Perspectives in Responsible Sourcing

Podcast with Michael Kobori (Levi Strauss & Co.) and Carrie George (CSCC)

The responsible sourcing world has been abuzz this past year with talk of increased collaboration among brands and their supply chain partners, NGOs, and other industry associations in the monitoring and remediation of “sweatshops”.  In the era of new media, CSCC has turned to podcasting to explore the issue of brand collaboration with Michael Kobori, Vice President of Supply Chain Social and Environmental Sustainability at Levi Strauss & Co., and Carrie George, Client Service Manager at CSCC.  The podcast is a frank and open dialogue on the benefits and challenges of increased collaboration in fighting exploitative labor conditions.

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CSR and the ABA

The American Bar Association (ABA) held a meeting in New York from April 1-4, and CSR figured prominently on the agenda.  Even in sessions not specifically geared toward CSR, it was mentioned either as a trend to be seriously accounted for in the future or as an issue to be addressed in current decision-making.

The first session of relevance covered the Alien Tort Claims Act (ATCA).  What was interesting about this ATCA meeting that I haven’t heard at others was a discussion of where lawyers thought ATCA litigation was heading.  The consensus from lawyers on both sides of the issue: it isn’t going away.  Most notably, Owen Pell of White and Case law firm believes that even if the US Supreme Court cuts back on the scope of the ATCA, the nature of the filings will change, but the litigation will continue.  Also of significant note, the panelists pointed out that while the ATCA is a unique tool globally, the EU and individual European countries have developed or are developing alternate tools aimed at corporate accountability and corporate legal liability.  For instance, Mr. Pell pointed to the European Convention of Human Rights as a basis of CSR litigation in Europe.

The second session dealt with how well the Universal Declaration of Human Rights has been implemented in the 60 years since its creation.  One of the four panelists was from Realizing Rights, the business and human rights NGO created by former UN High Commissioner for Human Rights, Mary Robinson.  This panelist spoke specifically to the portion of the International Covenant on Social, Economic and Cultural Rights that covers work rights and the role of non-state actors, mainly corporations, in promoting these rights.  She referred to CSR as not only a significant movement but as a significant business, and asked for further efforts to implement a legally-binding framework. 

Although the first two sessions covered CSR, the third session was specifically targeted at CSR and was, not surprisingly, titled CSR and Human Rights.  The opening comments were in line with the tone of other sessions: globalization is increasingly creating an environment where human rights are taking a legal and reputational toll on corporations.  The first speaker asserted that expectations for companies have altered toward addressing systemic change as it becomes increasingly clear that full compliance is not possible.  As a result, companies are being asked to take on social obligations before they become legal.  The second speaker emphasized that it does no good to have a policy that cannot be enacted or enforced and pointed to the emerging issue of corporate complicity as a reason to demonstrate policy implementation.  The third speaker stressed the importance of recognizing that CSR means different things in different countries and contexts.  And the fourth speaker wondered how CSR can become more predictable.

Finally, the panel asked the question: at what point does corporate responsibility start and end?  What is clear from the ABA conference is that CSR no longer starts and ends with business.  The ABA had a whole day of sessions addressing the topic, and while CSR might not be legal in the sense of legislative standards (in the U.S. anyway), it is increasingly subject to a range of legal tools that should factor into company decision-making and policy considerations.

For questions on this blog or others by Lara Blecher, please contact Lara at lblecher@intlcompliance.com

CSR: The Need for Proactive Management of Legal Risk

Multinational corporations have reason to pay close attention to current trends in the field of corporate social responsibility, especially given recent developments in U.S. courtrooms.   In cases under both the Alien Tort Claims Act (ATCA) and general tort law, companies are being held accountable to human rights standards established in international law.  Beyond the potential of ultimate liability, litigation can have significant costs in terms of legal defense fees and associated opportunity costs, but is also costly in terms of the reputational damage caused to companies both by initial allegations of poor human rights practices and by lingering perceptions that companies are indifferent to such accusations. Given the wide range of social and political contexts that surround their operations, companies should not hide from or cover up the unfortunate fact that human rights abuses may occur.  Rather, companies should develop business policies meant to leverage both their abilities to prevent such abuses and their capacities to respond proactively and responsibly when they do occur. 

