social and governance (ESG) risks in 2014.

The report is compiled from RepRisk’s dynamic ESG risk analytics and metrics and is based on information that is screened, analyzed, and quantified daily from a wide range of publicly-available, third-party sources.

By publishing this report, it is not our intention to “name and shame” the companies that are listed. Instead, our intention is to highlight the incidents and chain of events that can lead to loss of reputation, to compliance risks and financial risks and, in some cases, even call into question a company’s license to operate.

We hope that insight into the challenges these companies faced in 2014 will raise awareness of potential ESG risks faced by globally-active businesses, and encourage corporations to systematically take into account such issues in their risk management strategies and processes. Philipp Aeby CEO, RepRisk AG About RepRisk

RepRisk is a leading business intelligence provider specializing in dynamic environmental, social and governance (ESG) risk analytics and metrics.

On a daily basis, RepRisk systematically screens big data from a broad range of open intelligence sources in 14 languages in order to identify, filter, analyze and quantify ESG risks (such as environmental degradation, human rights abuses and corruption) related to companies, projects, sectors and countries. This external perspective provides valuable insight on whether a company’s policies, processes and commitments are consistently translating into performance.

Since 2006, RepRisk has built and continues to grow the most comprehensive ESG risk database that serves as a due diligence tool and early warning system in risk management, compliance, investment management, corporate benchmarking and supplier risk. The database currently includes risk profiles for over 49,000 public and private companies and 12,000 projects as well as for every sector and country in the world.

Headquartered in Zurich, Switzerland, RepRisk serves clients worldwide including global banks, insurance companies, investment managers, and corporates, helping them to manage and mitigate ESG and reputational risks in day-to-day business.

RepRisk provides the transparency needed to enable better, more informed decisions. To learn more, visit www.reprisk.com. Contents Page No. Overview and Ranking 2

Chonghaejin Marine Company 3

Takata Corp 4

Chang Guann Company 5

Zhongrong Metal Products 6

Uber Techonologies 7

Fédération Internationale de Football Association (FIFA) 9

Dongguan Shinyang Electronics 11

General Motors 12

KT ENS Corp 14

Neiman Marcus Group 15

Produced by RepRisk AG Authors: Stella Kenway, Alessandra Oglino Editors: Alexandra Mihailescu Cichon, Helios Strategy Group, Viktoria Redey Graphic Design: Bounford.com

All rights reserved with RepRisk AG. No part of this report may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, without the prior permission, issued in writing, of the copyright holders: RepRisk AG, Stampfenbachstrasse 42, 8006 Zurich, Switzerland. Tel. +41 43 300 54 40 www.reprisk.com Overview and Ranking

Throughout 2014, RepRisk systemati- Six out of the ten most controversial accusations focusing on corruption, cally screened big data from a broad companies of 2014 are located in Asia fraud, defective products, occupational range of public sources in 14 languag- and three are based in the United health and safety, and supply chain is- es in order to identify, filter, analyze States. The Fédération Internationale sues. and quantify environmental, social de Football Association (FIFA), head- and governance (ESG) risks (such as quartered in Switzerland, is included It is also interesting to note the speed environmental degradation, human once again in our annual MCC Report with which these ESG incidents affected rights abuses and corruption) related due to ongoing corruption allega- the companies’ reputation 2 and that in to companies, projects, sectors and tions, as well as occupational safe- one case, an incident nearly forced the countries. ty issues at FIFA World Cup venues firm into liquidation. ( t h e o r g a n i z a t i o n w a s r a n k e d f i r s t i n Our Most Controversial Companies RepRisk’s MCC 2013 Report). (MCC) Report outlines the ten companies that had the highest Reputa- It is interesting to note that the inci- tional Risk Index (RRI) 1 in 2014 – and dents faced by the ten companies listed therefore, the highest exposure to in the report fall primarily into the so- ESG risks. c i a l a n d g o v e r n a n c e c a t e g o r i e s , w i t h

Most Controversial Companies of 2014

#1 Chonghaejin Marine Company #6 FIFA

#2 Takata Corp #7 Dongguan Shinyang Electronics

#3 Chang Guann Company #8 General Motors

#4 Zhongrong Metal Products #9 KT ENS Corp

#5 Uber Technologies #10 Neiman Marcus Group

1 The RRI is RepRisk’s proprietary risk metric that quantifies a company’s exposure to ESG risks. See methodology on page 16 for more information.

2 As some of the ten companies listed had completely untarnished reputations prior to the issues they experienced during 2014, the impact on their RRI was greater due to the novelty of such incidents (the RRI emphasizes companies that are newly criticized, while companies with a history of risk exposure are less affected by new criticism and negative incidents).

2 MOST CONTROVERSIAL COMPANIES (MCC) 2014 REPORT #1 Chonghaejin Marine Company Sector: Travel and Leisure; Headquarters: Republic of South Korea; Peak RRI: 93

On April 16, 2014, the Republic of South RepRisk Index (RRI) Trend of Chonghaejin Marine Company Korea was hit by one of its worst marine tragedies in recent history, when the 1 0 0 Ferry Sewol sank off the island of Jindo. Peak RRI The ferry, owned by Chonghaejin Ma- 93 in May 2014 rine, was carrying 476 people, mostly 5 0 secondary school students. By Novem- News Stats ber, the death toll had risen to over 300 29 Total people. 0 A few days after the accident, the cap- 2012 2013 2014 2015 tain and the crew of Sewol were ac- Environment Social Governance Peak RRI cused of deserting the ferry and failing RepRisk® - www.reprisk.com to give passengers evacuation instruc- tions. The captain of the ferry was ar- The Peak RRI for this Special Report refers to the highest RRI in 2014. rested on charges of abandoning ship, The News Stats refer to the number of risk incidents captured by RepRisk in 2014 for the company. Each risk incident for a company is added only once to the database, unless the risk profile of the incident changes. violating maritime law, and various other infringements.

