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Heineken - Overview of controversial business practices in 2010 by SOMO

 

 

 

 

 

 

 

 

April 2011

Heineken

Overview of controversial

business practices in 2010

SOMO

Amsterdam, April 2011

Heineken

Overview of controversial business practices in 2010

2

Colophon

Heineken

Overview of controversial business practices in 2010

April 2011

Author: SOMO

Cover Design: Annelies Vlasblom

Funding

This publication was made possible with financial

assistance from the Dutch Ministry of Foreign Affairs. The

content of this publication is the sole responsibility of SOMO

and can in no way be taken to reflect the views of the Dutch

Ministry of Foreign Affairs.

Published by

Stichting Onderzoek Multinationale Ondernemingen

Centre for Research on Multinational Corporations

Sarphatistraat 30

1018 GL Amsterdam

The Netherlands

Phone: + 31 (20) 6391291

E-mail: info@somo.nl

Website: www.somo.nl

This document is licensed under the Creative Commons

Attribution-NonCommercial-NoDerivateWorks 2.5 License.

 

 

 

 

 

 

 

 

Introduction

This company profile has been drafted by SOMO (Centre for Research on Multinational Corporations)

and provides an overview of controversial business practices that occurred or were addressed in

2010. In the context of the upcoming annual general meetings (AGMs) of shareholders of Heineken,

this overview aims to provide additional information to shareholders and other stakeholders of

Heineken regarding outstanding CSR issues. By highlighting such issues, the overview can be used to

identify areas of the company’s corporate responsibility policies and practices that need improvement

and to formulate a more informed assessment of a company’s corporate responsibility performance.

The range of sustainability and corporate responsibility issues included in this overview is broadly

based on issues and principles that are present in global normative standards for responsible

business behaviour, such as the OECD Guidelines for Multinational Enterprises. Rather than an

exhaustive analysis of Heineken’s corporate responsibility policies, operational aspects of corporate

responsibility management, implementation systems, reporting and transparency, or total performance

on any issue, the overview provides a description of a limited number of corporate responsibilityrelated

issues and cases that might merit further attention or reflection. Heineken’s positive

sustainability achievements in 2010 are not addressed here. Information on positive achievements can

usually be found in a company’s annual and/or sustainability report and on the company’s website.

The research methodology for this overview primarily involved desk research methods, relying on

information from SOMO’s global network of civil society organisations, the company’s own website

and publications, media reports, and company information databases. All sources are cited in

footnotes in the text. As per SOMO’s standard research methodology, Heineken was informed about

the research in advance and was given two weeks to review a draft report and provide comments and

corrections of any factual errors in the draft version prior to publication. Heineken made use of this

opportunity and provided SOMO with a response which has been taken into account in the final text of

this overview.

This company profile is part of a joint project of SOMO and the VBDO (Dutch Association of Investors

for Sustainable Development – Vereniging van Beleggers voor Duurzame Ontwikkeling).

About SOMO

SOMO is an independent, non-profit research and network organisation working on social, ecological

and economic issues related to sustainable development. Since 1973, the organisation has been

investigating multinational corporations and the consequences of their activities for people and the

environment around the world. SOMO supports social organisations by providing training, coordinating

networks and generating and disseminating knowledge on multinational corporations in a context of

international production, trade, financing and regulation.

Heineken

Overview of controversial business practices in 2010

4

Construction of the Rayados Football Stadium

in La Pastora Park

Summary

The Mexican company Femsa, whose beer operations were acquired by Heineken in 2010, is

planning to build a football stadium in La Pastora Park in Monterrey, Mexico. Consequences of this

construction would be biodiversity loss, deterioration of soil and water quality in the park, elevated

contamination levels, and more. Furthermore, local citizens’ collectives and environmentalist groups

claim that the stadium, which is a private enterprise, will be built on public property so that the future

costs for decommissioning will have to be borne by the state. With the construction of the football

stadium in La Pastora park, Femsa may risk breaching the sustainability criteria on environmental care

and community involvement laid down in the OECD guidelines, the UN Global Compact, the UN CEO

Water Mandate and Femsa’s own sustainability scheme. Although Heineken is not legally responsible

for the building of the Rayados football stadium, it is a stakeholder with high commercial interests in

the matter, its vice president is at the same time CEO of Femsa, and Heineken and Femsa are linked

through Femsa’s high percentage of shares in the Heineken Holding. Therefore, the business

relationship between Heineken and Femsa is such that Heineken has a responsibility to avoid causing

or contributing to the adverse impacts of the project, to which it is associated through its commercial

interests and its business relationship.

