FROM THE TIME OUR YOUNG FAMILY arrived in Asia in the summer of 2005, it would take another five full years before I was able to wean myself off the teat of the industry I had grown used to benefitting from. Even then, tragic circumstances in the far-off future would pull me back into it.
I found it no easy feat to make a mid-career change that required developing a whole new set of competencies. But I had been close enough to the labor and social compliance functions of the garment trade to have a good idea of where to start. Around this time, sustainable manufacturing and ethical trade initiatives were beginning to gain wider industry and media attention, and we had planned the move to take advantage of trends that would support the direction I hoped to move in.
Most labor and environmental auditing and the remediation services tied to these practices were at this point, however, still highly dependent on textiles and apparel. The truth was also that I had excelled early on at the challenges the industry had thrown at me, and I was fascinated by the evolution of creative ideas into real-life products. My passions for travel and foreign cultures also meant that I enjoyed literally being a part of the journeys that those products took as they came together from a variety of components and communities from different parts of the world.
But like many people, before I entered the consumer products industry, I had little idea of the societal and environmental impacts that a garment, its inputs, processing and supply chains caused. When I started out in the industry in late 1994, the Internet was just beginning to become available, as some readers may remember, along with sketchy dial-up phone line connections. The great communication and information age was just being born. The Central American child labor and sweatshop scandal surrounding media personality Kathie Lee Gifford’s apparel brand was still two years off. Sustainability and corporate responsibility were not yet part of anyone’s jargon, and the Rio Earth Summit had taken place just a couple of years earlier. And, to be completely honest, even after I became a part of those multinational supply chains and my awareness did begin to grow, I often found excuses to push that burden of knowledge to the very back of my mind for a good long while.
The apparel industry has given me some of the most rewarding experiences of my life, but it has also taken me to some of the most downtrodden, dangerous and poverty-stricken communities on the planet. Along the way I collected my fair share of “war stories,” as I made a point of living and working close to the communities that supported my career. I have been robbed at gunpoint in Mexico City and have been lost while driving the back streets of Nairobi’s slums. I have had to deal with factory fires in the Middle East and hotel bombings in Indonesia. But there are few things I have ever faced in nearly 20 years of globe-trotting for multinational brands, retailers and audit firms as gut-wrenching as pulling a child laborer out of a factory.
Thankfully, I had to do this only twice, and in 20 years I have both visited and audited more than a few factories. This is not to say that child labor doesn’t continue to be a serious issue, but it is measurably less so in the apparel industry today than it was 20 years ago. The practice also tends now to be concentrated in specific geographical areas and in certain stages of the supply chain process, which the vast majority of brands and retailers seldom look into.
Up until this point, we have looked primarily at issues of historical context within the industry and some specific examples of the more disturbing practices. In this chapter, we will look closely at the point where the issues of worker and human rights and supply chain transparency intersect within global garment industries. The object here is not simply to give random statistics or to elaborate on secondhand stories about the ills of the apparel trade. Lots of data does exist that could be recounted (and I have been fortunate and far-sighted enough to have collected much of it firsthand over the years).
As we look now at what concrete measures brands, retailers and key industry stakeholders have taken to address the social fallout, the goals here are multifaceted. Firstly, it is important to understand the evolution of these measures and the drivers behind them. Secondly, we need to clearly identify the systemic gaps and failures within them. Finally, by looking at best-practice experience and new outlier models of supply chain engagement, we need to understand what all of us can do to get behind and support the most promising of these trends.
My first personal experience with child labor took place in Mexico.
By mid-1995, the sourcing team I had pulled together at the new Mexican start-up for Wal-Mart’s buying agent PREL began to come together. I worked at the time under the tutelage of a sharp senior PREL manager out of the Philippines named Chiqui Cui. When Wal-Mart later took over direct control of their agent network and established their Global Procurement Group in 2002, Chiqui would go on to hold senior roles within the retailer’s buying teams. With his help, following my initial stint at Wal-Mart’s home office in Bentonville, we worked quickly to get the greenfield operation up and running.
It was a skeleton crew to begin with: two sourcing managers recruited from Wal-Mart’s Mexican partners at Grupo Cifra; a seasoned production engineer 20 years my senior to handle quality inspections and factory assessments; and me, as team leader. Over the course of the next year we would bring onboard an accountant and two junior managers to help identify Mexican export factories and prepare bid packages for seasonal Wal-Mart buying trips.
The multi-billion dollar factory-auditing industry that has come to dominate labor and environmental risk management services not only for apparel industries but also for most consumer goods manufactured overseas was just in its infancy. In response to growing media attention and the spotlight American organized labor was trying to throw on Central American sweatshops, the American Apparel Manufacturers Association (now the American Apparel & Footwear Association) was just taking its first steps toward the creation of an industry-wide response.
While social or labor auditing at suppliers was still a year or two years off for major brands like The Gap and Reebok, Wal-Mart’s significant early presence in China had led it and PREL to begin developing factory-level assessments by 1992. These early checklist-type question-and-answer surveys, along with on-site factory tours and reviews of facilities’ legal and employment documentation, became part and parcel of our responsibilities in Mexico. This was something new for Mexican manufacturers and our local team. But under constant surveillance by organized labor groups and the media, our client was deadly serious about the importance of carrying out these assessments, even though there seemed at the time to be little concern about potential conflicts of interest.
In today’s sourcing world, having your agent (whose earnings are tied directly to the ability to ship products on a trouble-free and timely basis) also act as the party that validates a factory’s technical and labor compliance is not recognized as a best practice! But in the mid-90s the rules of the game were just being written, and we were in fact at the leading edge of what would become over the next decade a standard cost of doing business offshore, though not, strictly speaking, a legally required one.
Both David Gonzalez, our team’s apparel engineer, and I were put through training on the early audit process by the external consultant who had developed the methodology for Wal-Mart. This included handling discussions with factory management each time a new facility was nominated to bid on export programs, along with document reviews and technical factory assessments. We were also taught how to keep an eye open for human resource risks while walking the factory floor occupied with auditing tasks like examining the contents of first aid kits and taking note of expiry dates on fire extinguishers.
It was this peripheral-vision skill that came into play late one afternoon while making our initial assessment at a denim facility outside of Tehuacán, about 250 kilometers southeast of Mexico City, bordering the states of Oaxaca and Veracruz. Originally famous for its natural spring waters, the city had exploded with new sew and dye facilities for jeans after the onset of NAFTA. At one point, more than 700 factories there churned out woven pants for brands like The Gap, Guess and J.C. Penney.
The larger operators servicing international retailers generally took pains to ensure proper treatment plants were in place for highly polluted dye water runoff, but a host of clandestine and second-tier facilities had long been accused of ignoring legal health and safety codes. The zone also had a reputation for using young teen laborers, due to both a shortage of workers brought on by the apparel boom and the crushing poverty still typical of rural Mexico.
As David walked the factory floor and guided the facility manager’s attention to fire extinguishers a few sewing lines over from me, I made my way toward the back of the open complex while scanning the faces of the operators hard at work. I was on the lookout for workers whose faces might betray their ages and if any seemed to be too young, would note their positions and work station numbers; later, I would review administrative files and copies of official identification in the upstairs office. The trick here was not to draw immediate attention to the worker, which could potentially add a significant amount of stress to their already stressful day. In the case of Wal-Mart, at the time, finding true child labor in a supplier’s factory would be breaking a cardinal rule, one of a shortlist of zero-tolerance policies that would immediately halt any business or the placement of production orders.
At least two young men appeared too young to me to be working at the factory. I would have guessed them to be around 13 years old, which put them right on the line of legal employment under Mexico’s child labor laws. Like many countries (Canada included, which incidentally has yet to ratify the International Labor Organization’s Convention 138 on Minimum Age)89 Mexico allows young teens to legally work, generally within guidelines meant to ensure a minimum of formal education has been met while avoiding employment at high-risk jobs.
