Perspectives in Responsible Sourcing

Should We Bother With Living Wages?

What is a living wage?  Both companies and activists would love to know.  Living wages remain a highly contentious issue, but as labor rights gain increasing importance in the public eye, there is growing interest on the part of NGOs and companies alike to hammer out a way to determine them.  A number of methodologies exist – Novartis has been working on this area for years, Ruth Rosenbaum of CREA has a credible system, SA 8000 has provided members with equations they can use for this purpose – but no methodology has been accepted as definitive. 

The reasons for this lack of consensus might be as much political as they are technical, yet it is hard to overlook or dismiss the technical complications, even with the politics involved.  For example, say you are able to come up with a reasonable sounding wage for a country.  Is it sufficiently accurate for the whole country, or is it regional?  If the latter, how big is the region to which it might apply?  And how long is it good for, particularly if the country you’re interested in is subject to hyper-inflation or unusual economic trends?  These are no small questions, and attempting to address them implies lengthy, costly and perpetual analysis.  So is it really worth going this route when we have a far better method of determining wages in the form of collective bargaining agreements (CBAs)?

Critics will argue that setting wages by CBAs will not render a living wage, but something higher.  This outcome is possible, but given that there is no accepted definition of a living wage, it is hard to verify.  For instance, most businesses will argue that a living wage constitutes the most basic goods and services workers will need, plus some discretionary income; whereas, worker advocates will usually argue that things such as entertainment, adequate leisure time, and the like, should be accounted for.  Both of these concepts capture a credible idea of what a living wage is, but neither prevails in terms of acceptance, and the wage amounts resulting from calculations using each concept are likely to be radically different.

There are two main benefits to dealing with wages in CBAs: (1) they are by nature multi-stakeholder tools; and (2) they establish a sustainable mechanism for wage determination.  With regard to the first point, employers have no real grounds to complain that wages would be set too high under these agreements as they or their representatives would participate in negotiating the wages.  It is true that employees would have greater power in the negotiations than they currently do, but they should.  In fact, depending on the structure of collective bargaining, employers might find empowered workers more a positive than a negative.  On the second point, a CBA provides a mechanism through which the people most affected can determine when their wages need to be reviewed, and there is no question of a wage being relevant only to a particular region or type of industry.  These factors are automatically accounted for in the collective bargaining process.  There is potentially a further benefit to promoting CBAs as CSR tools: they often make specific provisions for most issues covered in codes of conduct, including hours of work, disciplinary procedures, health and safety standards, and so on.  In other words, the benefits might extend beyond the setting of fair wages.

If CBAs are such a catch-all tool, then should we bother with living wage calculations?  Well, yes.  I can think of three reasons why at present.  First, some countries (most notably China) do not legally acknowledge freedom of association and collective bargaining as established by international standards such as the ILO Conventions Nos. 87 and 98.  This process in China must take place through government controlled unions, but some other countries don’t allow this process at all.  These conditions don’t automatically mean that collective bargaining is impossible, but workers risk a lot more in asserting these rights where they are not legally recognized.  Second, the collective bargaining process can take a long time and is often politically contentious.  Third, in some settings, unions are corrupt or are coerced into agreements that do not actually benefit workers.  Therefore, while a good collective bargaining process to determine living wages is preferable to a method of calculation, in the absence of political will for or feasibility of the former option, it would be nice to have a back-up option.

Closing Saipan

Michigan Inc. will close its Saipan garment factory on March 30, the 13th garment factory in Saipan to shut down since the end of quota in Jan. 2005. This might not sound like a big deal, until you consider that there were only 27 total garment factories on the island to begin with.

Saipan, part of the Commonwealth of the Northern Mariana Islands, and a U.S. territory, has been a controversial hub of garment production since the mid 1990s, when a series of exposés, followed by a series of lawsuits, brought attention to the working conditions of Chinese imported workers manufacturing apparel goods for major US retailers. The legal action resulted in a settlement agreement that provided for monitoring the compliance of garment factories to US labor law and Saipan laws governing non-resident workers. However, the reform efforts were no match for ensuing competition once the protections accorded by the Multi-Fiber Agreement had faded away.