Context

In January 2010, Heineken purchased the beer selling operations of Mexico’s most important

beverage company, the Fomento Económico Mexicano, S.A.B. de C.V. (Femsa). These operations

consist mainly of the Mexican brewery Cuauhtémoc Moctezuma (CM) and the Brazilian Kaiser

Cerveza (now Heineken Brazil). In return for the deal, Femsa received 20% of the shares in Heineken

Holding, becoming the largest shareholder after the Heineken family.

One of Femsa’s subsidiaries, namely Desarollo Deportivo y Comercial, is planning to build a football

stadium with a capacity of 55,000 seats and 5,000 parking lots in La Pastora Park, located in the

municipality of Guadalupe which is part of the metropolitan area of Monterrey. Monterrey is the second

largest city in Mexico and La Pastora is the biggest recreational green area of the city. The football

stadium would occupy 20% of the park’s surface, 26 hectares of the total 130 ha. The stadium is to

host the Monterrey Rayados soccer club, currently the national champion and owned since 2006 by

Femsa itself. Since the acquisition of Cuauhtémoc Moctezuma, Heineken is sponsor of Monterrey

Rayados.1 Upon completion, Heineken will enjoy the exclusive rights of selling its beverages in the

stadium. As José Antonio Fernández Carbajal, CEO of Femsa and Vice Chairman of the Board of

Heineken put it, it will be a ‘very beer-like stadium.’2

1 ‘Mega proyecto para Rayados’, Vanguardia, 13 January 2010,

http://www.vanguardia.com.mx/mega_proyecto_para_rayados-452275.html (08/04/2011)

2 Ibid.

The state of Nuevo León is to invest 500 million Mexican Pesos (MXN) (approximately 42 million US

Dollars - USD) in infrastructure and roads in and surrounding the park and another 200 million MXN

(USD17 million) in the park itself. Femsa is investing USD180 million.3 Femsa gets to own and use the

stadium for 60 years, after which the stadium reverts back to the state. According to the official

documentation, the stadium is to be used for 18 matches and 2 concerts/events a year.4

Monterrey is the most contaminated city of Mexico and in the summer temperatures can reach as high

as 45 degrees Celsius. La Pastora is the biggest park and forest in the city and the river La Silla runs

through it. The park is currently made up of a large forest, a lake, ponds, a zoo and an amusement

park.

In February 2010 Profepa, the federal environmental prosecutor closed down the planned area of the

stadium because the preliminary excavations and the clearing of the terrain were being carried out

before a permit was obtained from Semarnat, the Ministry of the Environment and Natural Resources.

Geoimsa, the company which has carried out the excavation works for Femsa has been fined and

obliged to replant trees in the Cumbres de Monterrey National Park just outside Monterrey. Although

work since then has been halted and the construction of the stadium has not yet started, in February

2011 Femsa requested the missing permits from Semarnat.

Controversies

The environmental impact assessment carried out for the plan recognises 46 adverse effects and 9

beneficial impacts of the project. The adverse effects include deterioration in the quality of the

underground as well as the surface waters of the park (the river La Silla), the composition and

topography of the land, the livelihoods of different plant and animal species in the park and socioeconomic

effects like noise and public health concerns. The beneficial impacts mainly consist of job

creation, aesthetic qualities for the park and some recuperation of the flora and fauna of the park with

the construction of green areas around the stadium.

Femsa will have ownership of the stadium for 60 years, which is supported by the fact that the costs

for building and maintaining the stadium will be recovered in 60 years. According to state jurisdiction,

public property can be leased to private actors for a maximum period of 30 years, which may be

extended by another 30 when, according to economic circumstances the project is only viable with an

extended period.5 However, other stakeholders claim that the costs for the stadium could be recovered

in much less time, approximately 18 years, but that to reach these figures Femsa only uses the

income generated by the sale of the 5,000 VIP tickets and sky boxes per event in the stadium.6

Moreover, after 60 years a stadium would probably be at the end of its use, thus the decommissioning

and deconstructing costs for the project would have to be borne by the state.

