Remember sweatshop exposés? They haven't hit the headlines much in the past few years. In part that's because high-profile companies such as Nike Inc. (NKE) and Gap Inc. (GPS) now work regularly with labor rights groups to monitor their vast global networks of supplier factories. Still, only about 100 U.S. and European multinationals participate in such efforts to find and remedy abuses. The vast majority of Western companies haven't followed suit even after a decade of activism on the issue. Perhaps the most troublesome absence has been that of the large retailers such as Wal-Mart Stores Inc (WMT). and Target Corp. (TGT) These giants increasingly control the pricing power in overseas manufacturing that in turn dictates how much money factories can spend on improving labor conditions.
MAKING ETHICS EASIER
Now global labor monitoring may get a big leg up. Nike, Patagonia, Gap, and five other companies have joined forces with six leading anti-sweatshop groups to devise a single set of labor standards with a common factory-inspection system. The goal: to replace today's overlapping hodgepodge of approaches with something that's easier and cheaper to use -- and that might gain traction with more companies. After two years of debate, the parties quietly signed an agreement in late April to run a pilot project in several dozen Turkish factories that produce garments and other products for the eight companies.
If it works, the 30-month experiment would create the first commonly accepted global labor standards -- and a way to live up to them. Essentially, it would provide a private-sector analog to the International Labor Organization principles that most countries have long endorsed but rarely enforce. The rights groups hope that the Wal-Marts of the world will ultimately sign on, finding it easier to join in than to explain why they can't embrace a norm that is accepted by other large companies. "One guiding goal of this project is to bring in those companies still standing on the sidelines [that] have said there's too much disagreement on the right system," says Alice Tepper Marlin, president of Social Accountability International (SAI), a New York-based anti-sweatshop group involved in the initiative.
More broadly, the Turkey experiment will shed light on a fundamental conflict between multinationals' desire for decent factories and their constant search for the cheapest suppliers. Typically, Western companies monitor supplier factories, then work with them to fix the problems they find. Usually, that costs money. But companies also switch suppliers frequently as they bid out production to the cheapest and most efficient plants. "We hope the initiative will test this relationship, since a factory that can lose the next order to the guy across the street will always feel pressure to cut corners on labor standards," says Scott Nova, executive director of Worker Rights Consortium (WRC), a group founded by U.S. students. The desired outcome, says Nova, is that common guidelines will keep companies from undercutting one another on labor standards.
Right now, three major groups oversee factory inspections: SAI, whose members include Toys 'R' Us (TOY) and Otto Versand, the German direct-mail giant; the Washington-based Fair Labor Assn. (FLA), which was set up by shoe and apparel makers such as Nike, Reebok International (RBK), and Liz Claiborne (LIZ); and Ethical Trading Initiative, a London-based group of European unions, nonprofits, and companies such as Marks & Spencer Group (MAKSY) and Sainsbury's Supermarkets. Each has different, often conflicting aims. All three groups have codes of conduct that spell out standards, such as no child labor or excessive overtime. They also oversee factory monitoring aimed at enforcing their codes and remedying violations in countries such as China and Vietnam. Yet there's little agreement on methodology. Many companies have responded to the confusion by fashioning some form of self-monitoring. Wal-Mart says it inspects thousands of supplier factories each year in dozens of countries. But since no outside body such as SAI or the FLA is involved and Wal-Mart won't release its audits or even its factories' names, the public is left to take the company's word for it.
Given how contentious the issues can be among the rights groups, much less the companies, it may well take the full 30 months to sort everything out in the Turkey project. The Joint Initiative on Corporate Accountability & Workers' Rights, as the effort is called, took two years just to reach the formal start point. Public disclosure has been one stumbling block. For years activists have demanded that Western brands and retailers disclose the names of the factories that supply them. Most have refused, saying their sourcing information is highly competitive. But the WRC, which is involved in the Joint Initiative, insisted the factories in the Turkish project be disclosed once they're chosen (a task due to be completed in June).
Then, after months of debate, the groups and companies agreed that brands that feel comfortable disclosing their factories could do so, while those that don't can use code names to report problems. Only if serious abuses surface can the WRC or another group publicize a factory's name. The disclosure wrangle eased considerably in April when Nike, after years of reluctance, released the names of all of its 750-plus factories around the globe. Says Frank Henke, head of social and environmental affairs at Adidas-Salomon (ADDDY), another member of the Joint Initiative: "Right from the beginning, we've been committed to disclosing our factories."
A larger question the groups are tackling is how factories should be inspected. The two primary models used now differ greatly. On paper, SAI has the strictest code. But participating companies can choose which of their factories will be inspected, thus easily sidestepping plants that are likely to show problems.
The FLA has a weaker code but stricter monitoring. Its staff selects which factories to inspect, with no input from member companies. The FLA also audits 5% of a company's entire factory list every year. So Nike, Reebok, and other FLA members can't say they're doing a good job based on just a few factories.
In the long run the most contentious issue is likely to be wages. Most company labor codes say suppliers must pay at least a country's minimum wage. But SAI requires brands to pay a so-called living wage, which is set with local rights groups based on area prices and living standards -- a controversial idea. "The living wage is probably the single biggest sticking point in the whole process, so it will be a great learning process to see how it would affect us," says Caitlin A. Morris, senior manager for global issues management at Nike.
There may be little media attention paid to Third World workers these days, but human rights groups still routinely find abuses of every description. If the Joint Initiative ever takes hold, a floor could finally build beneath working conditions around the globe.
By Aaron Bernstein in Washington