Now, the Saipan garment industry is struggling to remain internationally competitive against low-wage countries like China. According to a recent GAO report on Saipan, "indicators point to a severe financial crisis in fiscal year 2006." Overwhelmingly reliant on just two industries, garment manufacturing and tourism, Saipan has been hit hard in both sectors. The value of garment shipments to the United States dropped by more than 16 percent between 2004 and 2005 and by an estimated 25 percent in 2006.

Some of the island’s largest factories have been among the casualties, including Concorde Garment Manufacturing Corp. When Concorde closed in December 2006, it reimbursed workers for recruitment fees they paid in China, as well as their tax rebates, cutting checks to some 800 workers for a total payout of $910,068. Concorde also committed to paying workers through February 2007. Workers who cannot find new employment are being repatriated to China. From 17,000 workers, the Saipan garment industry now has only 8,000 resident and nonresident workers mostly from China.

Adding to this crisis situation, US Democrats in Congress are including Saipan in the federal minimum wage bill that would raise the wage to $7.25. Saipan, currently with a legal wage of $3.05, has previously been exempt from the wage applied to the U.S., as are other island territories such as American Samoa, Guam, and Puerto Rico, who has an "FLSA-exempt" class of workers. Why focus in on Saipan for the wage increase? According to a Washington Post article, Democrats say they hope to end abusive sweatshops in the garment industry.

WHAT garment industry? one might ask at this point. While a handful of US retailers continue to source in Saipan, it doesn’t take a genius to figure out that the garment industry there is on its last legs. As for the abusive sweatshops, I do have a thing or two to say on that front, too.

During the 1990s, I visited many of the now defunct garment factories in Saipan. While conducting social assessments of the working conditions, my colleagues and I would stop by the factories around 10pm, when most workers were walking home to their dormitories. We would walk with them and ask about their lives on the island and in the factories. Sometimes we would sit in their dorms and talk and other times we would walk to the grocery store with them and chat along the way. The facilities I visited did have problems – sometimes there was off clock-work or safety violations - I even recall visiting the island during a mass food poisoning event in a large factory. Yet I can still recall observing with interest that the primary concern of every worker we spoke to was simply to be paid in full and on-time. They were there because in Saipan they could earn in 1 hour what it took 1-2 days to earn in China. And compared to Chinese factories, these operations were newer, cleaner, nicer. Some even had air conditioning.

Where were the "sweatshops"? By that time, the worst offending factories – the sources of the sensational stories about forced abortions and such – had been closed or weren’t being used by my clients. Compared to the non-existent protection and enforcement regime in China, these workers were now in an environment subject to constant scrutiny by federal labor inspectors, local labor inspectors, industry monitors from the Saipan Garment Manufacturers Association, internal monitors from US retailers, and independent monitors as well. While things weren’t perfect, they were getting better. And that was 7-8 years ago!

Is Global Fashion in Honduras still accused of child labor because of the Kathie Lee scandal in 1996? Is Mandarin Garment in El Salvador still accused of illegal firings because of the Gap scandal in the mid 1990s? What is the statute of limitations on historical labor scandals? At this point, so many years after the initial scandals, I think certain lawmakers would be well advised to re-visit the current conditions of the garment industry in Saipan, or what is left of it, as it struggles to compete with the lower wage countries around it.

Rating the Ratings

My friends often ask me, what is a ‘good’ company to buy from or what is a ‘good’ company to work for? Depending on how they define ‘good’, I usually start with supply chain issues. However, it’s not just consumers and job seekers asking this question. Increasingly, investors, NGOs, community groups, and possibly even governments looking to attract FDI are asking this question. Where do they go for the answer? One place they look is to sustainability ratings.

This explains why we are beginning to see a proliferation of these type of ratings. Yesterday, the Corporate Responsibility Officer’s (CRO) magazine (previously, Business Ethics) released its 8th annual Best 100 Corporate Citizens list. A few weeks ago, Innovest published their list of the Global 100 Most Sustainable Corporations. Not to mention AccountAbility’s second annual ranking of Global 500 companies on how well they conform to socially responsible business practices. I’ve heard some in the industry criticize these ratings as being at best useless and at worst a marketing ploy by the research groups that put the information out there. Furthermore, activists, environmental groups and some conscious consumers may question how, for example, any oil companies would be able to make the lists. In any case, a brief comparison of the methodologies for three sustainability ratings is provided below:

CRO/KLD Research & Analytics – Best 100 Corporate Citizens
Top 5 companies:
1 Green Mountain Coffee Roasters Inc.
2 Advanced Micro Devices Inc. (AMD)
3 NIKE, Inc.
4 Motorola, Inc.
5 Intel Corp.
Universe: The list is drawn from approximately 1,100 publicly held U.S. companies in the Russell 1000, S&P 500 and Domini 400 indices.
Methodology: The research, conducted by KLD Research Analytics, looks at seven factors: community, corporate governance, diversity, employee relations, environment, human rights, product and total return on investment (averaged over three years).
www.thecro.com/?q=be_100best

FORTUNE/AccountAbility – The AccountAbility Rating
Top 5 companies:
1 Vodafone (Computers and electronics)
2 BP (Petroleum refining)
3 Royal Dutch Shell (Petroleum refining)
4 Électricité de France (Energy and utilities)
5 Suez (Energy and utilities)
Universe: Top 50 companies on the Fortune Global 500 and 14 other large companies in five industry sectors
Methodology: The rating measures the extent to which companies have built responsible practices into the way they do business and looks at how well they account for the impact of their actions on their stakeholders. Criteria include governance, strategy, performance management, stakeholder engagement, transparency and assurance (independent verification).
www.accountabilityrating.com

Corporate Knights/Innovest – Global 100 Most Sustainable Corporations
This list is not ranked but includes some of the top five companies in the other rankings, namely: AMD, Shell, HP, Intel, and Nike. Other companies in the list include Unilever, BT, Adidas, Coca Cola, and Google.
Universe: Publicly-traded, MSCI World-listed companies
Methodology: Assess environmental and social risks along with the companies’ managerial and financial capacity to manage that risk successfully and profitably into the future. Innovest looks at more than 120 performance factors in the categories of stakeholder capital, human capital, strategic governance, and environment. Each company is rated relative to its industry competitors.
www.global100.org

This is by no means a definitive list of sustainability ratings; there are also the FTSE4Good and the Dow Jones Sustainability indices, among others (although companies are not ranked), but the above three take a similar approach.

Although Innovest makes a good point about the limitations of ranking companies in absolute terms since different industries face different sustainability issues, I like KLD's methodology the best for three reasons: firstly, it includes an explicit financial metric (return on investment), therefore, a company that engages with stakeholders, gives a lot to charity and runs on wind power would not necessarily make the list if it wasn’t actually making money. Secondly, the scores are not absolute; rather, they are adjusted to the performance of the group based on how far away they are from the average (like being graded on a curve). Lastly, a company may be eliminated from the list if a stated concern is considered too egregious. So, a company that performs well in all areas except for one major incident such as a child labour scandal or a lawsuit, they wouldn’t make the list (which is why HP and Apple are conspicuously absent this year).

So back to my friends; they usually all have something negative to say about any ‘good’ company and I’m sure we can all think of a stain on the records of some of the companies listed above and different issues resonate more strongly for different people, so what’s an ethical girl or guy to do? The rating I’m most interested in watching is a grassroots, participatory approach to tracking the real time social performance of companies. Instead of a complex ratings methodology, the website allows a virtual community to determine the criteria to be evaluated, the weighting of these criteria, and the measurement of social and environmental impacts. People can rate stories of company malfeasance or out-performance by selecting how important the issue is to them on a positive or negative scale. Yes, there are limitations (e.g. it’s based on stories that appear in the media), but people trust it (AccountAbility predicted the emergence of such ‘informal information networks’ in its publication, “What Assures Consumers”) and if it grows, it could become very influential. Check it out: www.dotherightthing.com

Responsible Legislation in Europe

In 2006, the European Commission (EC) launched their European Alliance for Corporate Social Responsibility, with the goal of inspiring European businesses to look further than the minimum legal requirements for responsible sourcing, transparency, and sustainability. The Alliance drew on consultation across the board, involving both businesses and NGOs; however the current policy rejects actual regulation, calling only for voluntary controls to be put in place by individual companies.

A number of European NGOs have formed a European Coalition for Corporate Justice, calling for tighter regulation and mandatory reporting, with the support of some well-known European companies, who adopt a serious CSR policy, expending revenue on stakeholder development and monitoring, and taking account of sustainability and responsibility issues when making business decisions. These companies feel that they lose out to their less ethical competitors, and would like to see all retailers across Europe being bound by the same requirements.