Following the disaster, South Korean During the trial concerning the Ferry Se- the capsizing of the ferry by permitting prosecutors launched an investigation wol accident, Chonghaejin Marine was the excess cargo. He was also accused into alleged overseas tax evasion and accused of having repeatedly overload- of misappropriating KRW billions of the illegal foreign exchange transactions by ed Sewol and its sister ferry, Ohamana, company’s assets. Mr. Yoo, the former Chairman of Semo since 2004. In 2008, a former captain Group that controlled Chonghaejin Ma- of Ferry Ohamana allegedly asked the In November 2014, Ferry Sewol’s cap- rine through a series of affiliates. Prose- company to stop overloading ferries, as tain was found guilty of negligence and cutors also probed Mr. Yoo’s family. Mr. the practice was putting passengers at sentenced to 36 years in prison. Thir- Yoo was investigated over allegations of risk. However, the company reportedly teen other crew members were given corruption concerning safety tests car- ignored the warning. jail sentences of up to 20 years, while ried out on Ferry Sewol, amid suspicions the ferry’s Chief Engineer was found that the vessel had been sailing without Allegedly, the day before the accident, guilty of murder and sentenced to 30 legal permits. As a consequence of the Ferry Sewol had been loaded with al- years. The CEO of Chonghaejin Marine investigations, a travel ban was imposed most double its legal cargo limit and this was sentenced to ten years in prison on 30 officials of Chonghaejin Marine had caused the vessel to be unstable. for involuntary homicide and embezzle- and its affiliates. [RepRisk Analysis Note: Prosecutors also held the CEO of Chong- ment. Chonghaejin Marine filed for bankrupt- haejin Marine responsible for the disas- cy on May 19, 2014.] ter and claimed he had contributed to

Prosecutors announced that they want- Top 5 ESG issues linked to Chonghaejin Marine Company ed to question Mr. Yoo over allegations that he had embezzled KRW 128 billion 1. Products (health and environmental issues) (USD 118 million) from the subsidiaries of Semo Group and had evaded KRW 2. Violation of national legislation 15.9 billion (USD 14 million) in taxes. However, the authorities could not lo- 3. Fraud cate him after the accident, and in July 2014, his dead body was found in a 4. Tax evasion field. 5. Impacts on communities

MOST CONTROVERSIAL COMPANIES (MCC) 2014 REPORT 3 #2 Takata Corp Sector: Automobiles and parts; Headquarters: Japan; Peak RRI: 86

Japanese automobile parts manufactur- RepRisk Index (RRI) Trend of Takata Corp er, Takata, was ranked the second most controversial company in 2014 due to 1 0 0 the production of defective automobile Peak RRI safety airbags and the consequent re- 86 in Dec 2014 calls of millions of vehicles. Several ma- 5 0 jor car producers were affected by this News Stats scandal. 48 Total

In early June 2014, Toyota issued a 0 worldwide recall of around 2.3 mil- 2012 2013 2014 2015 lion vehicles due to safety risks posed Environment Social Governance Peak RRI by a potentially faulty air bag compo- RepRisk® - www.reprisk.com nent made by Takata. A few days later, Honda, Mazda Motor, and Nissan an- The Peak RRI for this Special Report refers to the highest RRI in 2014. nounced they were also recalling a to- The News Stats refer to the number of risk incidents captured by RepRisk in 2014 for the company. Each risk incident for a company is added only once to the database, unless the risk profile of the incident changes. tal of approximately 3 million cars that were equipped with the same faulty air bags. At least five deaths and dozens of inju- Japan, and Mexico, as well as across Eu- ries have been linked to the problem. In rope and Southeast Asia, over concerns At the end of June, the US National 2009, a class action lawsuit was filed in about the faulty airbags. Highway Traffic Safety Administration California against Takata and Honda in (NHTSA) announced a nation-wide re- relation to the defective airbags. On December 24, Takata announced the call of millions of additional vehicles sold resignation of its President and Chief by companies including Toyota, BMW, Takata’s Monclova plant in Mexico was Operating Officer, supposedly to speed- Fiat Chrysler and Ford as they were fit- confirmed as the manufacturer of de- up decision-making while the company ted with the same faulty device. It was fective airbags manufactured in 2001, is dealing with the consequences of the alleged that the faulty airbags could 2002 and 2012. It was claimed that recalls. explode during an accident and cause workers at the plant had faced unre- serious injuries. In October, NHTSA or- lenting pressure to achieve production dered Takata to provide documents and quotas, and that the mistakes had been detailed answers under oath to 36 ques- partly due to stress. tions, as part of an investigation into the defective airbags. At the time of publication, Toyota, Honda, Nissan, Fiat Chrysler and Ford The investigations revealed that Takata were reportedly continuing to recall ve- had allegedly known about defects in h i c l e s i n c o u n t r i e s i n c l u d i n g U S , C h i n a , its airbags but had decided not to disclose the problem. Following a fatal car Top 5 ESG issues linked to Takata Corp accident in Alabama in 2004, Takata reportedly conducted secret tests in 1. Products (health and environmental issues) Michigan that revealed deficiencies in its airbag inflators. However, instead of 2. Violation of national legislation reporting the danger to regulators, the company allegedly destroyed the test- 3. Anti-competitive practices ing data and waited another four years before conducting official tests in 2008, 4. Fraud which resulted in the first airbag-relat- 5. Impacts on communities ed recall.