What became apparent early on in my experiences with PREL and Wal-Mart was that very specific skills were needed to play the full-time role of a social and labor practices auditor; I needed more than a passing knowledge of a host of occupational health and safety laws, human rights legislation, and labor codes on a “by-country” basis. Sometimes laws would differ across regions within one country! Within a short time, these responsibilities would in fact be turned over to full-time professional auditors.
In any event, a review of both teens’ human resource files noted significant differences between the two. The file of the elder, who as I recall was 15 years old, was complete — with birth, education and medical certificates. A mandatory letter from the boy’s parents giving their permission for his employment was also available, and verification of time cards showed that he was working less than the six hours per day allowed by law and never at night.
The younger boy however, just over 14 years of age, was missing a number of documents, including parental consent, but was shown to be working within the same hours as his compañero, his co-worker.
I had mixed feelings about how to manage the issue. On one hand, the client’s policies were clear. Even if the boy legally fell into an allowable age group, his documentation wasn’t in order. The factory could be fined should a government labor inspector come calling; they were, technically speaking, outside of compliance.
On the other hand, no orders had yet been placed with the factory. They were just now being assessed ahead of having them cost and quote garment pricing for an upcoming buyer event. If given the chance, the boy might be able to gather the proper paperwork together. I realized then that my personal feelings about his case were not as relevant as I might have liked. It is all well and good for those of us in wealthier countries to criticize others for poor child labor management. But it is quite something else to take the responsibility of cutting off a family’s sorely needed income and potentially causing conflict within a family.
In discussion with the factory owner, we decided to err on the side of caution, but to also pursue a practical path toward resolving the problem. The boy would have to be taken out of the factory and sent home that day. But not until after it had been carefully explained to him why in a calm and non-threatening manner. The fault, after all, had not been his. The owner agreed to hold the job for him for ten days (and, in any event, he most likely needed the boy back) while the teen worked to gather the missing documents. His employer promised to cover the cost of a missing medical certificate and no deductions would be made for it. The boy was understandably upset, but seemed genuinely relieved once he understood that he could return to his job once the missing paperwork had been brought in. What could have been a much more traumatic experience for him and a loss of opportunity for the entire factory was averted.
For our part, we agreed with the factory that David would return within 30 days. It was in the vendor’s hands to ensure compliance with everything that had been agreed to. At the end of the day, it was the owner’s facility and his decision to follow our proposal or not. Rarely have I ever heard of a foreign brand or retailer calling out a vendor by reporting factory issues to the local authorities, and at that stage in my early career I doubt I would have had the wherewithal to try that approach.
Thankfully, this turned out not to be an example of egregious child exploitation, and the story would have a silver lining because it acted as significant impetus behind the American apparel industry’s efforts to agree on a common approach to tackling some of the worst practices at offshore manufacturers.
The end of the global political stalemate of the Cold War between the United States and the Soviet Union around 1989 had a significant impact on global businesses and workers in both developed and developing countries. Specifically for textile industries, this would mean concerted efforts to liberalize international markets in these commodities, which had been restricted under the Multifiber Arrangement (MFA), alternatively referred to as the Multifiber Agreement. Negotiated as a series of clauses within the larger General Agreement on Tariffs and Trade (GATT) between 1961 and 1973, the MFA put in place a quota system of imports and exports among member nations. This acted essentially as a system of protectionist measures to help manage a surge of post-World War II imports into the U.S. and Europe and avoid negative price pressures on American cotton growers.
Both the growing efforts of international business to expand markets and shift manufacturing, together with increasing moves toward trade liberalization in textiles and apparel, caused significant concerns within the organized labor communities of the U.S. and Western Europe, particularly in the U.K. Relaxed trade rules would, they projected, lead to significant job losses and downward pressure on manufacturing wages as industry would seek greater profits from the use of cheap, offshore labor.
Building on its earlier work to support Central American trade unionists and political activists during the bloody violence in the region throughout the 1980s, the National Labor Committee in the U.S. became a registered nonprofit organization in 1990. Jointly formed by the Amalgamated Clothing and Textile Workers Union, the United Auto Workers and the International Association of Machinists, this organization shifted its mission toward the global protection of worker and human rights. Their investigations, among the efforts of other civil society and labor groups, brought media and public attention to the offshore sourcing activities of brands and retailers.
In 1992 and 1993, media stories began to catch the attention of politicians in Washington regarding the treatment of Chinese workers at garment facilities on the American-held island of Saipan. Part of the Northern Mariana Islands, the Pacific island chain had become a commonwealth in 1975 (a similar legal status to that of Puerto Rico) after 30 years of administration by the United States following the end of World War II. And, as with Puerto Rico, business interests had found a location where goods could be manufactured under the protection and duty-free status of the U.S. flag at near half the mainland’s minimum wage. More than $US 270 million of apparel orders had shipped from the territory in 1992 destined for retailers like The Gap, Eddie Bauer, Liz Claiborne and Levi’s, who had all sourced product from suppliers manufacturing there.
Conditions were sufficiently poor on Saipan that the U.S. Department of Labor brought suit against a number of manufacturers, charging that Chinese workers had been maintained in near slave-like conditions. Squalid living spaces, lengthy contracts and failures to pay either overtime on 80+ hour work weeks or the required minimum wage led to a $US 9 million settlement, most of which went to the workers who had been victimized.
During this same period, Wal-Mart had been raked over the proverbial coals by activists and media alike following an NBC Dateline investigative report in early 1992. It accused the growing global retailer of both misleading customers with “Made in America” signage placed over foreign-made goods and of contracting goods from Asian suppliers who were using children as young as 11 years old in Bangladeshi apparel factories.93 And while Wal-Mart executive management vehemently denied the child labor allegations, the attention did little to help instill an image of ethical and responsible practices in the minds of U.S. consumers.
With the swearing in of Democratic President Bill Clinton in 1993, organized labor groups, which had thrown their weight behind his election campaign, began to leverage the growing public and political pressure resulting from reported industry activities. While a handful of brands and retailers like Levi Strauss and Wal-Mart began to draft and announce labor codes of conduct and vendor-partner standards, many activists were angered by Clinton’s sign-off on the North American Free Trade Agreement in 1994. A sidebar agreement committing signatory countries to robustly enforce national labor law was included in NAFTA in an effort to appease U.S. labor groups, but any effort to internationalize standards was rejected.
Further efforts by the Democratic administration to include social clause linkages within the 1994–95 Uruguay Round of multilateral trade negotiations (which led to the founding of the World Trade Organization) went nowhere. Business interests in developed Western nations and so-called Third World country governments rejected the efforts. Arguably, business was after higher profits from unrestricted access to cheap offshore labor, while developing country elites targeted greater job creation, tax revenues and in many cases, ownership in manufacturing enterprises themselves.
The final thrust that would galvanize the American government to push apparel and textile lobbies into taking more robust voluntary actions in lieu of threatened regulatory measures came in the spring and summer of 1996. From May through July of that year, a score of activists led by the National Labor Committee’s (NLC) Charles Kernaghan testified before the U.S. Congress to level charges of exploitation and child labor against the global apparel trade.
These efforts gained heightened notoriety through the press coverage of the NLC’s specific accusations against the apparel brand of popular actress and television host Kathie Lee Gifford. Carried exclusively by Wal-Mart stores, the brand had proven a runaway success until investigations showed that original domestic manufacturing orders had continuously been sub- and sub-subcontracted to a variety of Central American factories while multiple intermediaries all took a cut of the action. The NLC claimed that workers as young as 12 and 13 had been laboring in Honduran sweatshops sewing garments for the brand, and they brought a young worker from one of these factories to Washington to reinforce the accusations.
Congressional sub-committees heard from a host of activist, industry and governmental witnesses including Harry Kamberis, director of Program Development at the Asian American Free Labor Institute; Jesus Canahuati, vice president of the Honduran Apparel Manufacturers Association; Robert B. Reich, then-secretary of the U.S. Department of Labor; and Ms. Gifford herself. Industry representatives from the National Retail Federation and the U.S. Council for International Business were also on hand to steadfastly reject the claims.
