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Labor and Corporate Responsibility

The Role of Monitoring Companies in Labor Rights Enforcement

Marsha Dickson

In the mid-1990s, when labor activists and the media exposed labor rights abuses in the apparel and footwear industries, many thought that consumers would play a critical role in curbing the abuses. Surveys indicated consumers were concerned about the issues and at least a small portion, around 15%, would prioritize fair working conditions in their purchase decisions—if only they had the necessary information. For years, the information has not been available, because companies have not been forced to provide it. This has now been changing.

Codes of Conduct

Over the last decade or so, retailers and manufacturers of consumer goods, responding to pressure from the public, the press and nongovernmental organizations (NGOs) have generally pursued a single approach for curbing the abuses. This approach involved developing a code of conduct for labor standards and working conditions in factories and then establishing procedures to monitor whether the factories are following that code. While many companies have developed and adopted their own code of conduct, it is unclear how many also monitor their factories to assure compliance with the code.

In addition to individual company efforts, many companies have joined one or more industry or other collective effort, where members adopt a unified code and monitoring procedures. Organizations with codes of conduct and monitoring procedures include the Worldwide Responsible Accredited Production (WRAP), Social Accountability International (SAI), and the Fair Labor Association (FLA). The systems offered by these organizations take two distinctive approaches: factory certification, and holding brands accountable.

Factory Certification Approach to Labor Rights

WRAP and SAI operate factory certification programs, in which factories are expected to take responsibility for assuring that their organizations comply with labor standards on pay and working conditions. The factory applies to have its facility certified and completes a self-assessment of factory working conditions, using tools provided by the organization. Next, outside monitors visit the facilities to assess whether the standards have been met. Factories achieving minimum standards are certified as being in compliance with the code of conduct, achieving a kind of seal of approval. With the enforcement of labor rights thus assured, companies then feel free to contract production with the certified factories. If criticized over labor issues, they will assure the public that these organizations have approved the labor conditions in their factories.

The systems developed by WRAP and SAI have received differing levels of support from labor activists and other stakeholders interested in fair working conditions. The WRAP system, founded in 2000 by the apparel industry, has not been well received for a variety of reasons. For one thing, many critics doubt that any industry can objectively police itself, observing that WRAP’s incentive may lean toward burnishing the industry’s image, more than toward ensuring fairness for workers. Indeed, the standards used in its code of conduct are weaker than those of competing initiatives and fall short of the International Labor Organization’s (ILO) conventions. WRAP’s benchmarks for deciding that a factory is acceptable for certification are unclear.

A further problem is that the relationship between the WRAP-approved factories and their monitoring agencies can amount to a conflict of interest. The WRAP program has accredited a large number of commercial audit firms as monitors. Factories wishing to receive WRAP certification are responsible for hiring monitoring groups to conduct the inspection of their own factories. Because all arrangements for monitoring are made by the factory officials, they know when the monitors will arrive. Unannounced monitoring visits are generally viewed as more rigorous because they provide no opportunity for the factory to “clean up” or hide problems.

Another downside to factories arranging their own monitoring is that after completing the factory inspection, monitors are paid directly by the factories themselves. Thus, the monitor (the “employee”) may feel pressured to satisfy its “employer” or “client” (the factory) with a favorable review. Perhaps worst of all, the board of directors, which is responsible for issuing certification, is dominated by industry representatives.

Despite all the criticism, WRAP may provide some advantages over other groups attempting to improve working conditions. For example, operating at the factory level allows the organization to reach small facilities that might otherwise be neglected by organizations focusing solely on the factories that serve large, well-known brands. This potential is furthered by WRAP’s connections to numerous industry organizations based in producing countries.

Social Accountability International (SAI) maintains a more highly regarded factory certification program, the SA8000, which was developed in 1997. Its standards correspond with those set by the ILO. The organization has been more selective about accrediting monitoring agencies than WRAP has been. The SA8000 involves – and was founded by -- stakeholders from a wide range of groups including labor unions, business groups and human rights NGOs. Proponents suggest that factories pursuing SAI certification benefit as the process modernizes their systems for assuring workers’ rights. Increases in the number of factories certified around the world attest to the growing popularity of SAI’s program.

Yet, as with the WRAP program, SA8000 factories wishing to be certified arrange for and pay for their own audit – again, a potential conflict of interest. The organization does not verify auditors’ inspections before issuing certification, so the final word on factory conditions depends on the monitors, for whom the factory is a client.

Overall, the factory certification approach to improving worker conditions has positive features as well as some drawbacks. A successful factory certification program has the potential to eliminate duplication of auditing efforts, which can happen when responsibility for monitoring falls to the brands, as many factories manufacture for more than one brand. Each brand producing in a factory may monitor the factory and if the brand belongs to another organization such as the Fair Labor Association, additional monitoring may be performed. Factory certification could reduce such unnecessary duplication.