The EC policy has also been criticised by the UK's Labour Member of European Parliament, Richard Howitt, who believes that, businesses [should] have to report annually on the impacts of their work and have to meet a set of common standards. Mr Howitt has described the EC's current position as "too introspective," and continues to try to push legislation through the Parliament, that would make Europe a pole of excellence on CSR.

In the debating halls of Brussels, the lawmakers continue to try to satisfy their own stakeholders, seeking a strategy that meets the NGOs' demands for increased legislation, without losing the support of the business community.

Valentine's Day: Flowers, Chocolate and Diamonds

For those of us with a significant other or someone who is important to us, Valentine’s Day is a day when gifts are commonly exchanged. Three of the most popular gifts are flowers, chocolate and diamonds but did you ever think of who made these gifts possible and under what conditions?

1. Flowers

Approximately 190 million stems of roses were purchased in the USA for Valentine’s Day last year along with millions of other specialty cut flowers and foliages such as lilies, irises, gerbera, and tulips. With prices averaging about $44 USD per arrangement, the USDA estimates that the entire floriculture industry in the US alone is worth an estimated $16 billion and growing, with peak sales before Valentine’s Day and Mother’s Day.

Where do these flowers come from?
Holland remains the world's largest supplier with Colombia close behind, the latter now providing one out of every two flowers that are sold in the U.S. As the industry continues to grow, more and more countries are entering the market and increasing competition, businesses are driven to cut costs in order to remain competitive. Generally this results in the payment of lower wages on shorter contracts, which functions as a mechanism to deny job security, pensions, maternity leave, health and injury insurance, and the right to organize—issues that are easier to get away by moving operations closer to the equator in developing countries. In Colombia, the largest developing country exporter, these cost cutting measures affect a large number of people employed in the area and women in particular because about 70% of the 130 000 workers involved in the growing, packaging and transportation are women

Floriculture: Danger of pesticide exposure
Problems with the floriculture industry do not stop at lower pay and short contracts but instead extend into the following: long hours of unpaid overtime (especially preceding peak sales periods like Valentine’s day), child labor, dismissal for pregnancy, sexual harassment, high risk of exposure to pesticides and additional environmental risks including intensive water consumption, lowering of the water table and contamination of drinking water with pesticides. Perhaps the biggest criticism of the floriculture industry relates to the issue of pesticides and the risk of exposure to the workforce.

What are some of the risks associated with exposure to pesticides?
Symptoms of pesticide poisoning include headaches, dizziness, nausea, diarrhea, and blurred vision as well as longer-term concerns such as cancer, birth defects, reproductive and nervous system damage. Risk of exposure is perhaps the highest for those working in the greenhouses where up to 127 different chemicals (fertilizers, insecticides, fungicides, nematicides and plant growth regulators) are sprayed during the growing phase within the enclosed greenhouse space. Once ready for harvest, the flowers are then cut, selected, classified, and treated for shipment before they are packed. This means that additional pesticides are again sprayed on the flowers to keep them pest-free in order to comply with US border regulations. One of the most frequently used chemicals at this stage is the fumigant methyl bromide; a highly toxic and ozone-depleting fumigant that is restricted for use but allowed on cut flowers since they are not edible. While the presence of these chemicals affects us as the end consumer, the concentration is minimal compared to the exposure level of workers who spray these chemicals and work in the greenhouses and packing facilities.

How can the risk of pesticide exposure be reduced?
Floriculture operations need to comply with the following to improve worker welfare:

• Use only chemicals approved by the EPA or a European entity
• Record pesticide use data and make available to workers and surrounding communities
• Provide workers with protective gear free of charge
• Train all workers on proper use of chemicals and risk prevention
• Evacuate all greenhouse workers from the greenhouse prior to fumigation
• Establish a workplace committees on industrial safety and hygiene

As a result of some of the social and environmental concerns mentioned above, there are a number of ethical programs that have been implemented over the last decade. For more information, check out these websites to see what is going on today:

• Flower Label Program (Germany)
• Florverde (Colombia)
• Fair Flowers and Plants (Europe)
• Kenyan Flower Council (Kenya)
• La Flor de Ecuador http://www.expoflores.com

References
California Cut Flower Commission
USDA ERS
Pesticide Action Network North America (PANNA)
International Labor Organization