Most poignant was the testimony of a 15-year-old Honduran girl by the name of Wendy Diaz who had figured prominently in Mr. Kernaghan’s public relations efforts to trigger such high-ranking attention. She spoke of her life at a Korean-owned facility in Honduras where she had begun working at the age of 13. She testified about the 10–12 hour work days, making $US 0.31 per hour, she described the verbal and psychological abuse and maltreatment that she and other minor-aged workers had suffered while sewing garments for American apparel brands. The statement read that day by this brave young woman makes for difficult reading, especially for industry insiders like myself.
Also testifying was a 15-year-old boy from Thornhill, Ontario, by the name of Craig Kielburger, who would go on to become another distinguished alumni of my alma mater, Trinity College. Craig had been driven to action by a Toronto Star newspaper article he had read a year earlier. It had told of the tragic murder of a 12-year-old bonded laborer who had fought against child labor in Pakistan’s carpet trade. Craig, his brother Marc, and a number of friends would begin a school project that eventually evolved into Free the Children, now an international charity dedicated to youth empowerment and education in developing countries around the world. Through their efforts, Wendy and Craig would put many of us in the industry to shame, myself included, by vocally raising awareness of the need to fight against child labor.
Of particular interest to the apparel and retail trades, Secretary Reich made a number of pointed comments about “disturbing” and “despicable” child labor practices.99 Referencing the often-quoted phrase by progressive jurist Justice Louis Brandeis of the U.S. Supreme Court that “sunlight is said to be the best of disinfectants,”100 Reich observed that there was “no way we can solve this problem without responsible corporations backed by an informed and concerned public.”99 He spoke seriously, giving examples of child labor in Indian glass factories and Bangladeshi brick kilns noting that while the U.S. itself did not face a significant child labor problem that “we do have … a sweatshop problem.”99
Secretary Reich advised the committee that he had called for meetings that same week with major American retailers and their key U.S. manufacturing suppliers to examine what progress was being made on the home-front battle against labor abuses in the apparel industry. “Before we point a finger of blame at foreigners,” he stated “we have to make sure our own backyard is clean.”99
In a stern warning to industry attendees, he informed his audience that the Department of Labor was actively working on an industry report examining the codes of conduct and international labor practices of the top 20 largest American importers of apparel while committing to provide the congressional committee with follow-up testimony on their findings. Reich insisted that the responsibility did not lay with government alone, but that business had “to be actively engaged”99 in bringing an end to labor abuses overseas. As for the subject of the U.S. trade agenda, the Secretary of Labor expressed his belief that “we cannot talk about trade without talking about labor standards at the same time.”99 Only time would tell if these forceful statements carried the weight of real actions.
Both directly and indirectly, the committee hearings and subsequent governmental pressure brought to bear on retail and apparel interests led to the formation of two organizations that would shape industry responses in the U.S. regarding offshore industry labor rights for the next 15 years.
The first of these would be the Fair Labor Association (FLA), which evolved out of the Clinton administration’s multi-stakeholder Apparel Industry Partnership (AIP) initiative first convened in August 1996. The second would be driven by member interests from within the American Apparel Manufacturers Association in 1998 (now the American Apparel & Footwear Association), whose “Worldwide Principles for Responsible Production” would evolve into the Worldwide Responsible Apparel Production standard, or WRAP. A further attempt to expand the certification standard to additional industries beyond apparel would see the organization change its name once again to Worldwide Responsible Accredited Production in 2007.
Certainly worth mentioning at this point is the work done by Social Accountability International (SAI) toward the development of the SA8000 social practices certification standard. Formally begun in 1997, SAI evolved from the earlier Council on Economic Priorities (CEP) founded in 1969 by economist Alice Tepper Marlin. Long before corporate social responsibility had become a business and civil society catchphrase, CEP provided research into the social and environmental practices of corporations. The group published reports on corporate behavior and pioneered an economic activist approach to social and ethical investment. While the development of the SA8000 standard did include participation by the business community, it was not an industry-driven initiative to the degree that both the FLA and WRAP were.
Meanwhile, on the other side of the Atlantic, similar issues faced by British retailers under pressure from NGOs, labor activists and religious organizations would soon bring industry together with civil society, government and labor under the Ethical Trading Initiative in 1997. From 1998, the British Retail Consortium would begin its work on common standards tied to a number of health, safety and manufacturing concerns. By 2001, a number of U.K. retailers and their major suppliers would begin the discussions around common approaches and methods of auditing factories that would lead to the formation a year later of the Supplier Ethical Data Exchange (SEDEX). Continental Europe’s business-dominated Foreign Trade Association based in Brussels wouldn’t release their industry standards for social accountability until 2003 under the Business Social Compliance Initiative (BSCI).
The Canadian government under Liberal Prime Minister Jean Chrétien made attempts in 1999–2000 to facilitate discussions between members of Canada’s civil society and manufacturing industries. Spurred in part by the grassroots actions of groups such as the now-defunct Maquila Solidarity Network, these efforts resulted in the formation of the Canadian Partnership for Ethical Trade (CPET) in 1999. A significant number of labor, civil society and religious organizations came together under the Ethical Trade Action Group (ETAG) that same year to engage Canadian business interests represented by the Canadian Chamber of Commerce, the Retail Council of Canada and the Alliance of Manufacturers and Exporters. Direct government participation was not forthcoming however, a fact that many from the NGO and labor community felt contributed to the impasses that ensued. Unable to agree on the contentious issues of which standards to adopt or how best to construct an effective and independent monitoring system, negotiations broke down in the spring of 2000, effectively killing the effort.
Diane Brisebois, the current president and CEO of the RCC (Retail Council of Canada) believes that efforts at the time were too narrowly approached.
“From our perspective and with the benefit of lessons learned, we would suggest that it was too confrontational. Until recently stakeholders, regardless of who they were, tended to have a firm and unique position and negotiations were more about which unique position to support versus how we can all come together with a solution that satisfies all major stakeholders.”
ETAG would try for a number of years to unsuccessfully reignite the discussions. The general sense of apathy that civil society believed had taken hold at the governmental and industry level has apparently continued to this day. As Ms. Brisebois puts it, the RCC leadership is in no hurry to see a legislative approach taken.
“It has always been our position to support global standards/practices [read: voluntary] versus trying to deal with issues such as supply chain transparency and accountability through different pieces of domestic legislation. It has been my experience that public pressure, education and joint efforts from a large group of stakeholders tend to work best. Trying to keep it out of the political realm is, in my experience, more desirable and more effective.”
Since joining Sara Lee’s Branded Apparel group in 1999, I had collaborated with the WRAP organization through my years of sourcing for the Hanes and Champion brands; Sara Lee, in fact, had been one of the original supporting manufacturers of WRAP during its formation. All of Sara Lee’s apparel brands were technically required to ensure suppliers adhered to WRAP principles, though in practice this was not enforced for many vendors, especially those who served as short-term seasonal and stop-gap suppliers. Later in my career, as I continued to step back from commercial sourcing roles, I would go on to work directly with the standard as WRAP’s regional director in Asia, hired to manage the start-up of the group’s regional hub in Hong Kong.
That said, I have also had occasion to work with a number of suppliers and participating companies under the Fair Labor Association as well, particularly during my time as business director in Asia with the global auditing firm Bureau Veritas. Hanesbrands themselves, the company that emerged from Sara Lee’s spinoff of its apparel companies in 2006, joined the FLA in 2008 after a particularly contentious battle with labor leaders at its TOS Dominicana factory in the Dominican Republic.
It is a telling exercise to look at the evolution of each of these two key initiatives — WRAP and the FLA — and the distinct paths they have followed in approaches to dealing with labor, human rights and workplace safety over the years.
