Early Efforts

Early Efforts

Early efforts to force suppliers to take responsibility for their actions centered on the simple requirement for suppliers to sign a contract saying that they adhered to all national and local laws concerning employment and environmental policies. After all, most nations including China, India, Indonesia, El Salvador, or Mexico have at least nominal labor and environmental laws on the books, even if they are not well enforced. There are minimum wage laws in China, for example (about 30 cents an hour ), and China officially restricts overtime to 36 hours per month. They also prohibit arbitrary fines , physical punishment , and pay reductions. There seemed to be ample numbers of laws; all companies needed to do was to make certain that their suppliers adhered to them.

This, of course, is the practical crux of the issue. As we have already seen in many examples, simply getting a supplier in a foreign country to sign a piece of paper saying that it does not break the law has obvious shortcomings. After all, most factories in China, India, Thailand, or Indonesia knew very well that inspections were unlikely and penalties would be nonexistent. It soon became apparent that whatever suppliers agreed to, without heavy pressure from the buying company enforced by independent inspection, such pledges usually had little practical effect on the way the factories actually conducted operations.

There were many obvious reasons for this. Governments often lack the resources and desire to enforce laws. The requirement for inspections is time consuming and costly and requires resources that most developingcountry governments do not have. Bribery and corruption mean that it is not uncommon for local inspectors to ignore issues by failing to inspect factories or limiting their visits to preannounced tours or paper-based surveys. Above all, both suppliers and government officials too often feel that adhering to these laws will make them uncompetitive and erode their profits. Developing-world governments want to encourage foreign investment and continue to expand exports. What incentive would they have to apply laws that might, by their reckoning, increase wages and company costs and make their industries less competitive?

The Failure of Company Codes of Conduct

As it became more and more apparent that these national and local laws were unlikely to be enforced in developing economies, many companies changed tactics and began to require their key suppliers to agree to their own corporate codes of supplier conduct. By 2000, nearly every major multinational had begun to develop their own codes of conduct (which, pointlessly, usually required suppliers to comply with local labor and environmental laws), and set other requirements for livable wages , unionization rights, health and safety, and protection of the environment.

Most prominent companies were soon caught up in this rush toward developing individual company codes of conduct. Five years ago, only a handful of companies addressed human rights, says BSR, the American research group and consultancy. Today hundreds of companies have developed codes of conduct governing global labor practices, and policies integrating the Universal Declaration of Human Rights into their operations. [13 ]

But pursuing a supply chain policy limited to high-level and inherently unenforceable codes of conduct ultimately proved unworkable. It soon became obvious that simply asking subcontractors to enforce company codes of conduct was in effect no different than requiring them to obey national laws ” unenforceable without independent monitoring, and unlikely to provide any real measure of protection for workers or the environment. Gap s Code of Vendor Conduct admitted openly that People shouldn t assume that because we have a code, the garment manufacturers that get our business are in 100 percent compliance with its provisions 100 percent of the time; they are not. [14 ]

Wal-Mart provides a good example of the failure of suppliers to obey these codes of conduct. Following a three-month investigation, Business Week reported that employees in Zhongshan, China that were working for a supplier making Wal-Mart handbags, were forced to work extended hours at poverty wages and endure beatings as well as ruinous fines for small infractions. This despite the fact that these problems were in violation of Wal-Mart s vendor standards agreement, and the fact that Wal-Mart s hired auditors missed most of the more serious abuses , including beatings and confiscated identity papers. Activists, such as the Shareholder Action Network, complained that Wal-Mart s monitoring program was dependent on auditors who had neither the trust of the workers nor the ability to complete an accurate audit, and called for independent monitoring programs with local non-governmental and independent labor rights groups. [15 ]

Similarly, in 2000, Nike decided to discontinue all its contracts with factories in Cambodia after a television documentary asserted that these factories were using child labor. Although the company insisted that all of its suppliers had agreed to strict codes of conduct regulating underage employment, the company nonetheless was forced to withdraw from the country after the embarrassing revelations. [16 ]

The codes show that companies are feeling the pressure of consumer concern, explained Grace Lally, a spokesperson for Globalise Resistance, reflecting the skepticism felt by many. But they are a PR stunt for consumers in the West. I doubt the workers in sweatshops in China ever hear of the codes of conduct. Having already published their codes of conduct, however, companies were forced to act. [17 ]

It is all exacerbated by the buying company s requirements for quality, their price pressure, and the turn -around time, says John Brookes, a veteran of many supplier audits and CEO of Manaxis. A supplier organization will say, yes, they can meet any contract . . . but then they have to do whatever they can to get it done. They don t have the excess capacity, they don t have the people on the street that they can just pull in on a temporary basis to fulfill an order. The factory owners in China and in Asia and in Central America ” they are not without morals and ethics ” but they have a very real business necessity to make ends meet. And sometimes when corners are cut it is the workers and the environment that are exploited. [18 ]

[13 ] Introduction to Corporate Social Responsibility, BSR White Papers , May 2, 2002, at www.bsr.org/BSRResources/WhitePaperDetail.

[14 ] Laura Slattery, Codes of Conduct Not Preventing Worker Abuse, The Irish Times, March 15, 2002 as cited by the Clean Clothes Campaign Web site at www. cleanclothes.org/codes/02-03-15.htm.

[15 ] Vendor Standards Resolution Filed at Wal-Mart, Shareholder Action Network at www.shareholderaction.org/walmart_res.cfm.

[16 ] Amy Kazmin, U.S. Sportswear Giant May Be Ready for a Cambodia Comeback, The Financial Times, June 18, 2002.

[17 ] Laura Slattery, op. cit .

[18 ] Interview, August 15, 2003.