4 MOST CONTROVERSIAL COMPANIES (MCC) 2014 REPORT #3 Chang Guann Company Sector: Food and beverage; Headquarters: Taiwan; Peak RRI: 85

Taiwanese food oil producer Chang RepRisk Index (RRI) Trend of Chang Guann Company Guann is listed as the third most controversial company in the MCC 2014 report 1 0 0 following a scandal over contaminated Peak RRI food oil. 85 in Oct 2014

5 0 In September 2014, Taiwan’s Food and News Stats Drug Administration identified more 18 Total than 900 restaurants and food plants 0 that were using “gutter” oil supplied 2012 2013 2014 2015 by Chang Guann. The company was Peak RRI accused of supplying firms with cheap Environment Social Governance recycled oil from kitchen-waste, and RepRisk® - www.reprisk.com by-products from leather plants and slaughterhouses, and mixing it with lard The Peak RRI for this Special Report refers to the highest RRI in 2014. before reselling it from an unlicensed The News Stats refer to the number of risk incidents captured by RepRisk in 2014 for the company. Each risk incident for a company is added only once to the database, unless the risk profile of the incident changes. factory.

The Taipei City Health Department im- Subsequent investigations showed that Following the scandal, Chang Guann posed a maximum fine of TWD 3 million a total of 235 manufacturers had pur- was fined a further TWD 160,000 (USD (USD 95,000) each against two food chased the sub-standard oil, and 213 5,000) by the Bureau of Kaohsiung City supply companies, For Chorn and Kong food products contained the contami- Labor Affairs for allegedly dismissing Yen, for initially refusing to disclose the nated lard. Over 1,000 retail businesses 103 employees without giving them downstream purchasers of their cook- were asked to recall the tainted prod- the legally required 60 days’ advance ing oil, which had allegedly been pro- ucts and Taiwan’s Premier created a notice. The Bureau’s investigations also duced by Chang Guann. Later, Kong Yen special task force to deal with the prob- found that employees had been illegally finally disclosed that the contaminated lem. asked to work overtime. oil had been supplied to nearly 400 restaurants and that it had successfully The directors of Chang Guann were in- In September, the CEO of Chang Guann recalled 298 units of the 15-kilogram dicted on charges of violating food safe- was arrested in relation to the scandal barrels. ty regulations and fraudulently selling and the assets of company’s owner substandard products, and the compa- were frozen. The scandal rapidly widened to include ny was fined TWD 52.9 million (USD 1.7 bigger food-service chains in Hong Kong million). Reportedly, this was the high- such as 7-Eleven, Starbucks, and Café est possible fine under local safety food Express. These outlets had reportedly laws in Taiwan. been using pineapple buns supplied by Maxim’s Group, which confirmed that its oil supplies, imported through Ur- Top 5 ESG issues linked to Chang Guann Company ban Food, had originated from Chang Guann. Ting Hsin International was also 1. Products (health and environmental issues) linked to the scandal after its subsidiary, Wei-Chuan, admitted that its meat paste 2. Violation of national legislation had been made with oil purchased from Chang Guann. In September, retailers in 3. Fraud Macau, Taiwan and Hong Kong removed hundred of tons of products from their 4. Supply chain (E, S, G issues) shelves over fears that they were con- 5. Poor employment conditions taminated with the oil.

MOST CONTROVERSIAL COMPANIES (MCC) 2014 REPORT 5 #4 Zhongrong Metal Products Sector: Automobiles and parts; Headquarters: China; Peak RRI: 83

On August 2, 2014, a massive explosion RepRisk Index (RRI) Trend of Zhongrong Metal Products at the Zhongrong Metal Productions

(Zhongrong) plant in Kunshan, China, 1 0 0 killed over 70 workers and injured more Peak RRI than 180 others. Investigators suspect- 83 in Aug 2014 ed that an accumulation of combustible 5 0 metal dust particles at the facility had News Stats led to the blast, which tore two large 11 Total holes in the plant’s walls. Zhongrong, 0 wholly owned by Formosa International Enterprises, is a subcontractor of Citic 2012 2013 2014 2015 Dicastal Wheel Manufacturing, which Environment Social Governance Peak RRI supplies wheels to companies includ- RepRisk® - www.reprisk.com ing General Motors, Volkswagen and Mitsubishi Motors. The Peak RRI for this Special Report refers to the highest RRI in 2014. The News Stats refer to the number of risk incidents captured by RepRisk in 2014 for the company. Each risk incident for a company is added only once to the database, unless the risk profile of the incident changes. Following the accident, five Zhongrong executives were taken into custody for questioning. The NGO, China Labor Watch, criticized On December 30, an official report Zhongrong was accused of failing to General Motors and its subsidiary Gen- by the Chinese State Administration properly implement safety measures eral Motors China over the accident, as o f W o r k S a f e t y , c o n fi r m e d t h a t t h e to prevent the build-up of aluminum Zhonghrong was one of their second- final death toll from the accident had dust in the workspace, which in previ- tier suppliers. According to the NGO, the reached 146. ous years had caused several factory plant was in a visibly dilapidated state accidents in China. Allegedly, another and did not meet the necessary safety At the time of writing, 15 officials of the dust-related fire at Zhongrong had oc- standards. China Labor Watch claimed Kunshan city government were facing curred two months before the August that General Motors shared responsibil- prosecution in relation to the accident, 2014 explosion. ity for the accident because it had failed together with three of the Zhongrong to ensure safe working conditions at the Metal Products executives arrested in According to local work safety authori- supplier’s premises. August. ties, the company had been repeatedly warned about dust-related explosion At the end of August, the Chairman, hazards, but had ignored advice about General Manager, and Production collecting and disposing of the dust. The Manager of Zhonghrong Metal Prod- company had also been reprimanded ucts were arrested for their roles in the for environmental and safety issues accident. related to its waste gas and water dis- charges. Top 5 ESG issues linked to Zhongrong Metal Products