Even before the congressional committees began taking testimony regarding the use of child labor offshore, the Clinton administration had been making efforts to engage U.S. business leaders in its fight against sweatshop conditions. Initiatives such as the Compliance Alliance of Southern California, started in 1995 to support self-policing in the garment trade, were representative of efforts the Department of Labor pursued. Secretary Reich was more than willing to take a carrot-and-stick approach however, publicly recognizing those companies that made efforts to engage and take responsibility for labor practices while naming and shaming those who failed to do so. His department’s highly publicized “No Sweat” campaign, which also launched in 1995, focused on public education efforts, stricter domestic enforcement of workplace labor laws, and on partnering with manufacturers who signed up to support responsible workplace practices.
On the international front, as early as 1993 the Department’s International Labor Affairs Bureau (ILAB) began to focus on child labor overseas and on providing funding to the ILO’s International Program for the Elimination of Child Labor (IPEC). ILAB’s reports would prove significant during the congressional hearings and follow-up meetings that began to take place immediately afterwards.
Just before the congressional testimony began, Reich and Kathie Lee Gifford had publicly announced the convening of an industry roundtable event, the Fashion Industry Forum, to be held in July 1996. Some 300 stakeholders across apparel supply chains — from brands and retailers to labor unions and civil society groups — met in Arlington, Virginia, outside of the U.S. capital on the 16th of the month. Thus began the contentious work of hashing out a consensus among disparate groups with separate interests who, nonetheless, recognized that some sort of collaborative effort was needed.
With the U.S. government set to introduce legislation aimed at holding manufacturers and retailers responsible for the conditions in which their contracted goods were made, business seemed ready to agree to certain of the points under discussion. The easiest was that sweatshops posed a risk to all actors in apparel supply chains. All sides would need to approach responsibility for both problems and solutions as a shared objective. For industry leaders, sweatshop practices were being recognized as what we might call today “unsustainable.”
For their part, civil and labor leaders appeared agreeable to pursuing a continuous improvement approach, not wishing to be seen as supportive of actions that could arguably lead to job losses among the poor in developing countries. This is a point of view, however, that has also been manipulated on many occasions by self-serving business interests to justify their operations in countries that have offered an exponential return on profitability versus the local value of factory employment their sourcing programs have be tied to. (This is a theme we will come back to in Chapter 4 addressing aid-for-trade paradigms.)
There was also a shared understanding that the efforts of government alone could not be counted on to provide a wholesale solution — including a dependence on regulatory enforcement. The willingness and ability of many developing countries to actively pursue enforcement had historically proven shaky at best. Rather, some mix of international standards and market inducements might better effect change. Continued leverage of consumer and civil society pressure and the management of economic incentives as well as raising the reputational and bottom line costs of failure seemed to hold promise.
Throughout these discussions, one of the most significant areas of disagreement centered on the issue of who exactly was responsible for exploitive labor practices offshore. Labor and civil society groups contended that such responsibility was shared by those who procured the goods and those who held the purse strings — and that these were the actors who could best influence supplier actions. In the view of a number of the brands involved, foreign operators and industry standards were to blame; the multinationals claimed no authority in such cases.
Despite continued disagreement on this and a number of other significant issues, in August 1996 President Clinton announced that the Fashion Industry Forum’s efforts had resulted in a multi-party agreement to form the Apparel Industry Partnership (AIP). The AIP would bring labor leaders from the AFL-CIO and UNITE (Union of Needletrades, Industrial, and Textile Employees), the Lawyers Committee for Human Rights (LCHR), the National Consumers League (NCL) and key American apparel brands together (Liz Claiborne, Nike, Patagonia and L.L. Bean, among others).107 The mandate of this organization would be to create agreed-to and enforceable labor standards to combat exploitive sweatshop conditions, to develop a voluntary industry action plan to support their implementation, and to report back to the president on the group’s progress within a six-month timeframe.
The effort received mixed reviews from NGO groups. Some felt it represented an important step forward, while others felt it was only a limited victory for organized labor and human rights interests. Within the apparel and retailing industries there was also significant disagreement, especially from those who had not signed up for it. Many were unhappy to see management of the agenda being taken out of business’s hands. A number of those who had agreed to participate had already taken proactive steps toward embedding responsible practices in their supply chains, as was the case with both Patagonia and Liz Claiborne. But while those who weren’t onboard may or may not have expected to feel additional public pressure, the fact remained that the entire exercise was voluntary and carried neither force of law nor legal repercussions for their decisions to abstain.
By the time the six-month deadline came around, rumors were rife that the members had hit an impasse. The reality was that most of the issues regarding the development of the common standards themselves had been dealt with. They were still working on the monitoring mechanisms to oversee compliance, but two particular issues were at the heart of remaining difficulties: wages and the right to freedom of association.
In the end, it would take a compromise to reach agreement among the actors who had spent a considerable amount of time struggling to build trust together through months of deliberations, internal and external discussions, and comparative analyses of international law and existing codes of conduct. By exercising flexibility on the issue of living wages tied to the adopted standard of paying the higher of either the local legal minimum wage or the prevailing industry wage, civil and labor participants were able to ensure inclusion of the rights to collective bargaining and freedom of association. Additionally, there was wording included under the wage standard by which industry committed to meeting the basic needs of employees.
More than a decade later, the issue of living wages would once again come to the forefront of labor’s ongoing conflicts with international apparel brands, as production continued to seek out ever-lower priced geographies in which to manufacture. For the time being however, an agreement in principle regarding shared standards had been reached. The issue of monitoring took somewhat greater effort. It was here that civil society and organized labor stood firm on the need for external, independent monitors to ensure a credible and transparent process. Either professional auditing firms hired by brands and manufacturers in collaboration with local NGOs, or local NGOs themselves might be used, though any applicant would need to be accredited by the AIP to carry out monitoring.
The agreement would finally be delivered to the White House in April 1997, but not before AIP member Nike was forced to confront a scathing public report by the Vietnam Labor Watch in March of that year deriding the brand for well-documented and glaring gaps between its written code of conduct and actual factory practices on the ground.109
On April 14, 1997, President Bill Clinton announced the AIP’s historic agreement between apparel industry stakeholders, needed because “as has now been painfully well documented, some of the clothes and shoes we buy here in America are manufactured under working conditions that are deplorable and unacceptable — mostly overseas, but unbelievably, sometimes here at home as well.”110 As part of the accord, the members of the AIP had recommended the formation of a new and independent nonprofit body to oversee members’ adherence to the adopted workplace code of conduct.
That initial optimism was soon quashed as members of all stripes got down to the brass tacks of sorting out exactly how to implement the code and structure the organization that would be responsible for managing the program and monitoring adherence. By November of that year, The New York Times was reporting on the serious level of divisiveness that had gripped the AIP’s proceedings. For the next year, labor and civil society members remained deadlocked as the situation around them continued to evolve.
A number of the largest American apparel firms would approach senior leadership at the American Apparel Manufacturers Association (AAMA) to push for an industry solution as they watched what seemed to be a deteriorating situation at the AIP. These players were also concerned with an overly aggressive labor and NGO agenda, as both stakeholder groups had begun to push for greater concessions within the talks. By this time, Social Accountability International had also launched their own effort at creating a labor standard that threatened to further dilute a consolidated industry approach to common standards of practice.
Even as the National Labor Commission and union forces continued to hammer at leading AIP brands, in the summer of 1998 a smaller number of the working group pulled together to attempt to break the impasse and deal with the issues still on the table. Representatives from Nike, Liz Claiborne, Reebok, the BSR and Phillips-Van Heusen together with the RFK Center, National Consumers League, the Lawyers Committee for Human Rights and the International Labor Rights Fund had hammered out an agreement by late October. In it, they committed to the formation of a new independent body, the Fair Labor Association, and for the rules governing monitoring of the group’s standards. The plan was presented to the balance of AIP members. Patagonia, L.L. Bean, Nicole Miller and Kathie Lee Gifford seized the opportunity and agreed to join in November.
