McDonald's Corp. suppliers manufacture toys for its Happy Meals for children at about 50 contract factories in China. On behalf of Domini Social Investments, we initiated a dialogue with the company. McDonald's became directly involved in the sweatshop controversy in 2000 when a Hong Kong newspaper alleged underage children worked in toy factories in Shenzen, China.

Domini withdrew a shareholder resolution to McDonald's in 2000 after the company agreed to develop a report on vendor standards compliance. The report was not forthcoming on key issues. Following the newspaper allegations our dialogue started to make more progress. We met with sourcing officials in 2001 and the company agreed to publish a more detailed vendor standards compliance report.

In 2002, we merged our dialogues with McDonald's and Disney. The companies were involved in a joint marketing agreement and a combined dialogue allowed us to more effectively engage both companies on key issues. This led to development of Project Kaleidoscope, a collaborative project to improve and sustain compliance with corporate codes of conduct at Disney and McDonald's supplier factories. See details below.

We have also asked the company to also develop a separate vendor compliance report to discuss its system wide vendor standards compliance efforts.