http://www.businessweek.com/news/2013-01-09/wal-mart-pressured-to-name-suppliers-after-deadly-factory-blaze

Bloomberg News

Wal-Mart Pressured to Name Suppliers After Factory Blaze

January 09, 2013

Wal-Mart Stores Inc. (WMT:US) is under increasing pressure from investors and labor-rights groups to name its garment suppliers after a fire in Bangladesh killed more than 100 people at a factory that made its clothes.

Proponents say public disclosure of supply chains -- a move made by Nike Inc. (NKE:US) and other retailers in recent years -- encourages accountability that leads to factory improvements in countries where unsafe conditions are widespread.

After the blaze at the Tazreen Design Ltd factory on Nov. 24, labor rights organizations have called on Wal-Mart and other companies to take more direct responsibility for the suppliers and factories that make their garments. Wal-Mart maintains low costs in part by “turning a blind eye” to the conditions and safety of workers around the globe, according to John C. Liu, the New York City Comptroller.

“Wal-Mart’s refusal to shed light on its suppliers and hold them accountable for their human and workers’ rights practices reflects a cavalier attitude toward compliance at the highest levels of the corporation,” Liu said in an e-mailed statement.

Liu is a trustee and investment adviser to the New York City Public Pension Funds, which holds about 4.9 million Wal- Mart shares, an investment of about $337 million.

“As a corporate policy, we don’t discuss our supplier relationships,” Kevin Gardner, a spokesman for Bentonville, Arkansas-based Wal-Mart, said in an e-mail.

Wal-Mart, the world’s largest retailer, has more than 100,000 suppliers, according to its website.

Competitive Strategy

Shares of Wal-Mart have declined 1.9 percent from Nov. 26 through yesterday compared with a 3.6 percent gain for the Standard & Poor’s 500 Index. Wal-Mart fell (WMT:US) 0.3 percent to $68.41 at 10:10 a.m. today in New York.

In November, the company fired a supplier it said had illegally subcontracted manufacturing to the Tazreen factory, which was found to be making the retailer’s private-label clothing brand. Gardner said last month the company had de- authorized manufacturing at the factory before the fire. He declined to say exactly when.

Greg Johnsen, co-founder of GT Nexus, an Oakland, California-based supply chain management company whose clients include Sears Holdings Corp. (SHLD:US), said Wal-Mart and other companies are unlikely to embrace better transparency.

“It’s a major shift away from what many retailers consider to be strategic trade secrets,” Johnsen said in a telephone interview. “Who they source from is part of their competitive strategy.”

Shareholder Value

Disclosure is “not a move to be taken lightly,” Johnsen said. “Companies want to keep an edge. They’re concerned for their shareholder value.”

In 2011, Liu, the New York City Comptroller, pushed for changes at Wal-Mart with a shareholder proposal asking that the retailer’s suppliers publish annual reports on worker safety and fair labor compliance.

According to the failed proposal, the company “does not publicly disclose the thousands of suppliers it has abroad, making it difficult for human rights organizations and labor groups to identify and engage in private monitoring of working conditions at factories where Wal-Mart’s products are manufactured.”

Shareholder pressure on Wal-Mart is unlikely to generate changes at the retailer. The Walton family owns (WMT:US) more than 48 percent of the stock, effectively controlling the voting power of the stockholder base.

Labor Violations

Elizabeth McGeveran, the Boston-based director of governance and sustainable investment for F&C Investments, which manages 2.4 million shares of Wal-Mart, said releasing names of suppliers and factories is a “best practice” that would enable independent sources to monitor working conditions.

“It would help,” McGeveran, of the London-based investment management company, said in a telephone interview. “Across the retail garment industry, they should be moving toward this.”

McGeveran pointed to Beaverton, Oregon-based Nike, the world’s largest sporting-goods maker, which began releasing information about its factory locations in the mid-2000s following years of criticism over labor violations.

“It encourages scrutiny and assurance,” she said. “It comes under different scrutiny from management and the board.”

Scott Nova, executive director of the Washington-based Worker Rights Consortium, said knowing supplier and factory names and locations is central to his group’s work.

Political Pressure

“It allows us to check these places out to make sure they’re in compliance,” Nova said in a telephone interview, describing the work of his labor-rights monitoring group and other similar organizations. “It is the foundation of monitoring work we do.”

Nova’s group has been involved in international discussions with retailers, unions and trade organizations about a contractually enforceable memorandum that would require companies to provide “accurate and regularly updated lists of their approved suppliers (including subcontractors) in Bangladesh” in order to facilitate inspections.

The agreement, which has been signed by PVH Corp. (PVH:US), owner of the Tommy Hilfiger brand, also would require companies to pay Bangladesh factories prices high enough to cover costs of safety improvements. It will not take effect until four major retailers sign on.

Politicians also are calling for greater supply chain transparency following revelations that Tazreen had manufactured licensed apparel bearing U.S. Marine Corps logos. Six U.S. Senators and one Congressman in December signed a letter to President Obama calling for “greater transparency and accountability in the supply chains of all U.S. Government contractors and licenses.”

“The Marine Corps should lead by example and make certain that their supply contracts and licensing agreements do not have provisions that may make it easy for manufacturers to hide the source of their product,” Democratic Senator Tom Harkin of Iowa and the six others wrote in the letter.

To contact the reporter on this story: Renee Dudley in New York at rdudley6@bloomberg.net

To contact the editor responsible for this story: Robin Ajello at rajello@bloomberg.net


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