The Interfaith Center on Corporate Responsibility and both union participants of the AIP rejected it, though the AFL-CIO left the door open to future collaboration with the new organization. There would be many hard years yet ahead for the Fair Labor Association, but the tremendous effort at multi-stakeholder collaboration over more than two years had produced a significant outcome that continues to impact markets today.
One measure of the difference in approach that industry-dominated efforts toward common standards by the AAMA indicate can be found in the lack of transparent, widely available information regarding its early development, especially as compared to the very public history of the AIP/FLA. What is certain is that fallout from the Kathie Lee Gifford ordeal and the consequent congressional investigations into the offshore practices of many American firms had jolted the industry wide awake. Secretary Reich’s notice to the garment trade that his department was looking into the labor practices of the largest garment importers must have certainly made for some sleepless nights for a good many U.S. apparel execs.
Clinton administration efforts in April of 1996 to send new anti-sweatshop legislation to the floor of the House spoke to the seriousness of their intent. If passed, the proposal would have held U.S. retailers and apparel manufacturers liable for ensuring the labor practices of their contractors no matter where they might be located. While there was little expectation that the Republican-dominated legislature would have passed the bill, it still served to put industry on notice once again.
It was certainly enough of an incentive to push the AAMA to begin looking into ways they might best mitigate potential risks, political or otherwise. By the summer of 1996, they began looking at external database services that might help their members to track labor, health and safety infractions at contractor facilities. In an effort to help major apparel manufacturers “steer clear” of bad publicity, as AAMA execs put it,113 they inked a deal with OSHA-Data Services for just such support. Meanwhile, a good number of the Association’s members, particularly those dedicated to the manufacture of low-cost, mass-produced goods like Sara Lee, were taking greater advantage of offshore operations even while downsizing domestically. According to AAMA numbers, there were still some 770,000 apparel manufacturing jobs in the U.S. in 1998, which represented a reduction of 43 percent since the mid-1970s. Industry kept up the pressure on job costs and by late 1997, Sara Lee had launched its three-year “Project 2000” plan, which would lead to the closure of some 100 facilities by the end of fiscal 1999.
On September 25, 1998 AAMA President Larry Martin sat before Representative Pete Hoekstra’s Congressional Subcommittee on Oversight and Investigations of the Committee on Education and the Workforce to lay out his members’ plans. The 300+ brands and manufacturers represented by the AAMA garnered an astounding $US 85 billion in annual wholesale sales at the time, controlling 85 percent of the U.S. apparel market. The balance was in the hands of the retailers themselves and tied to offshore manufacturing of their private label brands.
Mr. Martin testified before the subcommittee’s inquiry into the inner workings of the garment industry that a number of prominent members of the association had approached them more than a year earlier with the idea of spearheading an industry-wide effort to create a comprehensive effort to deal with industry labor conditions at home and abroad. Referring to sweatshops as “immoral and dishonest,” he stated categorically that it was his industry’s job to put their own house in order.114
Martin further added that the AAMA membership had expressed frustration at the lengthy delays and scope of existing attempts at collective engagement (presumably referring to the AIP’s efforts), and that it was time for manufacturers themselves to take a leading role. The organization had participated in the earlier Fashion Industry Forum that had led to the AIP’s formation, and had been highly critical of the 1997 AIP agreement announced by President Clinton.
Since 1996, in fact, an AAMA taskforce, chaired by Steve Jesseph, executive director of Global Workplace Values at Sara Lee from 1997 to 2003, had spent considerable time amassing a large amount of data and market knowledge on international codes, practices and labor law. (Steve would later go on to serve as president and CEO at WRAP from 2005 through 2011.) Their work was primarily supported by external consulting firms. Efforts were also made, it was claimed, to include the recommendations and input of a number of academic and civil society groups, but there was no formal announcement of who they were or what explicitly they added to the discussions. As the current head of the AAFA recently confirmed, in fact, it has never publicly disclosed the taskforce’s membership, and despite a number of requests to release the material for inclusion in this book, it was never forthcoming. Among those organizations that did publicly support the effort early on were a number of foreign industries’ manufacturing associations, including those in Mexico, South Africa and the Philippines.
In any event, Mr. Martin’s testimony committed the organization to have their program up and running by 1999. The taskforce plans called for a pilot of their factory certification model built around a core set of standards under the Responsible Apparel Production Program (RAPP). Some 30 facilities in Mexico, Central America, the Caribbean and Asia were targeted to participate in the initial start-up phase. To reinforce their seriousness, the AAMA board had already moved ahead to unanimously endorse RAPP the week before the committee’s proceedings. The voluntary program (no industry group has yet recommended a legally binding one) promised to provide three key components:
Clear and verifiable standards.
Factory evaluations carried out by industry-knowledgeable and independent monitors.
Oversight of the organization by an entity independent of the AAMA, which included a commitment to invite stakeholder members from NGOs, academia and elsewhere.
One particularly interesting issue raised during Hoekstra’s questioning of the AAMA president had to do with the legal responsibility to disclose any compliance discrepancies to manufacturing country authorities. Mr. Martin was pointed in his response.
“That,” he replied “is a law enforcement question. We don’t want to do law enforcement.”114
This, consequently, is indicative of where much of the industry still sits today. Essentially, and in contravention of most brand and retailer codes of conduct, business knows full well that a good many of its suppliers are breaking the laws of the countries where they manufacture.
Aside from the moral and ethical obligations to be considered, this was, in my opinion, a legal slippery slope. Each country does have its own laws, after all, and responses would need to depend on the jurisdiction in question. Knowledge of illegal activities might well impel an executive or auditor to report them. It was the argument of the Association however, and to some extent agreed to by Mr. Hoekstra, that the program shouldn’t aim to frighten off manufacturers from the potential impacts of liability but rather to help guide them toward incremental improvement.
These points tied directly to another significant difference from the AIP/FLA’s structure in that the RAPP (soon to be termed WRAP, Worldwide Responsible Apparel Production) proposal centered on certification at the individual, in-country facility level. In this way, they believed responsibility would be put into the hands of the manufacturer in the country of production and not necessarily rest with a U.S. brand or apparel company. And, as evidenced by the AAMA’s testimony, responsibility and liability were closely linked in people’s minds.
It wouldn’t be until October 1999 that the WRAP program was ready to be publicly announced during the opening of the Bobbin Americas industry trade show in Atlanta, Georgia. A year and a half after Larry Martin had first disclosed the project, the AAMA was ready to unveil the program’s principles regarding basic labor practices, factory conditions, environmental law and customs compliance. Missing still at this point were the operational details of the program’s monitoring mechanism, which AAMA leadership expected would be handled by accounting and safety and human rights NGOs in-country.
Although accounting firms may not have seemed to many in the industry or civil society to be the most appropriate or competent of bodies to carry out manufacturing-level health, safety, labor and environmental assessments, in 1999, the firm PricewaterhouseCoopers (PwC) carried out over 6,000 such audits for brands and retailers globally, principal among them Wal-Mart, Nike, The Gap and Disney. Their execution of the social audit process was roundly criticized by MIT Professor Dara O’Rourke in a September 2000 research study for the Independent University Initiative (IUI) supported by Harvard, Notre Dame, Ohio State, the University of California and the University of Michigan.117 This was not a simple desktop analysis of previous reports. Dr. O’Rourke had accompanied PwC’s auditors personally and found many of their practices to be sub-par; yet major multinationals were depending on them, wholesale.
By 2000, WRAP had truly pushed into its operational phase, and the second of two major U.S. industry efforts hit the market fast on the heels of the FLA program: the latter clearly and publicly built out of cross-industry stakeholder negotiations with government’s encouragement, and the first put forward by the manufacturing industry with substantially less publicity and transparency to the proceedings or participants.
