Coming Clean

Coming Clean

By 2001, it had become clear to most parties involved that something radical was required to end these types of supplier abuses . Companies were being criticized remorselessly and yet had found that their efforts to make their suppliers adhere to national laws or codes of conduct were largely unsuccessful . In 2002, Gap Inc. was forced to withdraw contracts from more than 120 factories worldwide because of compliance- related issues. [19 ] Something more had to be done.

One of the first companies to accept the need for a more honest appraisal of supplier performance, was ironically Nike, so often vilified for its supply chain policies. In cooperation with the Global Alliance for Workers and Communities, they requisitioned a report on working conditions in nine Nike subcontractor factories in Indonesia. The results, openly published, were not good.

The report detailed a variety of labor problems, says Gary Gereffi, professor of sociology and director of the Markets and Management Studies Program at Duke University, including low wages , denial of the right to unionize, verbal and physical abuse by supervisors, sexual harassment , and forced overtime. The contents of the report are not surprising; similar findings were asserted throughout the 1990s.

What is new about this report, explains Gereffi, is that Nike paid for it, released it ” and can t deny it. Nike s response to these problems will set new benchmarks that other apparel and footwear companies must match or else risk incurring relentless scrutiny by industry critics . [20 ]

This admission by companies of their implied responsibility and their acceptance of the need to fund and support supplier monitoring was a watershed , and began a new era of openness in reporting. A good example of this new movement can be seen when garment and sporting goods companies such as Eddie Bauer, Liz Claibourne, Nike, Reebok, Adidas-Salomon, and Levi Strauss became members of organizations such as the Fair Labor Association (FLA), a coalition of unions, consumer groups, NGOs, activists, and universities that was founded in 2001 to help companies monitor global supply chains. Having audited almost 50 factories around the world, the FLA s first account, published in 2003, provided a new level of honesty that, although still highly critical of supplier activities, has actually reflected well, rather than ill, on most of the companies involved.

The companies deserve a lot of credit, says Michael Posner, an FLA board member and executive director of the Lawyers Committee for Human Rights, for trusting the public with the grit as well as the gloss . [21 ]

[19 ] See Our Program at

[20 ] Gary Gereffi, Ronie Garcia-Johnson, and Erika Sasser, The NGO-Industrial Complex, Foreign Policy, no. 125, July/August, 2001, at Copyright 2001, Carnegie Endowment for International Peace.

[21 ] Alison Maitland, Big Brands Come Clean on Sweatshop Labour, The Financial Times, June 10, 2003, and

Social and Environmental Reporting

Even while these early efforts to force suppliers to behave better continued , companies sought to demonstrate to investors and consumers that they were addressing these supply chain issues by issuing independent reports on their social and environmental policies and performance. It was one thing, after all, to inspect suppliers, but it was another thing entirely to report on corporate inspections procedures and their results so that the world would know of those efforts.

But with no internationally applicable standards upon which to be judged, and no real method for reporting their efforts, companies were free to design their own social accountability reports, which they began to do feverishly from the late 1990s forward. In fact, so rapid was the scramble to show participation that the number of companies providing some type of nonfinancial reporting leapt from a handful of companies (such as the Body Shop) in 1997 to more than 2,500 in 2003. A KPMG survey, for example, found that all of the chemicals and synthetics companies listed in the Global Financial Times 250 provided some type of SEAAR (Social and Ethical Accounting, Auditing, and Reporting) reporting in 2002; as did 86 percent of petrochemical companies, 84 percent of electronics and computer firms, 73 percent of automotive, and 58 percent of all oil and gas companies. The number of top FT 100 companies in Britain issuing reports increased from 24 percent in 1999 to 30 percent in 2002.22

Yet although the enthusiasm with which companies adopted nonfinancial reporting was welcomed by all parties, the results of these reporting efforts has often been less than satisfactory. The problem has been that these reports are too often a hodge-podge of self-serving and badly designed efforts, varying from a few pages littered with inspirational slogans and pictures to hundreds of pages containing dry and unrevealing environmental emissions data.

By far the largest number of corporate responsibility reports, says Geoff Lane of PricewaterhouseCoopers, deal exclusively with environmental issues such as air emissions, water discharges, use of natural resources and impacts on biodiversity and landscape. Some reports include detailed statistics showing emissions of a wide range of compounds , but little contextual information to help the reader judge the significance of those emissions; others concentrate on global environmental problems such as climate change without providing any information on their own greenhouse gas emissions. On the whole, these reports provide few clues as to the creation or destruction of environmental capital by the individual business. [23 ]

Alarmed by the hundreds of company codes of conduct and reports that were appearing, the Council of Economic Priorities, a nonprofit research group , examined 360 company codes of conduct. Their conclusions were highly critical of the movement toward individual codes and reports:

  • Internal codes are inherently expensive and inefficient to develop and monitor due to duplication of effort.

  • Codes lack consistency, so consumers can t easily distinguish between strong and weak codes.

  • The codes are rarely monitored , and if so, often not robustly.

  • They tend to be unclear about interfacing with laws and customers that vary widely by country and region.

  • Workers do not know about the codes. [24 ]

A survey completed by the OECD in 2002 found similarly dismal results when it came to company self-reporting efforts on supply chain activities. Of the 147 companies that they interviewed, only one of the companies provided detailed and independently verified reports on labor conditions within its supply chain. Many more (21) produced what the OECD termed intermediate or limited reports which failed to provide substantive details on labour conditions in its supply chain. [25 ]

As SustainAbility authors noted in their 2001 report, Corporate sustainability reporting is in danger of hitting a quality plateau. The average sustainability report, for example, jumped from 59 pages to 86 pages between 1999 and 2001 (which may not seem much unless you try to read them). SustainAbility calls this carpet bombing because readers are bombarded with huge amounts of information, much of which is of questionable relevance. [26 ]

The carpet bombing issue, the general criticism about the quality and veracity of most company nonfinancial sustainability reports, and the rapidity with which so many independent reporting initiatives were developing combined to make a single, consistent reporting method seem the only logical alternative.

[23 ] Beyond Numbers, KPMG Assurance and Advisory Services Booklet, p. 17.

[24 ] Geoff Lane and Melissa Carrington, Measuring the Triple Bottom Line, PricewaterhouseCoopers , at$FILE/ TripleBtmLine.pdf .

[25 ] Teresa Fabian, op. cit .

[26 ] Managing Working Conditions in the Supply Chain, OECD Directorate for Financial, Fiscal and Enterprise Affairs Working Paper on International Investment, no. 2002/2, June 2002, p. 4.