A staff member also complained about 1. Occupational health and safety issues heavy workloads, and one worker claimed that employees had to work a 2. Violation of national legislation minimum of 12 hours a day. The insurance company expressed surprise that 3. Poor employment conditions Zhongrong had apparently not purchased “work accident insurance” and 4. Waste issues “high-risk industry insurance” for its 5. Impacts on communities employees.

6 MOST CONTROVERSIAL COMPANIES (MCC) 2014 REPORT #5 Uber Technologies Sector: Software and computer services; Headquarters: United States of America; Peak RRI: 80

Uber Technologies, a US company that RepRisk Index (RRI) Trend of Uber Technologies connects passengers with private hire vehicles via a smart-phone app, sud- 1 0 0 denly found itself at the center of con- Peak RRI 80 in Dec 2014 troversy in December 2014, when a number of its drivers were accused of 5 0 assault. Since launching its services in News Stats 13 Total San Francisco in 2009, the company has expanded its operations to over 200 cit- 0 ies around the world. 2012 2013 2014 2015 In India, an Uber driver was accused Environment Social Governance Peak RRI of raping a 26-year old female passen- RepRisk® - www.reprisk.com ger on December 5, 2014 in New Delhi, prompting the Indian Transport Depart- The Peak RRI for this Special Report refers to the highest RRI in 2014. ment to ban the company. Uber, which The News Stats refer to the number of risk incidents captured by RepRisk in 2014 for the company. Each risk incident for a company is added only once to the database, unless the risk profile of the incident changes. had promoted itself as being safe, as “GPS systems were installed in all taxi cabs,” was accused of misleading cus- tomers and failing to conduct back- that it carried out on its drivers. The with violating local transportation law, ground checks on its drivers. The taxi lawsuit claimed that the company vio- which prohibits the use of rental cars as driver was arrested and appeared in lated Californian law by stating that its taxis. The men could face up to KRW 20 court on December 8. driver screening method was “industry- million (USD 18,500) in penalties or up leading,” when, in fact, drivers were not to two years in prison. The case comes US prosecutors in the state of Massa- even asked to submit fingerprints. after the Seoul city government peti- chusetts also charged an Uber driver tioned the South Korean authorities to with rape, assault to rape, kidnapping Later in December, a former Uber driver shut down Uber because it was damag- and two counts of assault. According to was charged with vehicular manslaugh- ing the taxi industry in the country. In the indictment, the driver picked up a ter over the death of a six-year old girl mid-December, police in China raided young woman in Boston on December in a December 2013 traffic accident in a site that trained Uber drivers on sus- 6 and took her to a secluded area where San Francisco. picions that the company did not have he stopped the car and attacked her. the required permits to offer transpor- It has been alleged that several drivers Uber also faced difficulties in Asia. In tation services. working for the company in San Fran- December, the Central District Pros- cisco, Florida and Chicago also assaulted ecutors Office in Seoul, South Korea, In Europe, Uber has been accused sev- passengers in 2014. The company has formally charged the CEO of Uber and eral times of unfair competition. In No- also faced charges over claims that they Uber’s car-rental partner, MK Korea, vember, the Swedish Taxi Association operate at US airports without the necessary authorization, and in Portland, Top 5 ESG issues linked to Uber Technologies Oregon, the city government sued Uber for operating an “illegal, unregulated 1. Violation of national legislation transportation service.” 2. Human rights abuses and corporate complicity At the beginning of December, District Attorneys in the counties of San Francis- 3. Impacts on communities co and Los Angeles also launched a civil lawsuit against Uber over allegations 4. Anti-competitive practices that the company misled consumers 5. Discrimination in employment about the extent of background checks

MOST CONTROVERSIAL COMPANIES (MCC) 2014 REPORT 7 claimed that the company was restrict- Taxi drivers in Barcelona also com- that Uber’s app was a threat to their ing competition by not using taxime- plained about unfair competition from livelihoods, and in December 2014, ters. Uber faced further opposition in unlicensed taxi drivers and asked the lo- Spain joined Thailand in banning the November when it launched operations cal government to shut down Uber after service. in Denmark, as the Danish Transit Au- it began operating in Spain in April 2014. thority filed a police complaint against In the same month, a Belgian court ruled the company soon after it began operat- that Uber’s service was illegal. ing, on the grounds that it was violating passenger legislation because the com- In July 2014, taxi drivers in Berlin, Paris, pany lacked the required certificates. London, and Madrid likewise claimed

