Supplier Workplace Accountability (SWA) Executive …

1 Issued October 2012 Prepared by: Director, Supplier Workplace Accountability Revision: Worldwide Supply Chain Management Replaces: Page 1 of 6 File Name: GSWAB Foundations Confidential Confidential Not to be Distributed without Permission Supplier Workplace Accountability (SWA) Executive Summary What is Supplier Workplace Accountability (SWA) SWA is how McDonald s refers to its program which articulates our expectations of how our suppliers should treat the employees within their supply chain, ie fairly and provided with a safe and healthy work environment. The Global SWA Board (GSWAB) consists of representatives from every AOW for supply chain with a global representative from marketing, development and equipment as well as the senior leadership of ISS Program Management. Collective they leverage their resources to ensure McDonald s implements one worldwide standard for all employees that touch the McDonald s System. SWA is important to McDonald s as it enables the System to mitigate risks to the Brand by maintaining brand trust and by reinforcing McDonald s reputation as a best-in-class, responsible sourcing organization.

2 Our business will benefit from SWA because we preserve the integrity of our supply chain and contribute to a supply chain that consistently delivers high quality, safe products without supply interruption. The SWA program plays a key role in the success of the System because it assist our suppliers to better understand McDonald s expectations regarding sustainable methods of doing business and the treatment of employees in the implementation of this. We believe we can earn the trust of every stakeholder in the System, both internally and externally, by demonstrating through our actions that we care as much about the people making our products as we do about the people buying our products. Strategy, Vision, Mission, Global Sustainability Framework Goal Strategy: Protect the brand and live McDonald s Values by continuously improving our approach to ensuring fair and ethical Workplace standards in every corner of our supply chain. Vision: All suppliers that touch the McDonald s system will behave in a way that is consistent with our values and Code of Conduct (COC), ensuring that every individual involved in making products or providing services for McDonald s is treated fairly and provided with a safe and healthy work environment.

3 Mission: McDonald s cares as much about the people who make our products as we do about those who buy them. The Global Supplier Workplace Accountability Board (GSWAB) will put that commitment into action by upholding our COC and providing the direction, support and tools necessary to enable suppliers in every area of the world to participate in McDonald s Supplier Workplace Accountability (SWA) program. Global Sustainability Framework Goal: Improve the work lives of employees within our supply chain through systems that promote leadership and Accountability Issued October 2012 Prepared by: Director, Supplier Workplace Accountability Revision: Worldwide Supply Chain Management Replaces: Page 2 of 6 File Name: GSWAB Foundations Confidential Confidential Not to be Distributed without Permission Background 1993: First Code of Conduct (COC) was established 1997: Enhanced COC to reflect the ILO (International Labour Organisation) Core Conventions 1999: McDonald s SWA program launched with emphasis on ensuring proper Workplace practices within the facilities that were producing Happy Meal toys 2002: The SWA program extended to include facilities within the broader McDonald s Supply Chain System (ie F&P).

4 2004 2007: Base line audits conducted and analysis of results for all identified food and paper suppliers 2008: Launch of the current Supplier Workplace Accountability Program 2009: SWA moved into WWSCM. Global SWA Director appointed and SWA Board formed. 2010: GSWAB conducted a survey of stakeholders whose responses directly impacted the strategy and goals GSWAB focused on ensuring suppliers were identified and went through the program steps (See Appendix A). 2011: Focus on ensuring identified areas of non compliance were closed out (See Appendix B), developing the enhancements to the program documentation including a video by the GSWAB talking about why SWA is important to our Brand SWA Goals 2010-2012 Implementing enhancements to the SWA program to make it more adaptable and functional to all countries and departments within the McDonald s System by: o Benchmark the current state of McDonald s SWA program to ensure we re meeting high program standards(ongoing) o Engage SWA experts to learn more about what we can do to continuously improve (ongoing) o Develop clear audit protocol to aid program administration for country managers and AOW SWA leads.

5 (done) Setting clear expectations with all SWA stakeholders to improve System-wide alignment on expectations and success measures. o Develop a clear process for determining which suppliers and facilities fall within the Scope of the SWA program. (ongoing) o Improve communication to our suppliers to help them live our Values, improve the efficiency with which we administer the program, and adhere to COC standards (ongoing) o Re-name the Social Accountability program to Supplier Workplace Accountability to reflect of expectations that suppliers are being held accountable for their Workplace ethics within their System. (done) 2012 - 2014 Global alignment of scope and linkage with Global Sustainability Framework by: a. Review Scope of facilities that are included in the SWA program b. Develop risk profile to determine additional areas to include by AOW/ Region / Country c. SWA program alignment with Global Sustainability Framework Engaging Stakeholders in identifying risk and emerging issues a.