2. Chocolate

Along with flowers, another common gift to receive (or give) on Valentine’s Day is chocolate. The Netherlands is the world’s largest roaster of cocoa (followed by the US) but the Ivory Coast is actually the largest primary producer of the actual cocoa bean that is roasted. In effect, the Ivory Coast supplies almost 50% of the world’s cocoa beans followed by Ghana (25%) and then Indonesia, Nigeria, Brazil, Cambodia and Ecuador that add up to make up most of the rest. Although the market for cocoa topped three million tonnes last year, the actual profitability of the crop is highly dependent on world prices and on natural conditions affecting yield such as droughts. In terms of the world market, cocoa is actually considered one of the most unstable commodities due to fluctuating market prices but these prices have been on a steady decline for the last decade. Due to the lower profit margin, farmers then look to cut costs by using cheap labor, with some even resorting to using child labor.

What is cocoa?
Chocolate is made from cocoa seeds (usually referred to as beans), which are contained within leathery pods the size of footballs that hang from the branches and trunk of the cacao tree. When ripe, these pods are harvested by the worker with the use of a knife on a pole and then split with a machete to reveal upwards of 50 seeds surrounded by pulp. Both the pulp and cocoa are removed from the pod and left out to “sweat”, leaving the fermented dried beans behind to be collected and eventually roasted and processed to make cocoa. However, what we refer to as “cocoa” is actually a bitter powder made further along in the supply chain by grinding the seeds and removing the cocoa butter from the solids.

The crop supplies an important source of income to many families growing it on their small farms but the conditions under which the commodity is grown is plagued by documented evidence of persistent human rights abuses, primarily child labor and forced labor.

Child slave labor and trafficking
Although there are numerous problems associated with working conditions on many of the farms, the worst cases are from farms in West Africa where there is documented evidence of young boys from the ages of the ages of 12 to 16 being trafficked from their home countries and sold into slave labor on cocoa farms. The primary receiving country of child workers is the Ivory Coast, the leading supplier and exporter of cocoa beans to the world market, accounting for more than 40% of global production. The primary supplier of child workers to these farms is Mali. With approximately 600,000 farms in the Ivory Coast, the US Department of State estimates that approximately 110,000 children are working on the farms, with as many as 10,000-15,000 working as slaves. Here the children are subject to long, punishing hours of work with knives and machetes, suffering from frequent beatings and abuse. The slaves are paid nothing and fed inadequately, and are often locked in their housing units at night to prevent escape.

The Cocoa Industry Protocol
In 2001, the use of child slave labor to produce chocolate caught the attention of the media and the government. In response, the chocolate industry agreed (via the Harken-Engel Protocol) to voluntarily take steps to end child slavery by July of 2005 and to achieve compliance with ILO Convention 182 (Worst Forms of Child Labor), thereby ending child slavery and exploitation. The mechanism to do this was via a certification system that would verify chocolate as being “child-labor free”. However, the final deadline came and went with little appreciable development regarding the eradication of child slavery.

Part of the failure was due to the nature of the industry itself (tens of thousands of small farms, dispersed in remote locations) and the difficulty in monitoring such a large sample size. Additional problems regarding the ability to trace the beans back to individual farms were also hampered because the beans are commonly consolidated into one stock; all without supporting chain of custody documentation. Without the necessary records and documentation required in conventional monitoring methods, it is unlikely that the beans can be traced back to the farms where child labor violations occurred.

What can you do?

• Spend a little more on Valentine’s Day chocolate and buy Fair Trade chocolate. Fair Trade guarantees producers the income they need to send their children to school and pay their workers fair wages, and ensures that no forced or abusive child labor was used in the making of their products.
• Ask your grocer to stock Fair Trade chocolate (or other chocolate brands produced under ethical conditions) and buy it year round
• Ask the chocolate manufactures to buy directly from verified child-labor free farms to create more pressure on the farms
• Ask the chocolate manufacturers to pay more for cocoa beans

References:
Global Exchange
Labor Rights Organization

Industry information on responsible cocoa:
Chocolate Manufacturers Association
World Cocoa Foundation