A drawback of both WRAP and SAI’s certification programs is that they do not release the details of factory certification to the public. Lack of transparency leaves consumers and other concerned parties with nothing but the company’s word to assure them that working conditions are satisfactory.

Another criticism to the factory certification approach is that it leaves all responsibility for achieving compliance with the factory. Critics suggest that the retailer or manufacturer, holding the power that comes with being at the top of the supply chain, should be held responsible for assuring that workers creating its products are treated fairly. The brand accountability approach to improving working conditions rests on this premise.

Brand Accountability Approach to Labor Rights

In the brand accountability approach, rather than relying solely on the efforts of factories, apparel and footwear companies take responsibility for the working conditions in factories making their products. The thinking behind this approach is that companies with well-known brands will assure decent conditions in order to protect their public image. SAI and the Fair Labor Association (FLA) operate brand accountability programs.

The Corporate Involvement Program developed by SAI offers retailers and manufacturers wishing to assure labor compliance in their supply chains the opportunity to implement the organization’s standards over a period of time. SAI verifies the brand’s efforts, and then allows the companies to use the SAI certification to reassure consumers and other interested stakeholders. A handful of diverse companies have joined this program, including Toys-“R”-Us, German apparel retailer Otto Versand, the Dole Food Company, and cosmetics maker Avon. SAI has been planning to publish annual reports detailing the progress of these companies.

The FLA’s participating companies, including Nike, Adidas, Liz Claiborne, and agribusiness Syngenta Seeds, along with licensees producing goods for over 180 colleges and universities, subscribe to the organization’s code of conduct – which is based on ILO standards – and monitoring procedures. Participating companies develop internal programs to monitor factories for compliance with the FLA’s labor standards and to remedy the problems they find. The companies and licensees also authorize the FLA to hire monitors for their factories as a means of validating their own efforts. Unlike the WRAP and SA8000 programs discussed earlier, the FLA makes all arrangements for monitoring. Monitors make surprise visits to the factories and do not have potentially conflicting financial relationships with the businesses whose factories are being monitored.

After a period of two or three years, during which participating companies set up their own internal monitoring programs, those programs can become accredited by the FLA if they meet FLA criteria. The FLA conducts an in-depth inspection of the company’s program and the inspectors make a recommendation for or against accreditation to the FLA’s board of directors. The board is comprised of industry representatives, activists from a wide range of NGOs, and university licensing officials.

In 2004, Reebok’s footwear compliance program was the first to receive FLA accreditation (Reebok was subsequently bought by Adidas, which also now has accreditation with the FLA). While accreditation allows companies to use the FLA’s logo in advertising and promotional materials, so far none has chosen to use the mark. There are a number of possible reasons for this. Because all of these companies’ labor practices have been criticized in the past, they may be hesitant to draw attention to their work for fear of opening the door to further criticism. Also, an apparent lack of consumer interest in supporting businesses working to improve working conditions – as opposed to simply punishing those associated with bad conditions – provides companies with no incentives to market positive achievements.

The FLA has received criticism since its inception in 1999 and has responded by strengthening its programs. The board was enlarged to include two additional members from universities, hiring of monitors was shifted from the companies themselves to the FLA, and public reporting of findings was added to the organization’s charter. Critics still complain that the FLA externally monitors only a small percentage of each brand’s factories (5 percent) and that its board of directors does not include any labor union representatives.

In 2003 the FLA made headlines by publishing detailed reports of participating companies’ factory working conditions – satisfying a long-running demand of workers’ rights advocates. The factory monitoring charts detail the findings from each of the organization’s inspections. The public reporting was recognized as a groundbreaking step in opening factories for public review and in making the FLA’s work more transparent. When the first public report was issued, no other initiative addressing labor rights in apparel and footwear factories had made this sort of information available to the public with the voluntary cooperation of the businesses inspected. The organization does not, however, publish names and addresses of factories that it monitors.

Does Monitoring Curb Labor Rights Abuses?

Despite all the efforts made to monitor factories, the reports issued by the FLA make it clear that extensive labor rights abuses continue. This leads to many questions about the value of the approach.

  • Are the factories that FLA participating companies use unique in their many labor problems, or do these prevail across the industry?
  • What are the conditions like in factories that have been certified by WRAP or SAI and what violations were acceptable for certification?
  • What are working conditions like in factories assembling products for companies that do not provide this information to the public?
  • Is monitoring factories for labor compliance the most effective way to foster changes in working conditions?