According to environmentalist groups, the project endangers the 52 types of flora and the 107 types of

fauna living in the area. The project would also require chopping down 12 ha of forest which now

functions as the ‘natural lungs’ of the city. This should also be viewed in the perspective of

3 Femsa announced in 2008 to invest MXN2,000 million in the project. In its cash flow analysis it mentions USD180 million.

Femsa press release 8 September 2008, http://www.femsa.com/es/press/news/construir-femsa-estadio.htm (10/02/2011)

4 Documentation prepared by Desarollo Deportivo y Comercial, subsidiary of Femsa.

5 Ley de Administración Financiera para el Estado de Nuevo Leon, art 93,

http://www.nl.gob.mx/pics/pages/tr_itif_base/Ley_de_Administracion_Financiera_para_Estado_de_Nuevo_Leon.pdf

(10/02/2011)

6 ‘Gobierno y diputados no le quieren quedar mal a Femsa’, http://www.youtube.com/watch?v=JVTULclZj_U (04/02/2011)

Heineken

Overview of controversial business practices in 2010

6

deforestation in the region, which is happening at the highest rate in Latin America and the Caribbean

at the moment.7

In September 2008, when the construction of the stadium was announced, the creation of the Nuevo

Parque Ecológico La Pastora (La Pastora New Ecological Park) was also made public. With this act

La Pastora Park was declared a natural reserve (área natural protegida - ANP). However, the area of

the ANP excludes the area where the stadium is planned to be built within the park.8 Moreover, the

foundation of the newly created Nuevo Parque Ecológico La Pastora, which oversees the

management and the usage of the park, also announced its new president: José Antonio Fernández

Carbajal, CEO of Femsa and Vice Chairman of the Board of Heineken Holding. While the park and the

stadium are two different projects, there is clearly a conflict of interest at hand with Femsa’s CEO

being the president of the park’s foundation.

The Environmental Law of Nuevo León regulates the management and use of the ANPs in the state.9

It specifies the conditions under which construction activities can be carried out, as well as which

activities are prohibited in and around a natural reserve. These include soil and water contamination

and the removal of the ground. Although the stadium would not be located in ANP La Pastora, but just

outside of it, construction works and use of the facility would require some soil removal and would lead

to water contamination. Also the construction infrastructure surrounding the stadium would cause

damage to the natural reserve. Furthermore, the law stipulates that only those activities can be carried

out in and surrounding the ANP which have been undertaken or supported by the communities living

in or near the natural reserve.

A third-party environmental impact assessment commissioned by the Citizens’ Collective in Defence

of La Pastora (Colectivo Ciudadano en Defensa de la Pastora) pointed out that from an urban

planning point of view, the stadium in the park is not being planned in the right location. There is no

adequate public transportation infrastructure (metro) near the park, nor are there any plans to build

such infrastructure, which would mean that to see sport events most of the spectators would have to

travel by car, resulting in elevated emission levels and the need for expansion of parking facilities in

the park.

Normative/legal standards violated

By building the new Rayados stadium in the La Pastora Park in Monterrey, Femsa risks breaching the

following standards, principles and policies:

_ Femsa’s own sustainability scheme, which has four core values, two of which are community

engagement: encouraging ‘education and productivity, quality of life in the communities

surrounding our facilities’ and environmental care: ‘mitigation of climatic change, availability of

drinking water for our communities, reforestation.’10

7 ‘Advances in environmentally sustainable development in Latin America and the Caribbean’ (Santiago: United Nations’

Economic Commission for Latin America and the Caribbean (ECLAC), January 2010,

http://www.eclac.cl/publicaciones/xml/2/38502/2009-697-ODM-7-WEB.pdf (04/02/2011)

8 A. Hernandez, ‘Nuevo Parque Ecológico La Pastora ‘, Reporte Indigo website, no date,

http://www.reportebrainmedia.com/blog/nuevo-parque-ecologico-la-pastora (04/02/2011)

9 Ley ambiental del estado de Nuevo León, http://www.ciza.mx/apps/site/files/lanl.pdf (10/02/2011)

10 Femsa website, Social responsibility, ‘A longstanding commitment to responsible operation’, http://www.femsa.com/en/social/

(04/02/2011)

_ Principles 7 and 8 of the United Nations Global Compact, which both Femsa and Heineken are

signatories of. Principle 7 stating that ‘businesses should support a precautionary approach to

environmental challenges’ and principle 8 stating that companies should ‘undertake initiatives to

promote greater environmental responsibility.’