8 MOST CONTROVERSIAL COMPANIES (MCC) 2014 REPORT #6 Fédération Internationale de Football Association (FIFA) Sector: Travel and Leisure; Headquarters: Switzerland; Peak RRI: 78

F I F A , w h i c h r a n k e d n u m b e r o n e i n RepRisk Index (RRI) Trend of FIFA RepRisk’s Most Controversial Compa- nies Report 2013, is included again in 1 0 0 this year’s report due to repeated alle- Peak RRI gations of corruption. A book by jour- 78 in Jul 2014 nalist, Andrew Jennings, accused FIFA 5 0 executives of running the association News Stats like a “crime syndicate” and claimed 75 Total that widespread corruption had “ruined the atmosphere of the tournament.” 0 2012 2013 2014 2015 In Brazil, the police launched an investi- Environment Social Governance Peak RRI gation into a scheme to sell illegal 2014 RepRisk® - www.reprisk.com World Cup tickets, which was allegedly supported by high-ranking FIFA officials. The Peak RRI for this Special Report refers to the highest RRI in 2014. Hundreds of thousands of protestors The News Stats refer to the number of risk incidents captured by RepRisk in 2014 for the company. Each risk also expressed anger at the amount of incident for a company is added only once to the database, unless the risk profile of the incident changes. money spent on infrastructure for the 2014 FIFA World Cup. The USD 900 million Mane Garrincha Stadium was par- The 2022 World Cup in Qatar also faced and experts have claimed that the final ticularly criticized amid allegations that widespread condemnation during 2014 death toll could reach over 4,000. fraudulent billing had caused construc- for reportedly subjecting migrant work- tion costs to triple. ers to inhumane working conditions. The 2022 Qatar World Cup was also There were continuous reports of work- linked to forced labor with claims that There was also widespread criticism place accidents, heart attacks, and sui- 90 percent of the salaries of North Ko- about the working conditions of la- cides, as workers allegedly were laboring rean workers working on the country’s borers preparing the facilities for the in temperatures that reached 50 degrees World Cup facilities was expropriated 2014 World Cup event. Reports sur- centigrade. A Human Rights Watch re- by North Korean authorities. faced of unsafe working conditions at port claimed that Qatari employers had the construction sites of Brazil’s World confiscated the passports of migrant The 2022 event faced repeated allega- Cup venues, as well as allegations that workers, and the Qatar Foundation ad- tions of corruption in 2014. There were thousands of refugees from Haiti were mitted that the country’s labor practices even calls for a re-run of the vote for being employed in “slave-like” condi- were violating ILO Conventions. the host country, following claims that tions to build Brazil’s Arena Amazonia the Qatari former president of the Asian Stadium. Three workers died during It is estimated that around 1,200 con- Football Confederation had channeled the construction of the stadium and in struction workers have died since work up to USD 5 million to FIFA officials to September, the construction company began on Qatar’s World Cup facilities, help Qatar win the bid. Andrade Gutierrez was fined BRL 5 million (USD 1.9 million) over irregularities Top 5 ESG issues linked to FIFA at the site. 1. Human rights abuses and corporate complicity In June 2014, an investigation by the 2. Occupational health and safety issues UK’s Sunday People newspaper linked the Brazil World Cup to child prostitu- 3. Poor employment conditions tion by reporting that gangs were forc- ing children as young as 10 years of age 4. Corruption, bribery, extortion and money laundering to sell themselves for sex to foreign fans during the event. 5. Forced labor

MOST CONTROVERSIAL COMPANIES (MCC) 2014 REPORT 9 The US Treasury Department also linked Munich Re, who provided insurance Other World Cup events were also criti- the event to terrorism by claiming that coverage for the 2014 World Cup, was cized in 2014. Five fatal accidents were the former President of the Qatar Foot- accused of indirectly supporting the reported at facilities being prepared for ball Association had facilitated transfers eviction of tens of thousands of people the 2018 World Cup in Russia, and the worth USD hundreds of thousands to Al in preparation for the Brazil event. In event faced repeated allegations of cor- Qaeda and its affiliates. November, Emirates Airlines dropped ruption involving Russian officials. In No- its sponsorship of FIFA over corruption vember, FIFA was criticized again when World Cup sponsors and suppliers allegations. it exonerated both Russia and Qatar of were also linked to the criticism, with any misconduct regarding their bids to NGOs such as Transparency Interna- In May 2014, Greenpeace Germany host the 2018 and 2022 World Cups. tional criticizing companies including claimed it had found hazardous chemi- Adidas, Coca-Cola, Hyundai, Sony, and cals in merchandise produced by Australia’s bid to host the World Cup in Visa International, for continuing their Adidas, Nike, and Puma for the 2014 2022 also did not escape criticism. In sponsorship despite the corruption World Cup in Brazil. The “Brazuca,” March, a whistleblower claimed that in scandals surrounding FIFA. AB Inbev, the official soccer ball of the Brazilian September 2010, Australia’s bid team a global beverage company, was also World Cup which was manufactured had offered former FIFA vice-president denounced for pressuring the Brazilian by Forward Sports, was also linked to AUD 500,000 (USD 410,000) to win the government into allowing beer sales at toxic chemicals that could allegedly bid to host the event. 2014 World Cup stadiums, even though harm the environment and the health Brazil had banned alcohol at sport ven- of workers who manufactured them in ues for safety reasons in 2003. Pakistan.

