Fall 2004
Virginia Tech
Research
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Rising Above
Sweatshops
Management professor investigates innovative approaches to
global labor challenges
Gap Inc. raised some eyebrows last May when it released for the first
time a social responsibility report critical of working conditions at many
of its clothing factories in developing countries. Detailing a range of
workplace violations related to minimum wage, safety, environmental, and
other standards, including underage labor, the report "marks a dramatic
change in strategy for a retailer that has long been on the defensive"
about conditions at its overseas facilities, noted a Wall Street
Journal news story.
Gap, which has developed over the past three years a factory rating
system and monitoring plan that focuses attention on the plants that most
need it, was lauded for its openness by labor-rights advocates who have
been among its harshest critics.
Labor-rights groups "have done a good job exposing the many
exploitative labor practices in multinational or contractor factories in
developing countries," says management Professor Richard Wokutch. What is
less well known, he says, are the exemplary approaches that some companies
have taken to address the concerns. Long before Gap publicized its problem
plants, he says, other companies, galvanized by public criticism, had
acknowledged the problems at their facilities and put in place corrective
measures.
| Volnei Cipriano, an adidas-Salomon representative, and Richard Wokutch (right) at an adidas-Salomon subcontractor shoe factory in Brazil discuss health and safety conditions and adidas’s factory inspection program. |
Wokutch, who specializes in business ethics and corporate social responsibility, is the R.B. Pamplin Professor of Management at Virginia Tech's Pamplin College of Business and head of the management department. He and other researchers discuss some of these model programs in a recent book he co-edited, Rising Above Sweatshops: Innovative Approaches to Global Labor Challenges (Praeger, 2003). "We provide details on their implementation so that others facing similar challenges can learn from the strengths and weaknesses of these programs."
Wokutch authored or co-authored four chapters that discuss Nike's
various initiatives in Asia; Dow Chemical's implementation in Thailand of
Responsible Care, an industry initiative for the proper handling of
chemicals during their lifecycle; adidas-Salomon's Standards of Engagement
governing working conditions in subcontractor plants; and the Brazilian
Pro-Child Institute, an industry group seeking to eliminate child labor in
shoe manufacturing (co-authored with Virginia Tech management Associate
Professor Larry French).
Wokutch's research included visits to company-owned manufacturing plants as well as subcontractor facilities and interviews with company and industry representatives, government officials, and labor advocates. "I also applied knowledge and drew upon contacts I had gained while leading study-abroad programs to Asia that examined the sweatshop labor controversy," he says. Over the years, he and his study-abroad students have visited a number of companies with operations in Southeast Asia, including Nike, Mattel, Disney, and Levi's.
The case studies, he says, are not intended to be overall evaluations of the labor practices of the companies, but rather "descriptions of particular labor-oriented programs that merit attention as potential models for other firms."
Nike
Nike,
Wokutch says, has developed a comprehensive system of monitoring and
remediation. Spurred by criticisms over working conditions in its
contractor factories in Indonesia that began in the late 1980s, the
company issued its Code of Conduct to its suppliers around the world,
binding them to core standards related to labor, wages, benefits, work
environment, safety, and health, and requiring them to submit to regular
inspections.
For instance, the section on compensation in Nike's Code of Conduct states: "The contractor provides each employee at least the minimum wage or the prevailing industry wage, whichever is higher; provides each employee a clear, written accounting for every pay period; and does not deduct from employee pay for disciplinary infractions."
Adopting codes of conduct is an important beginning;
monitoring and enforcement are necessary subsequent steps. Wokutch (who
co-authored the chapter on Nike with DePaul University business ethics
Professor Laura Hartman) says Nike's system features an audit program with
external as well as internal auditors, including labor-rights groups, and
a "labor practices" team that visits factories and conducts training and
awareness initiatives.
The audit quantitatively measures a contractor's compliance with Nike's code. Factories are evaluated based on four areas of risk assessment: country location, factory size, type of operation, and compliance record. All factories judged to be high risk are audited every year, compared to 50 percent of the medium-risk plants and 10 percent of the low-risk facilities.
"This new instrument is applied in-depth," Wokutch says. "Nike is focusing on global consistency, striving to find ways to link performance on this audit with decisions on suppliers and incentive schemes." He notes that one of the company's sternest critics, Medea Benjamin of the human rights and social justice group Global Exchange, observed several years ago that "things are changing for the better" and that the company has made "an astounding turnaround" in the way workers are treated.
Wokutch adds that in Vietnam, where Nike has been manufacturing through
factory partners since 1995 and is the largest employer, the company has
greater leverage toward compliance in the footwear industry than in
apparel or other industries, as it is the sole source of orders for most
footwear subcontractors.
