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NorthStar asks Costco shareholders to vote for measure against prison labor

Shareholder activist NorthStar Asset Management Inc. is urging Costco Wholesale Corp. shareholders to support a shareholder proposal designed to identify and prevent prison labor in the company's supply chain, according to a Dec. 22 SEC filing.

The shareholder proposal, which appeared in Costco's Dec. 15 proxy, asks the retailer to survey its suppliers, create additional guidelines and report to shareholders by June 30, 2018, its progress in implementing those guidelines regarding the use of prison labor. Shareholders will vote on the proposal at Costco's annual meeting Jan. 30, 2018.

Costco did not immediately respond to a request for comment.

NorthStar said that a vote in favor of the proposal will "send a message to the company to follow through on proposed change to the code of conduct, and also to conduct a more comprehensive review of the extent of the issue in the supply chain rather than relying on random audits."

In Costco's proxy, the board unanimously recommended that the shareholders vote against the proposal, saying that it is developing changes in its code of conduct with respect to lawful prison labor. The company expects those changes to be finalized by June 2018.

The company has come under fire in the last year for unpaid or underpaid labor in its supply chain. In January 2017, A U.S. federal judge dismissed a lawsuit claiming that Costco knowingly sold frozen prawns which involved forced labor in Thailand, according to a Reuters report.

In the proxy, Costco said that in early 2017 the company "began a closer examination of the use of lawful prison labor in its supply chain," as the result of changes in U.S. law and greater concern among consumers.

Costco said it has not seen "significant levels" of prison labor in its supply chain, although it is used in the United States for agricultural products under some federal and state laws.

"The company believes that a requirement to survey each of its over 20,000 suppliers around the globe concerning prison labor would be costly, time-consuming and unnecessary, in light of the experience the Company has (through prior audits and other measures) concerning the low incidence of lawful prison labor in its supply chain," Costco said in its proxy.