CSR in Practice – Developing Policies

When developing human rights policies and associated codes of conduct or operational guidelines, companies should seek to close the gap between stated goals and commitments and actual business operations.  These statements, in addition to providing a set of operating principles that can guide company operations, also provide platforms for dialogue with both employees and external stakeholders.  They also provide for a consistency in approach that facilitates both daily operations and crisis management.  Therefore, companies should take the time to develop policies that work for them and that address the actual issues that come up in their business operations.  Boilerplate language can get in the way of developing effective guidelines that manage actual risk.  Companies should see the development of effective policy guidelines as key components to risk management and therefore should approach the task with seriousness of purpose and time for reflection.  It is a reality that not all companies will wish to be industry-leaders in terms of commitments to best practices and relevant voluntary standards. Corporate counsel can provide advice on the nature, scope and implications of specific commitments, standards and guidelines so that company executives can make informed internal determinations before making public statements. 

CSR in Practice – Implementing Policies

As companies draft policies, it is important to be mindful of the challenges of implementation.  Commitments should not be made by corporate social responsibility officers alone.  Moments of crisis are not the time to determine that senior executives don’t know or understand what statements the company has made -- everyone needs to speak the same language.

Companies should also take the time to benchmark their current practices against the relevant standards and guidelines reflected in their policies.  Benchmarking will add significant substance to the future analysis of the auditing and monitoring efforts that are required to ensure that company commitments are being met.  With regard to monitoring and auditing, companies should have dedicated personnel who are tasked with verifying the proper implementation of company policies.  Companies are well-advised to work with external monitors as well.

When entering into contractual relationships, companies should consult with counsel in determining to what extent company policies should be explicitly incorporated into standard contractual language.  Assessments should be made as to what should be specifically required of contractors and suppliers at each level of operation. Entering into these relationships involves difficult tradeoffs between maintaining the independence of third parties and ensuring that adequate oversight exists to ensure that company standards are being met.

Finally, in building business policies that incorporate human rights, companies should increasingly approach human rights risk management as they would any other type of risk management.  Potential projects and business relationships should be assessed for the manner in which they will challenge and possibly violate company values and policies.  In some cases, particular investments may be deemed too risky.  In other cases, specific risks will be identified and thoughtful planning as to how to manage those risks should begin. 

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Sarah A. Altschuller is a an associate at Foley Hoag LLP's Corporate Social Responsibility practice.  She can be contacted at saltschuller@foleyhoag.com.

Forced Laborers - Their plight and what can be done to help them

Download Podcast Here 

Inspired by a Newsweek Magazine article on forced laborers in Malaysia, Rachelle Jackson, Director of Research and Development, and Paul Dinh, Research Associate, explore the conditions that many forced and migrant laborers face, and offer insight into the various initiatives happening globally to stop this exploitation.

Standardizing an audit day…It could be the start of a beautiful friendship between Collaboration and Continuous Improvement

While collaboration has been spoken of and hyped up for the past four years, the greater CSR community does a proportionately small amount of collaboration.  Collaboration is still a leading edge idea, rather than a normative practice.

While no single group (brands, factories, monitors, NGOs, initiatives, etc) is to blame, we all share some culpability in our delay to collaborate. Some of us are demanding high level improvement in terms of living wages and carbon foot printing, but have not laid the groundwork to ensure that factory start-ups in the Pearl River Delta, Los Angeles or Bangalore know the basics of calculating holiday overtime, legal requirements of basic sanitation or the benefits of recycling. Similarly, but on the other end of the supply chain, many brands and retailers want to get the same information from a one-day audit by two auditors with a really detailed checklist as they would from a week-long participatory training and remediation.