6 Monitoring Firm Advisory Council (MFAC) help identify emerging issues and risk and provide recommendations b. Form a wider advisory council with other Brands / NGO s to support ongoing risk analysis c. Ongoing Benchmarking utilizing AIM-Progress and ITC (UN working group) Enhancements to the SWA Program reflecting identified risk and emerging issues a. Finalization of working documents (Appendix C supporting documents page 5) b. Migration to a new data system, Steton which will be shared with SQMS and Environmental Scorecard. c. Improve efficiencies of reporting, data collection and mining, communication d. Develop a robust mutual recognition program which will reduce audit fatigue, expense for the System and will allow us to benchmark with the programs we are recognizing . Communicating with relevant stakeholders Issued October 2012 Prepared by: Director, Supplier Workplace Accountability Revision: Worldwide Supply Chain Management Replaces: Page 3 of 6 File Name: GSWAB Foundations Confidential Confidential Not to be Distributed without Permission Appendix A: Program Steps Step 1: Supplier Identified by McDonald s Step 2: Supplier Signs the Code of Conduct and completes the Supplier / facility identification form where the Supplier identifies the facilities that are producing for McDonald s within our defined scope.

7 Defined Scope: SWA SCOPE is facility-based not Supplier based. This means that our focus is around facilities that: Manufacture products for McDonald s, franchisees, Developmental Licenses (DL) that IS DELIVERED to a McDonald s Restaurant or Distribution Center. Manufacture products that meet specifications (ie recipe, formulas, patented) set by McDonald s, coating Supplier (fish / chicken), cleaning chemicals, seating, d cor and equipment for restaurants etc Manufacture products where McDonald s Brand, trademarks or images are visible either on the product outer carton or within the manufacturing facility ( McDonald s Arches, I m lovin it, McCafe, Ronald etc.) Note: facilities that are often not considered during the facility identification process include outer carton suppliers, inner plastic bag, poly bags, tray-liners, and uniforms where brand, trademarks or images are visible. These facilities also need to be included. Have audits conducted to McDonald s specifications or guidelines.

8 O Animal Health & Welfare (currently beef, lamb, pork & chicken) o Toy Safety o SQMS o DQMP Exceptions to the overall scope are: Ops Supplies (ie non branded/ generic spatula, brooms etc) Fishing vessels Farms conducting McDonald s GAP audit as it includes elements of SWA Transportation companies Note: Each AOW has the ability to identify facilities beyond documented scope without requiring global alignment. Step 3: McDonald s SWA AOW Lead and ISS will review the following to determine next steps: total spend, employee numbers, ongoing production or one off manufacturer There are 4 different methods for next steps: 1. Small Supplier Protocol for facilities producing one off and/ or low monetary value. Completion of a self-assessment and external audit may be required. There are 2 possible audit types. (see Small Supplier Protocol for full details) 2. Mutual Recognition has this facility been through another social audit and can share the audit report and the results of any required corrective action plans.

9 (see Mutual Recognition Protocol for full details) 3. Does the facility have a relationship with one of our Supplier Led companies (Coca Cola, Nestle, Kraft, Cintas, Pepsico (limited to PepsiCo OWNED facilities only)) (See Supplier Led Protocol for full details) Note: If the facility falls within one of the above 3 please see separate protocol for next steps. 4. If all of the above are NO, than the standard process applies and is as follows: Issued October 2012 Prepared by: Director, Supplier Workplace Accountability Revision: Worldwide Supply Chain Management Replaces: Page 4 of 6 File Name: GSWAB Foundations Confidential Confidential Not to be Distributed without Permission On-Boarding Process Step 4: McDonald s SWA Process: All identified facilities shall acknowledge the Code of Conduct, review the on-line training material, pay USD350 - complete the on-line self-assessment. once self-assessment has been completed, a report including a note regarding next steps will be forwarded to the facility.

10 Step 5: Risk Assessment analysis (Maplecroft) (tbc) Step 6: if this is a new facility they would be required to complete a base line audit upon completion of the self-assessment. Each facility would contact one of our approved monitoring firms to schedule their 2 man day audit. Existing facilities will complete their audit in line with McDonald s pre-determined audit cycle. The SWA Audit covers the following 4 broad topics: 1. Business Integrity Compliance with and knowledge of laws in all aspects of the audit categories 2. Human Rights & Labor Standards Employment Status (ie eligibility to work) Contract / Migrant Labor Recruitment Firms Home Workers Involuntary / Prison / Forced Labor Freedom of Association Discrimination Harassment and Abuse Underage Labor / Young Workers Compensation & Benefits Working Hours and Rest Days 3. Workplace Environment Health & Safety Safe Working Conditions Integrity of Buildings Personal Protective Equipment Emergency Planning Dormitory Canteen/ Cafeteria 4.