Steven Colbert once set out the following rules for buying electronic gadgets:
- It must cost next to nothing.
- I must never learn why it costs next to nothing.
That gets us to a recent article with the very un-Wall Street Journal headline of “Measuring the Human Cost of an iPad Made in China” (Jun 3). The article focuses on Hon Hai Precision Industry, the Taiwanese electronics manufacturer better known by its trade name Foxconn. Foxconn makes gadgets and gizmos for a wide range of electronics brands and has gotten attention recently for a factory explosion that killed several workers. This after having several workers commit suicide in the past year or so. (See The Global Post‘s series on Silicon Sweatshops.)
The factory in question was a polishing shop working on iPads and the cause is believed to be related to dust build up. As the article notes, if this had happened in an Apple factory in the US, investigators and regulators would be thick on the ground. In China, however, the reaction has not been so extreme. Apple claims to be working with Foxconn to understand what happened and the Chinese government has made some noise about worker safety but no one is threatening to shut down the plant. With less rigorous regulation, Western firms are counting on voluntary codes to make supplier toe the line.
It’s a tricky dance between first-world brands and third-world production. Customers like Apple can’t afford the hit to their reputation that dust explosions and worker suicides tend to produce. Hon Hai can’t afford to alienate customers as big as Apple.
So the electronics companies have created their own oversight. Apple audits Hon Hai’s facilities and requires its suppliers to agree to a “Supplier Code of Conduct” that sets expectations for worker protections and factory conditions. It also produces an annual “Supplier Responsibility” report, detailing efforts to assure safety, fairness in hiring, and attention to pollution control, among other things.
Dell conducts on-site reviews and has a code of conduct for suppliers. “Earlier this year, our team reviewed Foxconn’s proposed procedures to improve working conditions and employee morale,” David Frink, a Dell spokesman says. Then Dell went back and walked the line at Hon Hai’s plant in Shenzhen to see if the initiatives were working. H-P and other companies use similar measures and codes of conduct.
Such codes of conduct are also seen in the apparel industry. Levi’s touts its role in improving standards for workers in the factories it uses and recently announced a ramping up of its “terms of engagement.” Here is how their press release put it (Levi Strauss & Co. Announces New Terms of Engagement for Its Global Supply Chain, May 11).
In a speech delivered today at the CERES annual conference, CEO and President John Anderson said: “We are proposing a new apparel industry standard of social, economic, and environmental sustainability that focuses on improving workers’ lives. If our ultimate goal is to improve not just factory conditions, but to make a material difference to the people and communities in our supply chain, then we need a more holistic approach and a more human perspective.” …
Anderson argued that companies need to do more to create progress and move the industry forward: “Compliance has us focused on two things: a legalistic standard of “do no harm” and factory-level monitoring and reporting,” said Anderson. “While we’ve made progress in a number of areas over twenty years, the hard truth is that we haven’t made enough progress on improving the everyday lives of the people who make our products.”
And here is the accompanying PR video.
So this all good, right? Well, there may be a hitch. Wal-Mart is fighting a shareholder proposal (put forth by New York City pension funds) that would require its vendors to publish annual reports detailing working conditions in their factories (Wal-Mart Is Being Pressed to Disclose How Global Suppliers Treat Workers, New York Times, May 31). To those pushing the proposal, the reporting requirement would signal that Wal-Mart treats working conditions on a par with costs.
Michael Garland, who oversees shareholder activism efforts as executive director for corporate governance at the city comptroller’s office, said the proposal was meant to improve workplace safety and worker rights at companies making goods for Wal-Mart, the world’s largest retailer.
“No matter how much Wal-Mart and other companies are doing, or claim they are doing, to monitor their suppliers, they just don’t have the capacity to do it in a comprehensive way,” Mr. Garland said. “They put tremendous pressure on their suppliers to cut money out of the system,” which can lead to long hours, low pay or other problems.
In Wal-Mart’s eyes the request is unreasonable.
Wal-Mart opposes the request, citing the difficulty of persuading suppliers to issue reports. The company contends that even if it could enforce such a plan, to do so might threaten the availability of certain products from those who did not comply. …
Wal-Mart wrote the S.E.C. saying it did not have contractual authority to require suppliers to publish the sustainability reports. In addition, using only those suppliers that issued these reports would require renegotiating thousands of agreements.
There is an interesting contrast here. Wal-Mart may, indeed, have a point. Some suppliers may choose not to conform with what the good folks from Bentonville want. How would Wal-Mart, for example, deal with Foxconn? Wal-Mart may get nothing directly from Foxconn but sell lots of branded goods made by them. If Wal-Mart were serious about this, it would not be enough to just take the word of Apple and HP. You would need to get a report from Foxconn. If Foxconn refuses, what can Wal-Mart do? Kiss off half of its electronic offerings? Would any of the tech firms (publicly) back them up? If Foxconn’s recalcitrance affects a wide range of brands, what does one gain by rocking the boat?
That said, Wal-Mart has been pushing a sustainability index (as the Times article notes and we have written about before). In that process, they have worked with many suppliers and even some competitors to try to set an industry standard. If Levi’s thinks they can broaden the scope of what apparel makers do, it’s hard to see why Wal-Mart doesn’t believe they can sway a broad range of suppliers.
As for Levi’s, their goals seem a little pie in the sky. Even if they move the industry forward, I would expect in 20 years they are going to face the same conundrum. Once they define a new level of performance that is enough, the industry will again settle for compliance.