10 MOST CONTROVERSIAL COMPANIES (MCC) 2014 REPORT

1 0 0 Peak RRI 77 in Aug 2014

5 0 News Stats 11 Total

0 #7 2012 2013 2014 2015 Dongguan ShinyangEnvironment Social ElectronicsGovernance Peak RRI Sector: Electronic and electrical equipment; Headquarters: China; Peak RRI:RepRisk® 77 - www.reprisk.com

The Chinese company, Dongguan RepRisk Index (RRI) Trend of Dongguan Shinyang Electronics Shinyang Electronics, a subsidiary of

Shinyung Engineering Company Limited, 1 0 0 appears in RepRisk’s Most Controversial Peak RRI 77 in Aug 2014 Companies Report 2014 due to allegations of child labor that surfaced in June 5 0 2014. Dongguan Shinyang Electronics News Stats produces cell phone components for 11 Total Samsung Electronics. 0 China Labor Watch claimed that an un- 2012 2013 2014 2015 dercover investigation had found at Environment Social Governance Peak RRI least five workers, aged 14-15 years, RepRisk® - www.reprisk.com working at Dongguan Shinyang’s factory. The undercover reporter had been The Peak RRI for this Special Report refers to the highest RRI in 2014. employed as a normal production line The News Stats refer to the number of risk incidents captured by RepRisk in 2014 for the company. Each risk incident for a company is added only once to the database, unless the risk profile of the incident changes. worker and had carried out over 30 worker interviews during the investigation. audit on June 25, 2014. guan Shinyang factory complained of The reporter claimed that Dongguan overtime shifts that could reach 120 Shinyang employed underage students Dongguan Shinyang Electronics put the hours a month, which is more than during busy periods, and that the young blame on Feihong Labor Dispatch, an three times the legal limit of 36 hours people had been hired by presenting agency that supplied workers to the allowed by Chinese labor laws. identity cards belonging to other peo- factory. However, in July, Samsung Elec- ple. China Labor Watch reported that tronics temporarily halted work with In August, another report by the NGO, the adolescents were made to work 11- Dongguan Shinyang after the company’s Business and Human Rights Resource hour night shifts for one-third less pay own internal investigations confirmed Center, documented human rights and than an adult worker. evidence of child labor. In August, Sam- the environmental performance of Chi- sung announced that it would reduce its nese companies at home and abroad. The NGO’s report listed a series of other business with Dongguan Shinyang by 30 The report, which also cited Dongguan infringements by Dongguan Shinyang, percent to “hold the company responsi- Shinyang Electronics for allegedly em- including the failure to provide em- ble for failing to monitor its subcontrac- ploying underage workers, denounced ployees with pre-job safety training, tors, in accordance with Samsung’s zero the failure of companies to implement although they were allegedly exposed tolerance policy on child labor.” the UN Guiding Principles on Human to harmful chemicals, failure to provide Rights. protective clothing and equipment, and In addition, adult workers at the Dong- only giving the workers a completed contract after one months’ employ- Top 5 ESG issues linked to Dongguan Shinyang Electronics ment. 1. Child labor Samsung said that it had audited the Dongguan Shinyang plant three times 2. Human rights abuses and corporate complicity and had found no evidence of child labor. A journalist working for the New 3. Poor employment conditions York Times then claimed he had met three workers, aged 14-15 years, who 4. Fraud had allegedly been hired a few weeks 5. Discrimination in employment after Samsung had conducted the last

MOST CONTROVERSIAL COMPANIES (MCC) 2014 REPORT 11 #8 General Motors Sector: Automobiles and parts; Headquarters: United States of America; Peak RRI: 75

General Motors (GM) is in eighth posi- RepRisk Index (RRI) Trend of General Motors tion on the Most Controversial Com- panies 2014 ranking due to persistent 1 0 0 Peak RRI problems in its supply chain that report- 75 in Nov 2014 edly forced the company to recall over 30 million vehicles. 5 0 News Stats 158 Total In February 2014, the company allegedly recalled over 2.4 million cars due to 0 a faulty ignition switch, which had been 2012 2013 2014 2015 linked to over 36 deaths. The National Highway Traffic Safety Administration Environment Social Governance Peak RRI (NHTSA) began investigating why GM RepRisk® - www.reprisk.com had only begun recalling vehicles with the faulty ignition switch in February The Peak RRI for this Special Report refers to the highest RRI in 2014. 2014, nearly 10 years after the defect The News Stats refer to the number of risk incidents captured by RepRisk in 2014 for the company. Each risk incident for a company is added only once to the database, unless the risk profile of the incident changes. had first been discovered. In May 2014, NHTSA fined GM USD 35 million for failing to properly deal with the problem. in millions of its older vehicles, which In Colombia, labor relations at the com- In October 2014, General Motors do included issues with seatbelts, brake pany’s Colmotores Plant in Bogota were Brasil announced a recall of 1,795 Chev- lights, airbags, transmission cables, and also strained. In November, Labor activ- rolet Sonic 2014 models due to defec- headlights. ists at the plant charged GM with vio- tive gas tanks and potential fuel leak- lating the Foreign Corrupt Practices Act ages that allegedly posed a fire risk. The company and its officials are also and claimed that corrupt activities be- facing multiple investigations from tween the company and the Colombian Also in October, GM announced plans other US agencies including the Se- Labor Ministry had allowed continuous to recall approximately 7,600 Chevrolet curities and Exchange Commission, violations of labor laws. The workers Caprice police cars manufactured be- the Justice Department, NHTSA, and complained of debilitating muscle dis- tween 2011 and 2013 over transmission House and Senate Committees. In orders and spinal injuries, allegedly due issues, and halted the sales of two new- September, there were queries as to to poor health and safety conditions at ly unveiled pickup trucks due to various why GM had awarded massive pay the plant. Meanwhile, video footage safety risks. The company also faced increases to its top executives while was broadcast showing US Embassy investigations for a stalling problem in the company was still under a federal officials allegedly beating injured GM its vehicles, which had been linked to 23 bailout through the Trouble Asset Re- workers who were protesting in front of fatal accidents. lief Program. the embassy.