Within these and most major apparel and consumer goods accountability programs (as the industry refers to them), the role of external auditors became central to ensuring compliance to each given set of standards. Perhaps this started out logically enough in the early days of attempts to wrestle with factory-level challenges, but over time the practice evolved in rather negative ways. In a slightly modified take on the Iron Law of Oligarchy118, or what James Hyland has called the “tactical and technical necessities”119 of managing organizational responsibilities, the “elite” role of the audit process overtook the real intent of many programs.
Probably the most valuable benefit of having taken on a wide range of responsibilities myself across a variety of supply chain positions with brands, retailers, auditing firms and factory standards can best be defined as perspective. And over time this unique point of view, acquired as a result of wearing many different hats in the industry, led me to some troubling conclusions.
The first is that, not unlike the different communities of stakeholders that various standards and factory compliance programs serve, an intense sense of competition has historically existed between accountability programs. This was one challenge I ran up against during my time with WRAP in Asia, as my own approach had by then led me to seek greater collaboration and brainstorming exchanges across party lines, if you will. Those at the very top of the food chain at the time seemed to believe wholeheartedly that WRAP was the greatest thing since sliced bread and that no other program was worth the paper it had been written on. Cross-program engagement was frowned upon and not to be encouraged.
As a sourcing decision-maker, I had long heard either directly or by proxy through the grassroots organizations that supported one standard or another, what was so unique and preferential about the approach of any one of a variety of standards versus the others. All of the major programs seem to have their benefits and drawbacks, but many share some of the same challenges that for one reason or another senior decision-makers I have worked with either didn’t get or preferred to ignore.
The auditing industry that has evolved over the past 20 years or so to serve the outsourced needs of international brands and retailers is now a multi-billion-dollar goliath. While there are literally dozens of medium and smaller-sized companies that have developed geographical and product-specific niches, the field continues to be dominated by a troika of European-listed firms with global reach.
Between them, the combined incomes of Bureau Veritas of France, Intertek in the U.K. and Swiss-listed SGS (formerly, the Société General de Surveillance) reached $US 14.24 billion in 2013, and they employed over 180,000 people around the world. To be sure, all of these earnings did not result from factory auditing, which as a category includes a range of environmental, technical capacity and labor evaluations. To one extent or another, they all offer a range of health, safety and risk management services — from laboratory testing of products to quality inspections, industry certifications and factory auditing. But even as a representative ten percent of their total business, this is an incredible sum, which doesn’t even include the dozens of SME (small and medium enterprise) firms operating mostly in the developing world on their own programs and niche projects.
To cheaply and effectively offer competent monitoring services requires scale, systems and on-the-ground teams that most brands and retailers simply don’t wish to invest in owning. For many, this would also result in some difficult conflicts of interest. But organizations the scale of these three giants and perhaps another six to eight second-tier competitors of still-significant size also face potential conflicts. By far the largest segment of risk management firm business with retailers is in product testing. And relationships tied to this more profitable business line are often leveraged by both sides of the equation: one to push for more competitive costs, and the other to leverage their services to gain access to more business. The entire dynamic is, of course, financially driven, as auditing firms are by nature for-profit enterprises. This results in often-unhappy outcomes for many directly employed in the auditing field.
The audit itself as an exercise of evaluation and monitoring has become a commodity. It is not quite as cheap a commodity as the exercise of factory quality inspections has become, but it is nonetheless a unit of work that many brands and retailers have continuously attempted to re-value downwards. Both audits and inspections are sold to clients in so-called Man-Day units, based on the amount of time it takes on average for one auditor to execute the work. (There are, of course, variations, but I am using widely accepted industry standards here.)
In the largest global apparel production region of Asia, on average a quality inspection of export-ready production from the factory represented as one man-day costs approximately $US 280.00. Depending on the client’s buying power, volume, and negotiation tactics, this may range from $US 85.00 to $US 350.00. Audits, on the other hand, require a set of human technical competences and experience still more difficult to find than those of a quality inspector. So much so that the major firms often sub-contract work to smaller local companies during seasonal spikes of demand. The relative shortage of qualified auditors and the past decade’s increasing demand for their skills has meant audit firms have been able to maintain rates at around $US 1200.00. Again, this may range plus or minus a couple of hundred dollars depending on the brand, and certain country costs run lower than this average.
Needless to say, locally hired auditors in China, Bangladesh, Cambodia or Vietnam do not make anything near that daily pay rate. Maintaining the cost of a large, global workforce and Western-based sales, account management and marketing staff do also contribute significantly to operational overhead. But auditors are still driven quite hard to ensure a high rate of utilization — which simply means they are working nearly all the time.
Typically on the road at dawn to spend a long day in the factory, they won’t arrive home or back to their local hotel digs until evening sets in. From there they may then continue, submitting their reports online until late in the evening, pulling in overtime hours that are rarely paid as such. I recall more than one conversation with senior audit firm staff about the counter-logic of labor compliance auditors working outside of legal compliance themselves while auditing brand labor-compliance standards.
Of significant concern to those with an eye on liability issues is the standard industry practice (a term that does not indicate either a legally or morally correct one) of retailers implementing a home country “Code of Conduct” stating that overseas suppliers must be in compliance with their own local health, safety, environmental and labor laws — while being fully aware that many suppliers simply are not. This is the epitome of hypocrisy, yet day in and day out, brands who swear by the strength of their codes to critics at home follow this practice.
As those on the manufacturing side of the business will know, social or labor audits (the terms are generally interchangeable) focus on a range of management practices and adherence to any combination of legal requirements, internationally adopted standards or standards mandated by brand compliance (see Table 3). Most audit systems will then rank the results (referred to as “findings” in audit-speak) in terms of their risk or severity: low, medium and high for example; or minor, medium, major and critical. Typically, major or critical risk findings are tied to clearly defined legal requirements in the country of production. Or at least they should be. Any resulting non-compliances (audit-speak for practices that break local law) are then summarized and provided to the factory and back to the brand or retail “client” with a recommended corrective action plan, or CAP. Let’s come back to that highlighted term in a few moments.
Leading Ethical Labor Standards and Schemes |
Fair Labor Association (US) |
Fair Trade Certification (US/EU) |
Worldwide Responsible Accredited Production (US) |
Business Social Compliance Initiative (EU) |
Ethical Trade Initiative (UK) |
Fair Wear Foundation (Netherlands) |
SEDEX / SMETA (UK) |
Social Accountability International SA8000 (US) |
A CAP will typically provide a calendar against which the facility should or must — depending on the severity of the brand/retail code of conduct — take corrective measures to become compliant. Again, this means the time by which they should commit to then becoming a facility operating with due regard to the laws of the country where they operate. To spell this out even more clearly, it is the time a brand or retailer accepts or allows that their vendor factory will continue operating illegally.
Minor issues, say, an incomplete first aid kit, might be given a week to correct. More significant findings that require time and money to put in place, perhaps a missing fire escape or the widening of a stairwell, might take a month or more to address. Missing operating licenses or incomplete environmental impact assessments, which are a common occurrence in many offshore production countries, will take considerably longer. As an example, from the recent thousands of follow-up audits at factories in Bangladesh following the tragic collapse of the Rana Plaza facility there in 2013, an overwhelming number of facilities were found to be operating without fire safety licenses, occupancy certificates or construction permits. All the while, Western brands were churning out millions of dollars’ worth of apparel exports from the country.
Policies vary from client to client as to when and whether orders may continue to be placed and produced while these “non-compliances” are corrected before a re-audit takes place to then verify the corrections. Having worked with, for, and on behalf of, some two dozen brands over the past 18 years, I can say without a doubt that many clients allow business to continue as usual in these circumstances.
There is certainly, in most buying organizations, a short list of cardinal rules that would immediately halt orders or prohibit them from being placed. Typically, these are out-and-out child labor, forced labor in slavery conditions, or fully locked-down facilities without any means of escape in case of fire, earthquake or other emergency situations. Short of these, many brand and retail customers allow for ongoing orders within the timeframe of a CAP. This may be news to the average consumer and those outside of the industry, but it is no secret to those in sourcing, social compliance, or legal teams at retail HQs.