_ The OECD Guidelines for Multinational Enterprises, chapter V. Environment: provision 2

states that companies should a) provide the public […] with adequate and timely information on

the potential environment, health and safety impacts of the activities and b) engage in adequate

and timely communication and consultation with the communities directly affected by the

environmental, health and safety policies of the enterprise.

_ The UN CEO Water Mandate, which has guidelines on community engagement, states that

companies supporting the initiative should ‘be active members of the local community, and

encourage or provide support to local government, groups and initiatives seeking to advance

the water and sanitation agendas.’11

_ Principle 13 of the Guiding Principles on Business and Human Rights (Protect, Respect

and Remedy Framework) developed by the UN Special Representative of the Secretary-

General on the issue of human rights and transnational corporations, John Ruggie, which states

that business enterprises ‘should seek to prevent or mitigate adverse human rights impacts that

are directly linked to their operations, products or services by their business relationships, even

if they have not contributed to those impacts. […] Business enterprises may be involved with

adverse human rights impacts either through their own activities or as a result of their business

relationships with other parties. […] Its ‘business relationships’ are understood to include

relationships with business partners, entities in its value chain, and any other non-State or State

entity directly linked to its business operations, products or services.’12

Response of the company

In May 2010, when the issue received publicity in the Netherlands, Heineken reacted as follows in one

of the country’s main daily newspapers: ‘Femsa is known for its positive role in social development in

Mexico and we are confident that any environmental concerns associated with the project will be dealt

with carefully by Femsa.’13

Commenting upon a draft version of this report, Heineken stated the following: ‘The building of the

Rayados Football Stadium is a project that is 100% designed by, planned by and owned by Femsa.

[…] Neither Heineken nor its Mexican subsidiary Cuauhtémoc Moctezuma are or can be involved in

any aspect of the project. […] Given the above information we believe your [SOMO’s] assessment of

the Stadium project as a controversial business practice for Heineken is incorrect.’14

SOMO argues that although Heineken is legally not responsible for the building of the Rayados

football stadium, it does have a responsibility to avoid causing or contributing to adverse human rights

11 UN CEO Water Mandate, http://www.unglobalcompact.org/docs/news_events/8.1/Ceo_water_mandate.pdf (23/02/2011)

Since 2009 Heineken is a signatory of the UN CEO Water Mandate, Heineken CSR Report 2009, p 6.

12 John Ruggie, ‘Guiding Principles on Business and Human Rights: Implementing the United Nations ‘Protect, Respect and

Remedy’ Framework’, 21 March 2011, Advanced Edited Version, p. 14, http://www.businesshumanrights.

org/media/documents/ruggie/ruggie-guiding-principles-21-mar-2011.pdf (11/04/2011) Although the UN Human

Rights Council has not yet adopted the Guiding Principles, they are already regarded an important frame of reference

defining corporate responsibility.

13 ‘Heineken criticised for football stadium’ [Kritiek op Heineken om voetbalstadion], NRC Handelsblad, 14 May 2010,

http://vorige.nrc.nl/economie/article2543965.ece/Kritiek_op_Heineken_om_voetbalstadion (04/02/2011)

14 Heineken’s reponse to a draft version of this document. Email received 4 April 2011.

Heineken

Overview of controversial business practices in 2010

8

and environmental impacts related to the project. Heineken’s non-legal involvement in the stadium

consists of the following:

_ Through its subsidiary Cuauhtémoc Moctezuma, Heineken is the sponsor of the Rayados

football team, which will be playing in the stadium.

_ Femsa is the owner of the Rayados football team. Not only is Femsa the second largest

shareholder of Heineken, it’s CEO José Antonio Fernández Carbajal, who is one of the main

promoters of the stadium, is Vice Chairman of the Board of Heineken Holding.