Workplace measures aside, Nike has also expanded support for social programs that provide education for workers and small business loans for local women. The company, Wokutch says, believes that such initiatives serve not only as a gesture of its commitment to the work force, but also as a foundation for long-term relationships with the community.
adidas-Salomon
Covering the same issues as Nike's
Code of Conduct, adidas-Salomon's Standards of Engagement aim to ensure
that its supplier factories are safe and fair workplaces. The company
provides training on its standards to its suppliers, who are encouraged to
participate in audits and provide feedback. Like Nike, adidas-Salomon uses
external as well as internal auditors and is a member of the Fair Labor
Association, which contracts with independent auditors. Where suppliers
fall short of full compliance, adidas-Salomon's auditors will help them
develop a plan toward this goal.
The company, which published its inaugural social and
environmental report in 2001 (a first for the sporting goods industry),
has attracted favorable notice for its activities related to its Standards
of Engagement. Wokutch notes that the company was ranked first in its
industry on the Dow Jones Sustainability Index in 2001, up from fourth a
year earlier. "Much of this improvement is attributed to the compliance
work the company is doing with its international suppliers."
The Standards of Engagement are patterned after the UN's International
Labor Organization (ILO) conventions and the model code of conduct of the
World Federation of Sporting Goods Industries and sets standards related
to forced labor, child labor, discrimination, wages and benefits, hours of
work, freedom of association and collective bargaining, disciplinary
practices, health and safety, environmental requirements, and community
involvement.
Implementing the standards, however, has not been without challenges
for the company. In Thailand, Wokutch says, common violations in the
subcontractor plants were exploitation of migrant workers, payment of less
than the minimum wage, nonpayment of benefits, ignoring maximum working
hours, and discrimination against older workers. With a low rate of
unionization in the country generally, workers are less knowledgeable
about their rights and may be reluctant to air grievances to inspectors,
he says.
|
‘The adidas-Salomon folks believe that a safer workplace is a more productive workplace, and I agree.’ |
Thai labor advocates have argued that managers will make note of
workers who talk to inspectors or who even spend too much time looking at
posted standards. Still, an adidas-Salomon manager responsible for
standards compliance told Wokutch that he can often tell which workers are
willing to discuss their concerns because "they are the ones who will make
eye contact with him." The manager would then meet with these workers
privately, Wokutch says, sometimes off-site, before or after work.
A particular challenge for the company worldwide is determining when to sever ties with a supplier for noncompliance with its standards. In 2001, adidas-Salomon ended relationships with 32 non-complying suppliers worldwide. Termination isn't ideal, Wokutch says, as it eliminates any leverage that adidas-Salomon would have to bring about change in that factory. At the same time, the company also must avoid allowing such contractors to remain as suppliers "as this would undercut the credibility of its enforcement both with that supplier and with others."
The Pro-Child
Institute
The Pro-Child Institute was set up in 1995 by the
local shoe employers' association in Franca (a city in southern Brazil
that is a major shoe manufacturing and export center) to eliminate child
labor in the footwear industry and improve the welfare of children through
education programs.
In the book, Wokutch and French examine the reasons for and extent of
child labor (defined by the ILO as work done by children under the age of
15 - or 14 in developing countries). Wokutch and French discuss the
institute's primary program of inspection and labeling and assess the
program's overall impact. Members who pass inspection may use a PCI label
on their shoeboxes that declares that child labor was not used in the
production of the shoes.
The results have been mixed. By all accounts, both
researchers say, child labor "has been virtually eliminated" in PCI
principal manufacturing plants. But the institute's effectiveness with
respect to the manufacturers' suppliers, which employ the vast majority of
child laborers, is harder to determine due to the home-based nature of
many of these subcontracting operations. Many of these subcontractors - as
well as many of the smaller shoe manufacturers - have not joined
PCI.
Even if it is assumed that the program has also eradicated child labor
in subcontractors' workshops, the researchers say, "It is likely that an
underdetermined number of children have found other work. In some cases,
their new work may be even more dangerous than their shoe work, especially
when it involves evening jobs, working alone, or illegal activities, such
as prostitution, the drug trade, or theft.
"PCI's experiences, say Wokutch and French, suggest that industry collaboration can be effective in combating child labor in regular workplaces. But the difficulty of monitoring child labor in the informal economy and the displacement of child laborers to other sectors are reasons why it is also important to provide children with opportunities for apprenticeships, education, and recreation. "There are many underlying reasons for child labor and problems associated with the practice that will not be resolved simply by preventing children from working." Child labor, the researchers say, remains a serious issue in Franca.
Dow
Chemical
Responsible Care is an international, voluntary
program in the chemical industry for the safe handling of chemicals. It
serves as an industry forum where chemical companies can share best
practice information and also provides an institutional vehicle for other
forms of cooperation among member firms to address common environmental
challenges.
Responsible Care uses six codes of management practices related to
community awareness and emergency response; pollution prevention;
prevention of fires, explosions, and chemical releases; procedures for
safe transportation, storage, and other handling of chemicals; employee
health and safety; and product stewardship - integrating safety, health,
and environment considerations into the design, production, distribution,
and disposal of the product.