More nefarious is the fact that this practice allows brands and retailers to profit from ongoing illegalities throughout the CAP timeline. To arrive at such a conclusion, one only has to examine the reasons why factories continue in their non-compliant ways. I say “continue” because the average offshore apparel facility is probably audited upwards of two dozen times per year, often by the very same auditing firm, for a variety of client codes and programs. Chasing corrective action plans is a game with often tragic consequences.
By looking at the specifics of what type of legal and code infractions happen most frequently, one quickly gets to the gist of the matter. A typical labor/social audit that examines a host of health, safety, human resource, environmental, payroll and business operational issues might run 300+ questions or data collection points. These are grouped into logical categories (see Table 4) for tabulation. By far, the largest two areas of non-conformity are:
1. Wages and working hours, including mandatory deductions for benefits.
2. Health and safety issues, ranging from low to medium risk.
Social/Labor Audit Categories of Focus: What Brands/Retailers Measure |
|
Labor Management |
Forced Labor Child Labor Discipline, Harassment and Abuse Discrimination Employment Contracts Freedom of Association |
Wages & Working Hours |
Working Hours Wages & Benefits |
Management Systems |
|
Health 8 Safety |
Work Facility Conditions Emergency Planning Occupational Hazards Equipment and Machine Safety Chemical Management On Site Living Conditions |
Environmental Management |
|
That is not to say that more significant issues are not common; simply that statistically speaking these have been the largest and most problematic areas for a number of reasons. The single largest driver of these issues is cost. Overtime pay, holiday pay, days off, social insurance, medical benefits, maternity leave, etc. all carry a direct cost to the factory that manufacturers in Europe or North America or countries with robust implementation of the law are obliged to pay. The same holds true for safety system costs for proper fire sprinklers, safe chemical-handling equipment, extinguishers, firefighting gear, escapes, stairs, fire doors, etc.
Thus, in order to remain competitive with a host of other developing countries in a cutthroat industry where an overabundance of factories exist, factories simply fail to invest in proper systems and pay practices, which would price them out of the market. Most brands and retailers know this and are aware of the deficiencies because the vast majority of them audit on an ongoing basis. They then put in place corrective action plans that allow for ongoing cycles of audit and re-audit, all the while realizing financial benefits because of these gaps in health, safety, labor, environmental and business practices.
If, as is being proposed here, these gaps are legal infringements (which depend on the law in the country in question) and these financial benefits are then realized across international borders, then the question might legitimately be raised: Is this not transnational crime? To date, few labor or civil society groups have dared to take this issue on, in part because they lack the financial resources to do so and in part, also, because of the difficulty in gaining access to documentary evidence to support such claims and importantly, of finding legal jurisdictions willing to allow such cases to be tried.
This brings us back to the earlier highlighting of the term client. Much like the use of buying agents by some brands to provide a layer of distance and potential liability between themselves and actual manufacturing facilities, many auditing relationships have been constructed with similar intentions in mind. While in most cases major retail and brand players have direct online access to audit documentation that monitoring firms upload in platforms that only end users have access to, contractual paper trails often show something quite different.
In a very common organizational scenario, monitoring firms maintain administrative hubs in Hong Kong while their operational country offices are logically scattered among key production countries. A brand compliance decision-maker sitting in New York or London or Toronto routes the request for a factory audit directly to their supplier or buying agent in country X while advising their nominated auditing firm to proceed with scheduling said audit. In-country suppliers and monitoring offices then communicate directly to sign a local agreement on service pricing previously negotiated with the foreign retailer. The supplier or their contract factory pays directly for the audit, and the client relationship is established locally. Legal responsibility and ownership of the audit file and results are retained in-country. The factory then provides approval for the given North American client to have access to the results they “own,” but the reality is that the entire process is driven and directed by the brand/retail client.
Regardless of how the paper agreement has been structured, however, the fact remains that end client brands and retailers maintain full visibility to the fact that the factories that have been contracted to produce goods under their brand names are in breach of local laws on an ongoing basis. This flies in the face of both the spirit and intent of codes of conduct. If brands believe this process to be a legitimate method for addressing factory conditions, then they should both rewrite codes of conduct to remove the requirement of suppliers to follow the law and publicly release their audit results.
In some retailer home-country jurisdictions, knowledge of supplier illegalities may well pose potential issues for publicly listed companies. An argument could be made in the Canadian province of Ontario, for example, that under Ontario Securities Commission rules for Continuous Disclosure Obligations, any undue risks to business operations should be publicly declared to markets and shareholders. It is not a huge leap to assume that the use of supplier factories in foreign jurisdictions that are in breach of health, safety, environmental, labor or human rights laws may well pose significant undue risks to a business. If management is aware and being kept in the loop, why shouldn’t shareholders and investment funds be as well? This may well provide further justification for the public disclosure of factory audit findings.
Another serious operational challenge for many monitoring and inspection firms and their end clients is the ongoing issue of auditor and inspector corruption. A September 2013 investigative report by The New York Times brought to light much about the issue, which is a well-known challenge within the monitoring industry itself. The risks are obvious when one considers that audit employees in China, for example, now earning on average between $US 1,200–1,500 per month, often hold in their hands the power to make or break a facility’s approval for use by foreign buyers. Factories often see the offer of a “little red packet” (an envelope stuffed with cash) as a less costly way to achieve positive audit results while avoiding significant cost upgrades to systems and infrastructure, not to mention the ongoing payment of proper legal wages and benefits. The potential for corruption works both ways of course, and auditors looking to supplement their incomes can hold a factory ransom simply by fudging audit results.
To their credit, this is an area where major auditing firms have made serious attempts to respond in recent years by implementing internal quality controls and rotating staff within geographical areas. They have also raised base salaries and carry out surprise re-assessments by specialized monitor-audit staff on an ongoing basis — essentially, auditing the auditor. The challenges are equally present for quality inspection programs; high-value shipments can get held up while a corrupt inspector and the factory manager haggle over “lunch money.”
Even having a large in-house team may not necessarily negate the risks of corruption, as Wal-Mart apparently found in China in the summer of 2008. On the back of industry rumors predicting mass firings due to internal trust issues that were swirling around Shenzhen at the time, inspection firm Intertek announced a substantial new inspection program aimed at enhancing the retailer’s handle on quality issues. According to Intertek’s press release in July of that year, 180 Wal-Mart quality staff would be “displaced” by the move to shift to an outside firm.122 Industry gossip put the number at closer to 300 who were let go.
In my experience, however, it has often been the brand and retail clients of monitoring firms who fail to take strong action against their supplier facilities when accusations or proof of attempts at auditor bribery are brought to their attention. “Commercial consideration,” as it is often called, the need for getting goods in production out the door and shipped on time, often overrides the ethical concerns of a factory’s attempts to pay off auditors and inspectors. Most receive a slap on the wrist and a stern warning, but rarely in 18 years have I ever heard of a factory being cut off after offering an auditor a bribe.
The more sophisticated monitoring firms have also invested in robust IT systems in an effort to provide valuable data-mining capabilities to their clients. Conceptually, this was a brilliant move, allowing sourcing and social compliance teams to benchmark their own facilities’ performance and gaps against peers, regions and industries. Actionable, hard management data about where the greatest failings occur in which audit areas at which suppliers over time should allow a focused, cost-efficient effort at meaningful improvement. Unfortunately, not nearly enough brand and retailer sourcing teams I have worked with made meaningful use of the information.
Often this is because sourcing teams are under pressure in their day-to-day roles to hit pricing and keep production moving without spending too much time on strategic thinking. Many teams are simply not staffed up with sufficient bodies or the expertise to deal with these issues; lacking their own “boots on the ground,” they may have to rely on far-off buying agent relationships to keep a handle on things. Canadian retailers have been particularly reluctant to make the investment in staffing up robust compliance, supply chain and sourcing associates offshore. Whirlwind sourcing team travel to overseas factories to negotiate pricing on a seasonal basis is simply no match for having one’s own professional, technically qualified audit and engineering resources in facilities on an ongoing basis.