_ Heineken has a commercial interest in the stadium, as it will be an property exclusively selling

this company’s beverages.

As Michiel Herkemij, CEO of Heineken Mexico put it: ‘We are very enthusiastic about the stadium,

Heineken and Femsa are one family. José Antonio [Fernández Carbajal] is the second shareholder,

he is Heineken’s second, we are a very good family’.15

15 ‘ El Presidente sí quiere el estadio, dice FEMSA’, Milenio, 23 March 2011, http://impreso.milenio.com/node/8932674

(13/04/2011)

Trade Union Freedom at Cuauhtémoc

Moctezuma Breweries

Summary

The rights of employees to form or join an independent trade union in most of Heineken’s Cuauhtémoc

Moctezuma breweries in Mexico are in danger of being breached. Most of the trade unions operating

at the production facilities are so-called yellow unions, which lack independence and are being

controlled by company management. These unions provide the fewest economic benefits for

employees, there is no collective bargaining on behalf of workers and employees are not involved in

the (re-)election of union leaders. By operating in a country where such practices are widespread,

Heineken risks operating in violation of several guidelines and conventions on the freedom of

association and collective bargaining, including the UN’s Global Compact, the OECD Guidelines and

several ILO core conventions. Furthermore, independent research by a Mexican NGO indeed

indicates that concerns in this area do exist at the Cuauhtémoc Moctezuma breweries.

Context

In January 2010, Heineken bought Femsa’s beer selling activities, which in Mexico consisted of the

Cuauhtémoc Moctezuma (CM) breweries. This overview describes the labour relations at the CM

breweries at the time that Heineken just recently had taken over its operations in Mexico (2010). When

reference is made to ‘Femsa’s breweries’, this is referring to the CM group of companies.

In Mexico there are generally three types of trade unions which can be distinguished. First, there are

independent unions, with workers who are free in their choice to join (or not to join) the union, where

collective agreements are negotiated on behalf of the members and where union leaders are elected

democratically. Second, there are the so-called phantom unions, which only exist on paper. In case of

a phantom union, upon contracting, all employees are automatically affiliated to the union often

without even knowing about the existence of the union. Phantom unions are set up by company

management in order to prevent employees from joining independent unions. And third, yellow unions,

which are positioned between the phantom and the independent unions: they have a regular trade

union structure, but are controlled by company management.16 Yellow unions are the most prevalent

among the unions operating at the CM breweries in Mexico.

Role of Cuauhtémoc Moctezuma

In June 2010, FNV Bondgenoten and the Mexican NGO Centro de Investigación Laboral y Asesoría

Sindical (CILAS) published a report on trade union freedom at Dutch multinational companies in

Mexico. The research included aspects of freedom of association and collective bargaining at the

Cuauhtémoc Moctezuma group companies, a subsidiary of Heineken. The findings in this overview

are based on the 2010 CILAS report.17

16 In Mexico, the term sindicato blanco (white union) is used to denote unions controlled by company management.

17 L. Bueno Rodríguez (coord.), ‘Freedom of association and collective bargaining at Dutch companies in Mexico’ (CILAS, June

2010), http://tradeunionfreedom.fnvcompanymonitor.nl/research-reports/mexico-report.php (09/03/2011)

Heineken

Overview of controversial business practices in 2010

10

Trade unions at the various breweries of CM form a heterogeneous group. The degree of unionisation

and the independence enjoyed by the unions has been determined by the history of each production

plant. The oldest union in the Cuauhtémoc Moctezuma group is the one at the production location in

Orizaba, which among the investigated unions is the only one operating independently. At the other

(yellow) unions, the following issues have been identified:

_ The collective agreements between the union and the company provide the fewest economic

benefits for the employees concerned. Pay at production sites is low and other benefits like

savings funds, year-end bonuses and Sunday pay rates are set at the legal minimum

established by Mexican labour law.

_ Employees have very little information about the structure and functioning of the trade union

and are hardly ever involved in the election or re-election of union leaders.

_ Yellow unions negotiate collective agreements with the company that are based on standard

contracts or templates. This is proven by the fact that these agreements are exactly the same

as collective agreements at other companies. The use of such contracts indicates that there is

no form of collective bargaining at all, as there is no development or extension of the clauses

and benefits for the employees over time.