For the sake of simplicity, we will focus on collaboration of a basic assessment for now. Each brand, each report sharing initiative, each certification body, and each monitoring firm has their own unique approaches to the standard operating procedures, reporting and grading for a one-day audit. Having so many templates, procedures and grading approaches makes coordinating collaborative assessments  a drawn out process that includes a great deal of discussion, particularly if done on a large scale. 

If collaboration and report sharing are going to take hold industry wide, industry stakeholders are going to have to speak to one another and compromise. Who best to facilitate those conversations surrounding compromise? How about the monitors (non-profit and private) who have done hundreds of thousands of audits over the past 15 plus years? Monitors understand the complexity of the demands and scale of the industry.  Monitors understand the pros and cons of each template. Monitors understand the limitations of the audit day.  Monitors understand how to get the best data and what reduces audit quality. Monitors understand the technology used across multiple brands to load the various reports and data. Monitors deal with this every day. So, let’s start talking…anyone interested?

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Carrie George is a Client Service Representative at CSCC.  She studied Industrial Relations and International Development at Cornell and Brigham Young universities, and worked as a Research Analyst at Innovest Strategic Value Advisors before joining CSCC.  At CSCC, Carrie has been responsible for advising and helping clients build robust responsible sourcing programs, in addition to being a vocal proponent of greater stakeholder collaboration in monitoring and remediation.

Monitoring Misconceptions – The Role of Auditing in Supplier Code of Conduct Programs Part II

In my last blog submission, I shared my concerns about the misunderstanding, and misapplication, of Code of Conduct auditing. Part of this misunderstanding stems from the perception of a Code of Conduct assessment as a fix-everything panacea, versus a means of: a. Assessing the needs of the workforce; b. Assessing an employers’ impact on that workforce and the surrounding community, and c. Measuring continuous improvement and business impact. If it’s done correctly, there can also be room to lend guidance and begin to build capacity.

I promised to return with some suggestions for improving the system, so here are a few:

First, the design and communication related to responsible sourcing programs should reflect an intent that is less centered on passing audits, and more on the positive financial impact of continuously improving systems, and the business case for reducing workplace risk and improved relations with staff and business partners. The tone and message should reflect both the absolute necessity of supplier buy-in, and also the long-term collaborative nature of the brand/supplier relationship (And yes, if the brand is going to speak about building long-term relationships, their actions should obviously reflect that).

Secondly, brands should incorporate deeper assessments that identify gaps in systems, not simply the end results of those systems gaps. This becomes all the more possible (financially and administratively) as brands continue to collaborate and consolidate efforts related to their Code of Conduct programs. Redundant audits that simply identify findings will eventually be replaced by less frequent, deeper assessments that involve a greater percentage of the workforce, that communicate the impact of workplace risk and improved workplace systems, and that integrate the assessment deeply within the remediation process. These assessments will act as a jumping off point into a longer term, collaborative dialogue that recognizes the importance of the participation of the workforce in both the assessment process, as well as the ongoing remediation.

And yes, in many cases, that requires a tremendous shift in mindset. It also requires an improved understanding of Code of Conduct systems. That applies to:

• Factory management – They need to know how to develop and manage these systems, and what separates a corrective action (“Hang the extinguisher”) from a preventative action (“Why wasn’t it hung, and how do we keep it hung, and how do we ensure that everyone knows how to use it, etc?”)
• Agents/Vendors – They should be able to proactively identify effective or ineffective workplace systems during their subcontractor vetting process. They should also be in a position to drive improvement in those systems once issues have been identified during the audit process. If the value that an agent brings to a factory is the ability to take that business’ goods to market, that agent should recognize that effective workplace systems are part of meeting that market demand.
• Brands – Brands need to improve their understanding so that they are able to focus their efforts on managing an ongoing dialogue based around continuous improvement systems, and not passing audits. Brands can also provide support in the form of skills building and access to scalable systems that enable their partners to manage ongoing remediation and improvement of their own networks. And, of course, brands can make a massive impact through a critical self-assessment of their own purchasing practices.
• Service providers – In the spirit of humility, I will include myself and my colleagues in with this lot. We don’t know everything, and there are improvements that we can continue to make regarding building our own capacity in regards to systems assessment and remediation.