This was certainly the case I found at Canada’s Joe Fresh brand when I first arrived at their downtown Toronto offices on a consulting assignment late in the summer of 2013. Aside from not having a single employee on the ground prior to the 2013 Rana Plaza collapse (as was widely reported by Canadian media), there were no qualified compliance associates at brand level whose full-time tasks were to evaluate factory assessments with any practical criteria or experience in auditing or corrective action planning. Issues were either dealt with on an ad hoc basis by sourcing and administrative staff or were pushed back up to the corporate compliance team of food retailing giant Loblaw Companies Limited, which owns the Joe Fresh label. This team sat at Loblaw headquarters some 35 kilometers away from the Joe Fresh offices, and, while they provided a good level of oversight and desktop reviews themselves, they did not at that time have anyone on the team with either a social auditing or apparel manufacturing background.
As auditing itself has grown into a significant industry, some countries (most notably China) have seen the growth of parallel efforts to circumvent and cheat the system. Factories and a host of in-country consultants have been very industrious at finding ways around labor monitoring. Double sets of payroll books, software systems designed to provide sophisticated false paper trails and former auditors hired to coach facilities on stop-gap methods all keep brands, retailers and their monitoring firms on their toes. It does not take much effort at all to carry out an Internet search on any number of Chinese online forums or websites to find these systems and services. It is a continual cat-and-mouse game that has led many both inside and outside of the industry to question the efficacy and logic of the entire audit process.
Over the past few years it has become an accepted axiom for many of us working on the social compliance side of the industry that auditing is not working — not on its own, at least. It is now widely stated that auditing is but one tool of many and should not be relied upon as a panacea for dealing with everything under the umbrella of “corporate social responsibility.” (I prefer the term “responsible supply chain practices,” which more narrowly defines the role I have tried to mold for myself.)
The trouble is that most brands and retailers do rely principally on factory social audits to deal with these issues because they have become the industry status quo response to the increasing demands of customers, markets and critics. They are also a relatively cheap way to be seen as doing something while avoiding the more significant costs of actually re-engineering the system-wide changes so sorely needed. Given that we have allowed global apparel and footwear industries, targeted to produce revenues in the $US 2 trillion range by 2018, to evolve into the current mass production modeled monstrosity that it is, turning back the clock now will be no easy thing.
But beginning on the labor engagement front, there are certainly existing benchmarks, models and strategies open to us. Front-runner organizations have been steadily implementing some of the more promising models. While these efforts have required a considerable amount of trial and error along the way, the most critical ingredient has been acceptance and support from companies’ very top leadership that sincere, pragmatic change was needed.
In the following chapters we will look more closely at the recent on-shoring trend of bringing production back to home markets as one way to ensure improved transparency into labor and human rights. But let’s first examine a more innovative and human relations-driven engagement approach to dealing with factory workplace issues that offers, in my opinion, the greatest opportunity to re-set the game — if we can reproduce its example successfully.
Based in Amherst, Massachusetts, labor rights consultant Verité is a highly respected nonprofit group working with brands, NGOs, retailers and researchers dedicated to legal, fair and safe working conditions globally. The firm got its start in 1995 as the brainchild of Heather White, a former sourcing agent with strong on-the-ground experience in China. Ms. White is one of a small group of ethical supply chain professionals whose passion and example have deeply influenced my own commitment toward driving change in the apparel industry due, in part, to some similarities in our experiences.
Aside from her practical sourcing background, which is not all that common to find in accountability and auditing professionals, she is also an accomplished academic. A recent fellow of the Edmond J. Safra Center for Ethics at Harvard University, Heather completed her Master’s in international political economy at MIT following her earlier undergraduate work in East Asian Studies at Harvard. At the time of this writing, she has been collaborating as producer and co-director on an upcoming documentary film addressing the human costs of offshore electronics manufacturing titled, “Who Pays the Price?”
What sets Verité apart from the work of commercially motivated monitoring firms is their worker-centered approach to driving responsible supply chain activities. Dan Viederman, CEO at the firm since Heather’s departure, was forthcoming when I asked about the roots of this approach:
“This emerges from our recognition that workers are a key stakeholder in workplaces and no honest assessment of workplace conditions can ignore their viewpoint, nor could any gaps or problems be solved without worker involvement.”
Their structure as a consulting firm versus that of a volume-driven audit provider means that they approach work on a customized basis in lieu of following a cookie-cutter, one-size-fits-all model. Ensuring sufficient management commitment exists from potential corporate clients and that multiple stakeholders have a voice within projects are key to their taking on engagements. The organization’s stated goal is to make sure that they can contribute in a meaningful way toward resolving the most pressing human rights and labor relations issues within supply chains and manufacturing environments. Thus, they look holistically at a range of tools to best address real root causes in greater depth than any quick in-and-out, man-day audit ever could. Audits alone, after all, are simply a snapshot in time, which (potentially) provide a glimpse into management practices on the day the audit was executed.
In Verité’s experience, training of production employees, factory management and clients’ supply chain teams, combined with policy and practice gap analysis, industry research and yes, audit assessments, all make for a more comprehensive approach. But even their audits are weighted differently than those used to determine potential risks from a brand/retailer point of view. True to their worker-centered model, assessments are heavily dependent on input directly from production-line employees. Significantly, more emphasis is placed on human interactions, employee contributions, observations and input than what the black-and-white of forensic-document audits or brief, in-factory interviews might.
As Dan puts it: “The credibility and depth of our assessments is our distinguishing feature, and drives much of the value we provide to our client companies. We gather information directly from workers as the most credible source of information about workplace conditions.”
Consultants work across a number of issues-related initiatives high on the team’s agenda, from forced labor and trafficking to civil society capacity-building to gender equity, all of which have contributed to the firm’s reputation as an innovator in their field. Verité has built exceptionally deep knowledge in the areas of forced labor and human trafficking. Within this core competency they have broken down their value approach to provide tools and services including open access e-learning modules, in-depth sector-specific research into labor and human rights risks, supply chain accountability guidelines and a unique focus on migrant recruitment practices.
I was curious to learn which geographies in the apparel world were prone to forced labor abuses (besides Jordan, which we looked at extensively in earlier chapters).
“We have conducted assessments and intervened on behalf of workers in apparel facilities in locations as diverse as Mauritius, Madagascar, Jordan, Taiwan, Malaysia and Saipan,” Dan says. “Anywhere there are foreign migrant workers has the risk of forced labor as a result of debt-bondage and unethical labor recruitment. We are working extensively in Southeast Asia, including Malaysia, Taiwan and Singapore.”
What the Verité model offers is a practical, value-added and financially sustainable benchmark, which civil society, social enterprise funds, organized labor and government might get behind in searching for equitable ways to address the current industry malaise. Approximately 95 percent of the group’s income is generated by fees for services, with the remainder coming from small grants and contributions. Investing in the setup and roll-out of various such firms on a geographical basis, perhaps by retailer home markets or trade blocks, would be a start.
Lessons learned from commercially driven audit firms should dictate the avoidance of multinational, monolithic organizations beholden only to shareholder returns. Profit-driven, business-first models have had their chance and have generally been shown to have failed in achieving meaningful, measurable and lasting change. It is time for them to step aside, with regulatory intervention if need be. At a very minimum, Western brands and retailers who claim to operate as good corporate citizens upholding ethical business practices in all their operations must be held to the same legal standards of performance regardless of where they source their goods. It is preposterous and frankly immoral for any corporation to claim to follow ethical, sustainable sourcing practices while knowingly procuring goods from facilities that systematically break the law to the detriment of their workers and surrounding communities.
I might extend the following sentiment beyond its American reference while sharing this quote from a recent U.S. president during his 2002 speech to business leaders in New York City. “America’s highest economic need is higher ethical standards — standards enforced by strict laws and upheld by responsible business leaders.”125 Amen, George W., Amen!