Have outsourcer monitoring programs run their course?

Workforce Management

By Michelle V. Rafter

Such initiatives may be a good way to identify abuses at overseas factories, but they do little to change long-term labor practices, one observer says

At a factory in El Salvador, young women working for 60 cents an hour, often into the night, sew shirts for the Gap and other U.S. apparel companies. They try to unionize, but the factory owner fires organizers and locks out other workers. Some allege beatings by the factory's security force. A U.S. human rights group learns of the trouble and begins a protest against Gap that's joined by labor, religious, student and community groups. It ends a year later after Gap holds meetings between the factory management and fired workers. As a good-faith gesture, Gap also hires an independent agency to monitor the factory.

That was in 1995, and by some accounts it was the first time an apparel maker had ever hired an outside agency to audit labor conditions at a contractor. It made Gap a pioneer and spawned the modern practice of outsourcer monitoring, now a common tenet of corporate social responsibility programs. It also marked a major turning point in corporate philosophy where businesses stopped saying ``It's not our problem'' and began accepting responsibility for working conditions at their suppliers, according to industry sources and monitoring consultants.

In the ensuing years, dozens of multinational corporations, including Gap, Nike, Adidas-Salomon, Levi Strauss and Wal-Mart, have begun monitoring programs to ensure that contractors adhere to their internal vendor codes of conduct, according to representatives of independent monitoring agencies, human rights groups, consulting firms and companies.

Those efforts have paid off: In the past decade, cases of child labor, beatings and other egregious labor abuses have abated in multinationals' offshore contract factories, those sources say.

But improvements have only come so far, leading both advocates and critics to claim that monitoring programs have run their course. They may have been useful, but now ``they're a dead end,'' says Charles Kernaghan, director of the National Labor Committee, the human rights group that protested against Gap in 1995.

Even at factories where companies have had monitoring programs in place for years, unsafe or unfair labor conditions persist. In August, the National Labor Committee publicized hidden camera footage of alleged unsafe working conditions and unpaid, forced overtime in Chinese factories making books for the Walt Disney Co. Disney said in a statement that it would hire Verite, a nonprofit auditing and training firm, to investigate.

In June, NBC's ``Dateline'' newsmagazine profiled working conditions at factories in Bangladesh that make clothes for Wal-Mart and Kmart. In the broadcast, reporters using hidden cameras showed, among other things, factory workers on the job 70 hours or more a week, in direct violation of Bangladeshi law. Wal-Mart spokeswoman Elizabeth Keck acknowledges that despite constant monitoring, incidents happen, and when they do, the company investigates immediately.

That assurance didn't stop the International Labor Rights Fund, based in Washington, D.C., from suing Wal-Mart in September for allegedly failing to monitor labor conditions in overseas factories, causing workers there to endure ``substandard sweatshop conditions'' and forcing U.S. grocery chain competitors to cut their own wages and benefits.

Setting unified Standards

Like Gap, companies such as Nike and Levi Strauss became leaders in the monitoring movement only after their corporate image and stock price plunged when labor activists and student groups protested working conditions at their overseas contractors.

But companies with monitoring programs are still in the minority. The nonpartisan Investor Responsibility Research Center reported in November that only 12 percent of S&P 500 companies had formal requirements that their suppliers address labor issues. And the center also found that only 4 percent had vendor codes that addressed all the issues the International Labor Organization considers fundamental rights, including freedom to organize and bans on child labor, forced labor and discrimination.

``A lot of suppliers and customers out there are not doing anything,'' says Lisa Kantor, director of advisory services for Business for Social Responsibility, a San Francisco consulting firm that helps companies establish monitoring programs.

It's not uncommon for factories with multiple customers to be audited once or twice a year by every client, with each requesting adherence to slightly different workplace safety and labor codes. Some factories in Cambodia are audited 30 to 60 times a year, a source there says. The repetition and conflicting codes have gotten so bad that monitoring industry experts have a name for it: audit fatigue.