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Ryan Lynch is the US East Coast Regional Manager for CSCC. Ryan has worked with various Fortune 1000 retailers, licensors, and manufacturers to develop responsible sourcing programs in order to assess and improve labor conditions throughout the supply chain.

Can Collaborative Auditing Become a Reality?

The big talk in Ethical Sourcing circles right now is collaboration.  Here's how it works.  The customers (or brands) of a factory get together to conduct an audit.  By collaborating, the brands minimize excessive audits in the same facility and better harmonize potentially conflicting demands.  After all, a factory may be audited by half a dozen brands per annum and asked repeatedly by multiple sources to improve the same infraction.  What a waste of time and money for the factory managers who must participate in each audit and for the brands to repeat each others work.

In addition to efficiency, collaboration in theory brings economies of scale.  One customer conducting 5% of a factory's business has limited leverage.  Six brands conducting 95% of the supplier's business has way more arm twisting force. 

The collaboration movement in North America hovers around four initiatives: Fair Factory Clearing House, Fair Labour Association, NIKE & Levi's.  There's a whole bunch of brand to brand (bilateral) projects but not at the attempted scale of the aforementioned.   MEC is participating in the all of these and a handful of bilateral projects.

We've gotten some good traction on sharing and coordinating audits, which hopefully reduced wasted time on everyone's side.  However, the big gain, to collaborate on making the factory better has not been that successful.  Simply because US Anti Trust laws prevent us from working collectively on issues like motivating a factory to control excessive over time.

It's not uncommon for factory workers to be hunched over an assembly line for 60 - 70 hours a week.  During high season (e.g., making Christmas merchandise), individuals may work even longer, up to 100 hours per week.  To break this cycle, a factory and its customers need to plan orders concertedly.  Brands need to realize their individual orders are not sacrosanct, transcending those of their peers or what's deemed reasonable working hours for workers.  Factories need to set limits and plan more efficiently.  Even assuming these somewhat "altruistic" feats are acceptable to the profit conscience parties involved, American anti-trust laws halt all of this from the get-go.  Simply because sharing strategic information to collectively moderate the production of a factory (and hence reduce excessive overtime) can be construed as limiting a factory's access to its customers/markets.  This is a big no-no to the "trust-busters" at DOJ.   

Violating anti-trust laws in the US is the last headache we need.  We can audit together to discover the infractions but we can't collaborate to remedy them.  Or as my good colleague Troy from REI insightfully summed "we can't close the loop".

Closing the loop by reducing unhealthy long hours is really Mountain Equipment Co-op's goal.  Co-auditing is the first step.  Co-remediation is the final.  Unfortunately, US Anti Trust laws have stymied the latter, even for a Canadian retailer like MEC. 

Brands setting aside their competitiveness to work on factory audits are a smart move.  We're reducing waste and achieving economies of scale.  Whether this actually leads to more humane working hours remains to be seen.

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Harvey Chan is the Director of Ethical Sourcing for Mountain Equipment Co-op, a Canadian co-operative retailer of outdoor activity gear and apparel.  Harvey's bio can be found here.

CSCC's Inaugural Podcast

Podcasts are audio blog entries that you can download to your computer or portable media player.  Podcasting has become very popular among bloggers and news organizations and now CSCC is getting in the game, filling the void in the blogosphere for comprehensive audio commentary on responsible sourcing issues.

This first podcast features Rachelle Jackson, Director of Research and Development at CSCC, summarizing the highlights and biggest news items in the responsible sourcing world from 2007, and providing some insight into what to expect in 2008.  She discusses the GAP child labor scandal in India, the new labor law in China, as well as the high profile campaign against Uzbekistan cotton (she also briefly discusses a session on Uzbekistan cotton that is on the agenda of our upcoming conference: Download cscc_g3_conference_brochure_2608.pdf ).