Wokutch says that Dow's Thai unit, reflecting its parent company's
approach, has a behavioral orientation to environmental, health, and
safety issues. "The fundamental thesis of this approach is that
engineering-oriented measures can only be just so effective in improving
workplace safety and health. Further improvements require eliminating
human error and ensuring that workers follow appropriate operating
procedures." Dow's biggest health, safety, and environmental challenges,
he says, are eliminating such errors, and it does so by rewarding desired
behavior rather than simply criticizing or punishing infractions. "The
behavioral approach is particularly well suited for tackling such problems
as leaks, breaks, and spills, and transportation safety issues.
| ‘Looking at the costs of an environmental catastrophe, one can see the financial advantage of avoiding accidents.’ |
"The program has won Dow's Thai operations recognition from its parent
company and the Thai government and ISO 14001 certification for
environmental management systems from the International Standards
Organization. "Responsible Care appears to be a novel and effective way
for chemical industry firms to address problems that they have in common
in a collaborative way."
Asked by Wokutch what her company does particularly well in
environmental, health, and safety issues, Dow's Asia-Pacific area director
Judy Castledine, who periodically inspects plants, listed four strengths.
Dow has integrated environmental, health, and safety concerns into every
employee's work processes, she said, and avoided a situation where such
issues end up being minded by only the safety specialists. Dow has also
been effective in reducing waste at the source and implementing hazard
management practices. Finally, Castledine noted, her company has been
effective in "globalizing" its environmental, health, and safety practices
- in ensuring that their operations, wherever located, meet or exceed
applicable local government standards or Dow corporate standards,
whichever are higher.
The program's success in Thailand, Wokutch says, also shows that multinational corporations and their industry associations can be important sources of expertise for developing countries in environmental, health, and safety issues. "In many cases, the multinational firms have valuable technical knowledge and equipment that may not be otherwise available to these countries." Dow's Thai unit, for example, helped local government authorities and other employers in one industrial site to develop an emergency response plan for the site in the wake of several environmental incidents, including an oil refinery fire, that underscored the weakness of existing government and industry emergency response plans and capabilities.
Bottom
line
While beneficial for workers and the community, how do
programs aimed at safeguarding worker rights, safety, and health affect a
company's profitability?
That's a difficult question, Wokutch says. "The relationship between
corporate social responsibility and business ethics on the one hand and
profitability on the other is, in fact, one of the key questions in the
'business ethics/social issues in management' field." The research
results, he says, are ambiguous, but many people would like to believe
that "good ethics are good business.
"The issue, he says, is not just a philosophical one. "There are
hundreds of billions of dollars invested in socially screened investment
funds based on the assumption that, in the long run, socially responsible
firms will be more profitable and thus better investments.
"It may not be "proof" in a definitive sense, he concedes, but there is
plenty of anecdotal evidence that the programs discussed in his book
contribute to the corporate bottom line. adidas-Salomon's Standards of
Engagement, for example, help ensure that subcontractors abide by safety,
health, and other standards. "The adidas-Salomon folks believe that a
safer workplace is a more productive workplace, and I agree. Accidents are
very costly in terms of physical damage to individuals and property,
medical expenses, retraining costs, workers compensation, bad publicity,
and so on."
| Studies since the installation have shown that this safety measure also enables sewers to work faster and more efficiently because they are no longer worried about needle wounds. |
Wokutch recalls that while visiting an adidas-Salomon supplier's plant in Thailand, he was told that needle guards had been installed on sewing machines to protect workers from injuries caused by broken needles. "Studies since the installation have shown that this safety measure also enables sewers to work faster and more efficiently because they are no longer worried about needle wounds.
"Dow Chemical's participation in Responsible Care in Thailand has
benefits both for the company and for the community, he says. "Looking at
the costs of an environmental catastrophe - think Union Carbide and Bhopal
or Exxon and the Exxon Valdez - one can see he financial advantage of
avoiding accidents.
"There is also the downside, Wokutch says, of being perceived as operating irresponsibly in developing countries, as the struggles of Nike and Gap over their reputations as employers of sweatshop labor have shown. "To the extent that companies can avoid that kind of negative publicity and possible boycotts associated with it, they are ahead of the game financially."
Brazil's Pro-Child Institute, he says, was clearly motivated
principally by the shoe manufacturers' desire to avoid a possible boycott
of their shoes by consumers concerned about the use of child labor. "The
fact that they were able to avoid this has to count as a success.
"Still, the financial benefits of these programs are difficult to
measure, Wokutch says. "We don't know with certainty what accidents,
boycotts, or other negative events would have occurred if these programs
had not been in place. We also don't know with certainty how much worker
morale is increased and turnover decreased as a result of programs that
treat people more humanely.
"I would like to think that individuals involved with these programs considered first what the right thing to do was, from a moral perspective, and then used a little bit of moral imagination to figure out how to make this also contribute to the bottom line. But, to the extent that a company can promote its interests as well as those of the community in which it operates, everyone benefits. I think the programs we document in the book do that."
- Sookhan Ho, Pamplin College of Business
Photos by Richard Wokutch except the one of Dr. Wokutch, which was taken by Larry French
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