For all these reasons, parties on both sides of the monitoring debate say it's time for a change. Initially, companies saw voluntary monitoring programs as a cure-all. Now they've learned it ``may be a good way to identify problems, but it's not the way to resolve what's happening,'' Kantor says.

According to company representatives and labor-rights groups, lasting change will happen only when overseas factory owners improve their management and labor practices, workers are free to unionize and governments in the countries where factories operate establish and enforce regulations over things such as wages and safe working conditions.

Around the world, a number of pilot projects and other initiatives aim to fulfill that goal. In Cambodia, for example, a five-year-old joint venture between the government, garment makers and unions that's partially funded by 10 Western apparel makers and retailers and overseen by the International Labor Organization has resulted in improvements in working conditions, according to Ros Harvey, the project's chief technical adviser.

In an initiative that started in Turkey last month, six U.S. and European-based workers' rights groups are teaming up with trade unions, local groups and eight Western apparel makers to monitor 10 garment factories there. The goal of the 30-month Joint Initiative on Corporate Accountability & Workers' Rights project is to create a single set of labor codes and a common factory monitoring system.

Government regulation could also help. In the U.S., Sen. Byron Dorgan, D-North Dakota, a longtime labor champion and fair trade advocate, is considering introducing a bill to address the problem. Barry Piatt, a Dorgan aide, declined to elaborate, but he theorized that the only leverage the U.S. government could have over foreign companies would be in regulating goods shipped into this country.

Part of the solution is having suppliers and clients set realistic production practices, says Eileen Kohl Kaufman, executive director of Social Accountability International, a labor standards group in New York. ``If a clothing brand goes to a manufacturer and says they want 10,000 blue shirts yesterday, but don't work excessive overtime, those are inconsistent messages,'' Kaufman says.

Meanwhile, monitoring continues. Many companies hire independent organizations such as SAI, Verite and the Fair Labor Association to conduct surprise audits and provide them with the results. A handful of companies, including Gap, Nike, Adidas and Wal-Mart, produce glossy annual corporate responsibility reports detailing the results of those audits and steps they've taken to eradicate workplace strife.

Many companies respond to major abuses by dropping problem factories. In 2004, for example, Wal-Mart permanently dropped 108 of its 5,300 offshore factories for using underage workers or for other major grievances, and suspended using 1,211 others for at least 90 days for lesser infractions.

In its 2004 corporate responsibility report, Nike published the names and addresses of about 700 overseas contractors, an action it hoped would lead more companies to follow suit. ``Full disclosure, if also followed by other companies, will lead to more sharing of industry monitoring and resources for factory monitoring and remediation,'' says Jill Zanger, Nike's corporate responsibility spokeswoman.

Commitment questioned

Critics of company-based monitoring say that in some cases it's merely window dressing. Kernaghan, director of the New York-based National Labor Committee, is especially critical of Wal-Mart, which his organization has investigated numerous times over the past decade. Kernaghan calls the Bentonville, Arkansas, company's monitoring program ``a paper sham.''

To support his contention, Kernaghan points to the ``Dateline'' report and a lawsuit filed in June by James Lynn, a former Wal-Mart employee responsible for monitoring programs in Central America. Lynn alleges that he was wrongfully fired after telling a Wal-Mart executive the company deserved a C-minus or D-plus for its factory inspections there. The suit is pending, according to Lynn's attorney Shane Youtz.

Wal-Mart spokeswoman Keck says Lynn wasn't fired over factory monitoring, but because he was caught having an affair with an employee who reported to him, which was against company policy. However, ``we're not denying there were issues,'' Keck says.

As for Wal-Mart's monitoring program, Keck says it has been beefed up considerably over the past few years-especially since 2003, when the giant retailer acquired a trading company that had been doing purchasing and its factory audits.

Whether or not they're effective in the long run, companies that have started factory monitoring programs have found them to be good for business. At companies like Gap and Nike, stock prices and corporate images bounced back after the companies showed they were serious about correcting sweatshop conditions.