In the United States, 48 state attorneys are pursuing a multi-state investigation Top 5 ESG issues linked to General Motors into GM for its handling of the defective ignition-switch issue. In Arizona, 1. Products (health and environmental issues) the state’s Attorney General sued GM in a District Court after accusing the 2. Violation of national legislation company of defrauding the state’s consumers of approximately USD 3 billion. 3. Fraud The lawsuit accused GM and its officials of intentionally misleading consumers 4. Supply chain (E, S, G issues) about the safety of its cars and of hiding 5. Occupational health and safety issues and failing to remedy serious defects

12 MOST CONTROVERSIAL COMPANIES (MCC) 2014 REPORT In China, GM faced considerable criti- In October, the International Labor together with other car manufacturers, cism for a massive explosion at Zhon- Rights Forum also criticized KB Auto- by the country’s Competition Commis- grong Metal Products (Zhongrong is sys, a supplier of GM in Uzbekistan, for sion for failing to allow fair competition ranked 4 in this report, please see page illegally dumping more than 500 tons in the spare parts market. In Argentina, 6), a second-tier supplier of the compa- of metallic waste over a period of five GM and other companies were also ny. China’s State Administration of Work years on farmland near the company’s sanctioned for price fixing. The com- Safety put the death toll at 146 and stat- Miyan plant. pany is facing similar investigations in ed that the explosion was caused by the China. sudden combustion of excessive levels In India, General Motors was accused of of dust at the factory. price fixing, and the company was fined,

MOST CONTROVERSIAL COMPANIES (MCC) 2014 REPORT 13 #9 KT ENS Sector: Software and computer services; Headquarters: Republic of South Korea; Peak RRI: 74

The software company KT ENS, a sub- RepRisk Index (RRI) Trend of KT ENS sidiary of the Korean-based telecom- munications company, KT Corporation, 1 0 0 found itself at the center of controversy Peak RRI at the beginning of 2014, when the Ko- 74 in Mar 2014 rean Financial Supervisory Service (FSS) uncovered a KRW 300 billion (USD 278 5 0 million) loan fraud. Allegedly, between News Stats 19 Total May 2008 and January 2014, Mr. Kim, a manager of KT ENS, obtained loans 0 worth KRW 1.8 trillion (USD 1.6 billion) 2012 2013 2014 2015 from 16 banks in Korea by using fraudulent documents. Suspicions were raised Environment Social Governance Peak RRI when he failed to repay KRW 49 billion RepRisk® - www.reprisk.com (USD 45 million) that was due to the banks. The Peak RRI for this Special Report refers to the highest RRI in 2014. The News Stats refer to the number of risk incidents captured by RepRisk in 2014 for the company. Each risk incident for a company is added only once to the database, unless the risk profile of the incident changes. Investigators accused the CEOs of two of KT ENS’ affiliates, NS Soul and Joongang Technology and Communication (Joon- District Court launched a receiver- investigations by Seoul’s Central District gang T&C) of complicity in the scam. Mr. ship process for KT ENS. The company Prosecutors over suspicions that they Kim was also accused of receiving KRW warned that it was facing financial dif- had contributed to a large-scale fraud 185 million (USD 170,000) in bribes from ficulties after its credit rating had been scheme at the technology company, NS Soul between 2007 and 2014. downgraded following the involvement Moneual. Allegedly, Moneual issued of its employees and affiliates in the large amounts of fraudulent corporate Mr. Kim and the CEO of Joongang T&C loan scam. bonds in an effort to hide its financial were both sentenced by the Seoul Cen- difficulties. As KT ENS had issued- ex tral District Court to 17 and 20 years in In July, the FSS announced plans to in- port bonds worth KRW 200 billion (USD prison respectively for the fraud. They vestigate senior-level employees at 185.5 million) for the company, pros- were accused of fraudulently obtaining Hana Ban, Kookmin Bank, Nonghyup ecutors decided to investigate whether a total of KRW 1.8 trillion (USD 1.6 bil- Bank and BS Savings bank for failing to the company had contributed to the lion) in loans taken from 16 banks on conduct proper appraisals before giving fraud. 463 separate occasions, and of failing out loans to KT ENS. The banks claimed to pay back nearly KRW 289 billion (USD that KT ENS was obliged to pay back the 266 million). Seven other directors of loans as its employee had committed KT ENS affiliates were charged with in- the fraud. volvement in the scheme and were also given prison sentences. In November, KT ENS staff faced further

In March, a former official of the FSS was Top 5 ESG issues linked to KT ENS linked to the fraud and accused of tak- 1. Violation of national legislation ing kickbacks worth KRW hundreds of millions from the NS Soul and Joongang 2. Fraud T&C. The official reportedly warned NS Soul’s CEO of pending fraud investiga- 3. Corruption, bribery, extortion and money laundering tions, which prompted a CEO of one of KT ENS affiliates to flee to New Zealand. 4. Human rights abuses and corporate complicity 5. Misleading communication In the same month, the Seoul Central