In the late 1990s, when these systems were being developed, monitoring seemed to be the necessary first step, providing consumers with the information they needed to incorporate labor rights into their shopping decisions.

As demand increased, auditing firms previously providing environmental health and safety or accounting services offered to provide these more comprehensive factory reviews. As well, new organizations were formed all over the world to serve as factory auditors at production sites. As monitoring commenced, many began to recognize its limitations. Monitors tended to be comfortable inspecting factories for a checklist of items that are either in compliance or not. Yet, in many cases monitors were not well equipped for investigating culturally defined and sensitive issues that could not be easily observed. While it was easy to tell whether a factory provided adequate emergency exits and ventilation, strong interviewing skills were needed to ensure that workers were comfortable discussing harassment and abuse, freedom of association, and other problems. Additionally, special procedures were required to ensure that workers’ claims were valid. While organizations like the FLA have continuously worked to improve monitoring quality, problems persist.

Another concern about the current monitoring systems is that individual companies may have trouble tackling problems that are not unique to one factory, but systemic to the industry, or rooted in the politics, economics, and culture of a particular country. For example, freedom of association is often affected by how a country’s government views this right; in a country where the state plays a role in repressing independent trade unions, it is not so easy for a brand to enforce the right to organize. Likewise, excessive hours of work are connected with the industry’s purchasing practices and suppliers’ human resources capabilities – the brands as a whole are responsible for this, but it may be difficult for one brand to change its practices and still remain competitive.

While monitoring initially seemed to be the best approach, experience now tells us that its effects are limited.

Beyond Monitoring—Trends to Watch for Future Coverage

  • Many organizations and individual companies involved in the quest for fair working conditions are looking for ways to build the capacity needed at the factory level for developing systems that assure workers are treated fairly. For example, the International Labor Organization (ILO) has conducted a project training Cambodian garment suppliers about the relationship between worker productivity and labor rights.
  • Organizations are bringing corporate members together with government agencies and NGOs to tackle issues that are country or region-wide. For example, members of the Ethical Trading Initiative (ETI) are pursuing the issue of child labor in South India. Similarly, companies participating in the FLA are working together to curb anti-union activities in Central America.
  • Although much of the work on labor compliance has been handled in corporate departments focusing on that function, increasingly companies are realizing the role that their buying offices play in supporting, or undermining, the company’s labor compliance efforts. Watch for leading corporations to scrutinize how their core business operations can be changed to improve in working conditions.
  • Representatives of several companies, NGOs, and trade unions have discussed the impacts of the phase-out of the Multi-Fiber Arrangement (MFA) on workers in the hope that they might raise awareness of how this change in trade has affected the apparel and textiles industries of whole countries and what role retailers and manufacturers can play in sustainable development.
  • NGOs and labor representatives have called for companies to make information about the conditions in factories producing their goods available to the public. Critics want to know the names and addresses of factories. The FLA was the first to issue public reports about violations of its code of conduct, but has not provided information about the factories beyond their countries and sizes. The U.S. retailer Gap followed suit, issuing a social responsibility report in 2004 that detailed working conditions in factories where its brand name garments were made. In April 2005 Nike raised the bar by publishing the names and addresses of its factories on the corporate website (www.nike.com). Watch for more companies and organizations to “go public” with their labor compliance and how they are trying to improve conditions. How will identifying the specific factories a company uses change the situation for the workers?
  • As more companies and organizations release detailed information about working conditions, watch for increased interest in how to convey that information to consumers and programs aimed at helping them make labor rights part of their purchasing decisions.
  • As companies taking leadership in assuring fair working conditions begin to get recognition for their efforts, watch for labor rights activists to turn their attention to those companies that have watched from the sidelines. Large manufacturers and retailers that have so far avoided the scrutiny of activists will likely find questions being raised about their labor rights practices.

Tips for Coverage

  • Specific stories about labor rights abuses may make great headlines, and may indeed be under-reported in your region, but stories about what major companies are doing to improve working conditions would better reward companies taking a leadership role in assuring labor rights. Save the sensational stories of abuse for those companies that are not reporting information about their working conditions.
  • Assess the effects of leading companies‘ labor rights programs and consider what is feasible to accomplish in various time periods, say one year, five years, and beyond. While it would be nice to see major changes made quickly, the complexity of the situation often means that incremental change may be the best that can realistically be expected. Assess whether companies are continuously working to improve the situation for workers.
  • Whether your readers live primarily in the developed or developing world, they are consumers. Help consumers understand how they can play a part in improving the situation for workers around the world. Consumers now have access to information about at least some companies’ global manufacturing practices. By making thoughtful purchasing decisions, consumers can reward these leaders’ efforts and punish companies that are sitting on the sidelines.

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