3. Diamonds

The third, and most expensive, commonly exchanged gift on Valentine's Day are diamonds. Referred to as conflict or blood diamonds, these precious gems can be mined and sold in order to fund armed conflict and civil war. They are also responsible for countless human rights abuses and the deaths and the displacement of millions and millions of people living in Africa. According to Amnesty International, profits from the illegal diamond trade are worth billions of dollars and used by rebels to buy arms in countries such as Angola, the Democratic Republic of Congo (DRC) and Sierra Leone. While the wars in Angola and Sierra Leone are now over, and the fighting in DRC decreased, the toll in human life is still extreme, amounting to the loss of an estimated 3.7 million lives. Furthermore, new conflicts are continually on the rise and diamonds continue to fund armed warfare in other volatile areas of Africa such as in the Ivory Coast and Liberia.

The Kimberley Process Certification Scheme (KPCS)
In 2003, efforts were made to stop the illegal trade when a government-run initiative known as the Kimberley Process and Clean Diamond Trade Act was introduced to stem the flow of conflict diamonds. The Kimberley Process Certification Scheme (KPCS) is a voluntary system of self-regulation that covers the entire diamond supply chain (not just the rough diamonds) from the mine to point of sale, requiring the diamond industry to implement a code of conduct to prevent the buying and selling of conflict diamonds. Verification is conducted by independent auditors and monitored by appropriate government agencies but can only be considered effective if all sectors of the diamond industry work together to implement the system of warranties. While the supply of conflict diamonds has been reduced, some from the Ivory Coast are still finding their way through Ghana into the legitimate diamond market and entering the United States.

What can you do?

• Buy certified diamonds and let your jeweler know that you are interested in socially responsible purchasing. Even though the system is not yet perfect, your purchase will indicate to the market you want conflict-free diamonds and improvements to certification will follow if there is enough consumer demand.
• Buy fake diamonds (which can be better than the real thing!)

References:
Global Witness and the Combating Conflict Diamond Campaign
Kimberley Process: An Amnesty International Position Paper; Recommendations to the Kimberley Process (KP) participants in order to effectively strengthen the Kimberley Process Certification Scheme (KPCS), June 2006
Global Policy:

For all three of these Valentine's Day gifts--flowers, chocolate and diamonds--there are more socially and environmentally responsible alternatives that can be purchased instead of the conventionally produced items. It is the responsibility of the consumer to make informed decisions, which means we must all try to become more educated and aware of what we are purchasing and the impact our purchase could make on the workers and the environment that produced it. If you can't find what you are looking for, kindly ask your grocer or retailer to provide it and let them know you are interested in being an ethical consumer!

CSR: A British Perspective

When I tell people in the UK what I do for a living, the most common questions I get asked are, "But why do companies have to have these assessments? Who makes them? Do you work for the government?"

In this country, “Corporate Social Responsibility” is not a well-known phrase, and the idea that big retailers should behave in an ethical manner is often met with a cynically raised eyebrow. It is generally assumed that there are two reasons why companies would adopt a social audit plan: to look good to their customers, or because they are required by law to do so.

The first of those reasons was thrust into the public eye in 2006, when many high-street stores launched major advertising campaigns to raise awareness of their own ethical activities. The best-known of these is Marks & Spencer, who plastered their entire shop windows with their Look Behind The Label campaign, pledging that all their products are sourced and manufactured to the highest ethical as well as quality standards.

This is a good example of the local understanding of CSR, which in the UK is not limited to sourcing products from socially compliant factories; in fact this tends to be lower in the list of priorities than good employee relations, not using genetically modified food, and of course animal welfare.

Perhaps the highest priority of UK firms who wish to be seen to be ethical is environmental sustainability. Tesco, the UK's largest chain of supermarkets, has very recently set out their intention to minimise waste and encourage their customers to recycle everything from carrier bags to Christmas cards. Their rival Sainsbury has identified another area of responsibility, and launched an initiative to source from smaller, local suppliers. This again may have roots in the need to be seen to be green, as "food miles" are currently quite a hot topic.

Many UK brands take an entirely different angle, combining marketing drives with charity donations and involvement in the local community. The Persil 'Be my coach' campaign was developed by manufacturer Unilever to encourage parents to participate in sports with their children, by giving away free sports gear with their products; and McDonald's in the UK are very involved in youth football (soccer) at a local level.

So a British perspective on CSR is that it is not all about responsible sourcing; in fact, charity begins at home.