14 MOST CONTROVERSIAL COMPANIES (MCC) 2014 REPORT #10 Neiman Marcus Group Sector: Retail; Headquarters: United States of America; Peak: 73

The US luxury retailer is ranked in tenth RepRisk Index (RRI) Trend of Neiman Marcus Group place on the list of Most Controversial Companies of 2014 due to a major data 1 0 0 privacy breach and allegations of child Peak RRI labor in its supply chain. 73 in Feb 2014

5 0 At the beginning of 2014, Neiman Marcus News Stats disclosed that it had been a victim of a 25 Total cyber attack. According to the US Secret 0 Service, the websites of over 1,000 US retailers were hacked by criminal gangs 2012 2013 2014 2015 operating from Eastern Europe. There Environment Social Governance Peak RRI were fears that the attacks had compro- RepRisk® - www.reprisk.com mised the companies’ customer credit and debit card information, following The Peak RRI for this Special Report refers to the highest RRI in 2014. suspicions that a malware had been in- The News Stats refer to the number of risk incidents captured by RepRisk in 2014 for the company. Each risk incident for a company is added only once to the database, unless the risk profile of the incident changes. stalled in in-store payment systems.

Also at the beginning of 2014, Neiman The FXB Center investigation docu- them to “at least one of the five forms Marcus was linked to child labor when mented a total of 3,125 cases of forced of exploitative labor practices described the company was cited in a report by labor under Indian law, around 1,406 in the report.” the FXB Center for Health and Human cases of child labor, and 286 cases of Rights at Harvard University entitled, human trafficking. The weavers also re- In May 2014, the California-based Center “Tainted Carpets: Slavery and Child La- portedly suffered from work-related ail- for Environmental Health accused more bor in India’s Hand Made Carpet Sec- ments, such as spinal deformation, loss than 140 companies, including Neiman tor.” The report documented cases of of vision, and pulmonary diseases. At Marcus, of selling products that contain forced labor, child labor, human traffick- about half the factories visited, workers a potential carcinogen called cocamide ing, and severe debt bondage in Muslim were also chronically underpaid, further diethanolamine. The ingredient is used rural areas in Uttar Pradesh and Madhya adding to the cycle of poverty and debt. to produce bubbles in shampoos and Pradesh, and claimed that companies soaps and as an emulsifier in cosmetics. including Macy’s, IKEA, Neiman Marcus, Although Neiman Marcus denied that it According to the World Health Organiza- Bloomingdale’s, Wal-Mart and others imported rugs for resale, the research- tion’s International Agency on Research were sourcing carpets from the area. ers at Harvard University stood by their into Cancer, the ingredient could possibly findings and confirmed that the com- cause cancer in humans. The NGO began The report claimed that some families pany had sold carpets that had been pursuing lawsuits against the companies had sold their children, who then were sourced from some of the importers in an effort to stop them from marketing forced to work off an advance payment and exporters documented and linked products that contain the ingredient. made by the factories. The report further suggested that of the two million Top 5 ESG issues linked to Neiman Marcus Group people employed in the Indian carpet industry, approximately 900,000 are 1. Human rights abuses and corporate complicity forced laborers and 400,000 are child laborers. Allegedly, children as young 2. Violation of national legislation as eight are forced to work up to twelve hours a day in crammed and filthy fac- 3. Child labor tories, often for less than USD 2 a day. 4. Supply chain (E, S, G issues) Workers apparently also suffer from physical and verbal abuse and long- 5. Impacts on communities term health issues.

MOST CONTROVERSIAL COMPANIES (MCC) 2014 REPORT 15 DISCLAIMER merchantability, fitness for a particular Once the risk incident has been identified The information contained in this purpose and warranties related to with advanced search algorithms and report (“Report”) is not intended to possible violations of intellectual analyzed for its novelty, relevance and be relied upon as, or to be a substitute property rights, trademark rights or severity, risk analysts enter an original for, specific professional advice. No any other rights of any third party. This summary into the database and link responsibility for loss occasioned to report may be quoted, used for business it to the companies and projects in any persons and legal entities acting purposes and may be shared with third question. No article is entered twice on or refraining from action as a result parties, provided www.reprisk.com is unless it has been escalated to a more of any material in this publication can explicitly mentioned as the source. influential source, contains a significant be accepted. With respect to any and development, or has not appeared for all the information contained in this the past 6 weeks. Report (“Information”), RepRisk makes METHODOLOGY no representation or warranty of any RepRisk Special Reports are All data is collected and processed kind, either express or implied, with compiled using information from the through a strictly rule-based respect to the Information, the results RepRisk database, which monitors methodology. This helps to ensure to be obtained by the use thereof or any environmental, social and governance the balanced and objective rating and other matter. RepRisk merely collects (ESG) risks for companies, projects, weighting of the risk incident, and thus information from public sources and sectors and countries. The RepRisk the company’s quantitative measure distributes them in the form of this database currently contains risk of risk exposure, the RepRisk Index Report. incidents on more than 49,000 private (RRI). The RRI measures the risk to a and publicly-listed companies. RepRisk company’s reputation, not its actual RepRisk expressly disclaims, and analysts monitor the issues related to reputation. the buyer or reader waives, any and ESG risk across a broad shareholder all implied warranties, including, and other stakeholder audience of without limitation, warranties of NGOs, academics, media, politicians, originality, accuracy, completeness, regulators and communities.

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