Normative/legal standards potentially violated

By having production locations in Mexico, where the aforementioned issues are well-known and

common problems with regards to trade union freedom, Heineken is at risk of denying its workers the

right of being autonomously and legitimately represented by a trade union. In doing so, the company

may be violating the following standards and guidelines:

_ Heineken is a signatory of the United Nations Global Compact. Principle 3 of the Global

Compact states that ‘businesses should uphold the freedom of association and the effective

recognition of the right to collective bargaining.’18

_ Heineken’s Code of Business Conduct refers to the Universal Declaration of Human Rights

and declares that ‘Heineken supports fundamental human rights in line with the legitimate role

of business. It secures the human rights of its employees within its facilities.’19 The right to the

freedom of association is considered a basic human right.

_ Chapter IV of the OECD Guidelines for Multinational Enterprises states that companies

should ‘respect the right of their employees to be represented by trade unions and other bona

fide representatives of employees, and engage in constructive negotiations, either individually

or through employers’ associations.’ Moreover, that these companies should ‘enable authorised

representatives of their employees to negotiate on collective bargaining or labour-management

relations issues.’20

_ Several ILO Core Conventions establish workers’ rights to freely form a trade union, join an

already existing one or engage in collective bargaining agreements with their employer.21

18 Global Compact website, About us, The ten principles, ‘Global Compact Principle Three’,

http://www.unglobalcompact.org/AboutTheGC/TheTenPrinciples/principle3.html (10/03/2011)

19 Heineken Code of Business Conduct, p. 7,

http://www.heinekeninternational.com/content/live/files/downloads/CorporateResponsibility/COBC%20Management%20Prim

er.pdf (12/04/2011)

20 OECD Guidelines, chapter IV, 1 a) and 8.

21 ILO conventions C87 and C98.

The case of trade unions being controlled by company management is not a new or unknown issue in

Mexico. As research has shown, Heineken is one of the several multinational companies operating in

Mexico that face this problem.22 Despite the fact that Heineken is a fairly new participant on the

Mexican market, having bought Femsa’s beer production activities in 2010, the company should make

sure that unionisation rights of its employees are respected at all production facilities.

Response of the company

Commenting upon a draft version of this overview, Heineken states that during a due diligence

process which was carried out in 2009, before acquiring the beer operations of Femsa, there was no

evidence of violation of the principle of trade union freedom or any other basic human rights.

Furthermore, Heineken stated that at CM ‘more than 6,900 employees are members of a union […],

which include 2 major (CONASIM and CTM-STIE) […] and another 5 fully independent and real trade

unions.’ Moreover, according to Heineken, CM does not have so-called ‘standard contracts’ and all

the unions at the breweries operate democratically. As a concluding remark, Heineken states that ‘this

report was compiled without any contact with either Heineken or CM to obtain valid and real data or to

assess the validity of the claims. […] We therefore do not see this CILAS report as a correct basis on

which SOMO or any other organisation is able to draw conclusions.’23

CILAS was originally commissioned by FNV Bondgenoten (the largest Dutch trade union) to assess

the situation of the freedom of association at several Dutch multinational companies operating in

Mexico. The research was aimed at getting an initial picture of the situation, after which a dialogue can

be established between the companies, trade unions and other stakeholders. The 2010 CILAS report

marks the first step in this process.

The mere fact that various trade unions exist at the CM breweries and that several thousand

employees are unionised does not necessarily mean that proper conditions for the freedom of

association and collective bargaining are ensured. Especially in a country like Mexico, where the

limitation of trade union rights has a longstanding tradition and where these practices are widespread,

Heineken cannot distance itself from these problems and should take extra care in ensuring that

workers’ rights are not being violated.

22 The 2010 CILAS study has identified several other multinational companies with yellow or phantom trade unions, just as

earlier SOMO study on the electronics industry in Mexico. F. Weyzig, ‘Trade union situation at Sanmina SCI Systems de

México’, SOMO, July 2008, http://somo.nl/publications-nl/Publication_2584-nl

23 Heineken’s response to a draft version of this document. Email received 4 April 2011.

 

 

 

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