We hope to one day be able to offer you a direct podcast download from iTunes, but in the meantime click the link below to download the podcast to your desktop and/or portable media player: Download cscc_podcast_1_2008feb07.wav.  We'd love to hear any feedback you may have about this podcast at comments@intlcompliance.com.

Misconceptions on the Role of Supply Chain Monitoring - Part 1

A misconception has surfaced recently among some managers newer to Code of Conduct programs. The collective sentiment can be summed up as such:

“I hear that suppliers are suffering from audit fatigue, and that supplier audits don’t work, so I’m not going to audit.”

There is truth behind the issue of audit fatigue, but the interpretation above tosses the baby out with the bathwater.

First, despite multiple audits, some factories STILL continue to perform poorly. The knee-jerk proposition of simply reducing audit volume would result in these poorly performing factories being audited once per year, as opposed to multiple times per year. Neither scenario alone seems to solve anything. Sharing audits, in and of itself, doesn’t rectify workplace issues - collaboration and capacity building at multiple levels (not just the factory) is absolutely essential. This isn’t an endorsement for unnecessary redundancy, or for programs that set a factory audit as the end goal. I’ll offer suggestions in my next blog on effective program structure (I have to give you something to look forward to, don’t I?).

Regarding impact, the current system, as imperfect as it may be, has made changes. In reality, many of the more severe issues – child labor in formal factory settings, for example – have decreased with this increased scrutiny and awareness since monitoring programs have been established en masse. Yes, suppliers have learned to hide issues better, but the issues that are generally obscured by falsified records consist of hours/wages issues. The overall decrease in many of the critical issues is less attributable to a lack of transparency, and more to do with the attention placed by brands on Code of Conduct issues. (And yes, forced labor issues, in more cases than not, are not overt – the person chained to the sewing machine – but are more subtle forms of workplace coercion or intimidation. In order to uncover that, we need to incorporate deeper assessment approaches into Code of Conduct programs, but again, I’ll wait until my next blog before sharing too much …)

Finally, it is impossible to determine the effectiveness of any system if it does not include some form of measurement. Assessments should be utilized as a form of measurement, within a larger system of governance, skills building, integration within the businesses, and continuous improvement. The audit alone should not be expected to stand in for all of these functions. At the same time, it is very dangerous to develop a system without it.

Again, my critique isn’t an endorsement of the status quo. We can clearly do better in identifying issues and driving improvements. In my next blog entry, I’ll offer a few suggestions on what those improvements might look like.

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Ryan Lynch is the US East Coast Regional Manager for CSCC. Ryan has worked with various Fortune 1000 retailers, licensors, and manufacturers to develop responsible sourcing programs in order to assess and improve labor conditions throughout the supply chain.

WORLD CUSTOMS ORGANIZATION: SAFE FRAMEWORK OF STANDARDS CONFERENCE

BRUSSELS, BELGIUM. December 11-12, 2007.
Last month, the World Customs Organization (WCO) in conjunction with the Trusted Trade Alliance (TTA), organized a two day conference at the WCO headquarters in Brussels on the progress of the SAFE Framework of Standards. The WCO is an intergovernmental organization dedicated to customs issues, and is made up of 171 countries dedicated to the goal of developing “global standards, [and] the simplification and harmonisation of Customs procedures”.  Recently, however, as a result of the terrorist attacks on September 11, 2001, and the subsequent focus on risk from terrorism within the supply chain, there has been a general trend within the customs authorities around the world to focus on creating business/customs partnerships aimed at increasing the security of international trade. Much of this interest is due to the creation by the US government of the Customs Trade Partnership Against Terrorism (C-TPAT), the longest running and indisputably most successful supply chain security program in existence. In response, the WCO has attempted to create a multilateral initiative to create supply chain security standards that all countries can adopt, with the ultimate goal of allowing for mutual recognition by customs authorities of each other’s supply chain security programs. The SAFE standards were created two years ago, and were approved by nearly all the member countries. (for more information on the actual standards, visit the WCO website www.wco.org)

The recent WCO SAFE conference was organized in order to “review progress on the implementation of the SAFE Framework two years after its adoption with particular reference to the implementation of the AEO and mutual recognition concepts and their impact on business”.  The event was also intended to provide participants an opportunity to learn from the five years of experience of the C-TPAT program and hear comments on the roll out of the EU Authorized Economic Operator program, and to follow developments on mutual recognition of these programs. Speakers mostly came from customs authorities from around the world, including the US, China, Singapore, the EU, Sweden, Japan, New Zealand and Australia; from firms such as DHL, General Motors, Microsoft, and Nike; and from service providers such as Marsh Insurance, customs law firms, and Cal Safety Compliance Corporation.

The panel that I was able to speak on was titled “Third Party Validators: Partners in Protection or a Necessary Evil”. This panel was set up in a debate format, with Paul Ranta from Nike speaking against the idea of Third Party Validation, and Gary S. Lynch from Marsh USA and me speaking for the idea. The debate focused on the controversial pilot project mandated by the US Congress that US Customs and Border Protection (CBP) select a number of monitors to carry out third party inspections in facilities in China, in an effort to “validate” the security standards of C-TPAT members that source mostly or entirely there. Till recently, Chinese authorities have not permitted US Customs agents to conduct Validations in their territory, and as a result, roughly 300 C-TPAT members had not undergone Validation. As part of this pilot project, CBP contacted the 300 members that fell into this category, and alerted them to the possibility in undergoing Validation by third party monitoring firms. Concurrently, CBP communicated application standards for monitoring companies who wished to become official Validators. Initially it was communicated that there would be 3 or 4 monitors selected to be Validators, however, a total of 11 were finally chosen, among them CSCC. While the program has attracted much attention in the importing community, the program has been anything but a success. Out of the 300 companies, fewer than 15 have chosen to undergo Validation to date, due in large part to the fact that they would assume the cost of the monitoring, which is provided for free to other C-TPAT member that undergo Validation in any other country. Recently, CBP announced that talks had been held with Chinese customs authorities that would eventually allow CBP to conduct Validation visits in China, thus placing a large question mark as to the future progress of this project over the remaining months of its term. 

Mr. Ranta spoke about the role of the government and the importers in supply chain security initiatives, and the fact that liability for any terrorist activity would belong to the two, while the monitors would not share in this liability. He highlighted the cooperative nature of the C-TPAT program, and the fact that a third party monitor does not have a stake in the process, and does not understand the complexities of the importers supply chain as well as CBP does. While Mr. Lynch did not speak as a monitor, or in defense of third party monitoring per se, he did represent the role third party service providers in dealing with terrorist risk to the supply chain. As the only representative of a third party Validator present, I provided information on the process of becoming an official monitor, where the program stands now, and offered some considerations for future Validation programs using third party monitors.

While the C-TPAT third party monitoring program has not been particularly successful, there remains a strong argument for using accredited monitors for conducting Validation for other countries’ supply chain security programs, particularly where those country’s customs authorities are not able to send agents to inspect manufacturing and logistics service provider facilities in their own country, let alone in third countries. For those countries without the capacity to conduct their own Validations, there is a concern that this could lead to a country certifying their exporters in a supply chain security initiative without having validated that they in fact are meeting minimum security standards. This would end up creating a “trusted partner” status devoid of any effectiveness, which would create risk throughout the international supply chain. By using monitors with accreditation from an internationally recognized standard setting body, a wider range of countries may establish truly enforceable programs that can meet the standards of their trading partners. Without third party monitors, it is easy to envisage a future with a multitude of bilateral mutual recognition treaties. Ultimately, this scenario is not attractive to anyone.

Within the coming months the progress towards mutual recognition between the US C-TPAT and EU Authorized Economic Operator programs will no doubt remain a topic of much attention within customs compliance circles. It remains to be seen how the EU will deal with the issue of validation of its member security programs, however one thing is certain, the use of third party monitors will be revisited again.