Perspectives in Responsible Sourcing

Bipartisan Bill to Fight Human Trafficking: Business Transparency on Trafficking & Slavery Act (H.R. 2759)

On August 1, 2011, the Business Transparency on Trafficking & Slavery Act was introduced into the legislative process by Congresswoman Carolyn Maloney (D-NY) as H.R. 2759.  The bill received co-sponsorship by Rep. Christopher Smith (R-NJ) – current Chairman of the U.S. House Subcommittee on Africa and Global Health and a very outspoken Congressman on the issue of human trafficking and modern-day slavery.  His passion for this pressing issue is reflected in a session by the Subcommittee with regards to fighting human trafficking, and a public panel discussion on human trafficking organized by ATEST and the CNN Freedom Project.  Further co-sponsors are Jackie Speier (D-CA), and Jim McGovern (D-MA).

In many ways, this bill resembles The California Transparency in Supply Chains Act – SB 657.  It too, focuses on public disclosure of companies with regards to the extent of their activity in areas of best practice within a supply chain to eradicate human trafficking and slavery.  There are, however a few differences between the Business Transparency on Trafficking & Slavery Act and SB 657 that should be highlighted:

• Being a federal bill, it shall apply to any entity with worldwide global receipts in excess of $100,000,000 that is a) publicly-traded or b) a private entity required to submit any annual report to the U.S. Securities and Exchange Commission (SEC).
• An applicable entity shall report annually on its measures to “identify and address not only conditions of slavery and human trafficking, but also of forced labor and the worst forms of child labor within the entity’s supply chains.  Definitions of “forced labor, slavery, human trafficking, and the worst forms of child labor” as well as “supply chain” are provided in the bill.
• The bill mandates additional disclosure topics:

• Existence of actual policies,
• ­Outcome and methodology of verification activities,
• Assessments of management and procurement systems of suppliers,
• Auditing of labor recruiters and the results of such audits, and
• Remediation in cases of identified forced labor, slavery, human trafficking, and the worst forms of child labor.  The definition for remediation is provided.

It also covers all the disclosure requirements of SB 657, but again with a focus not only on slavery and human trafficking, but also on forced labor and the worst forms of child labor.  These requirements are engagement in 1) 3^rd party verification (definition provided), 2) independent and unannounced audits, 3) supplier certification, 4) training to those with direct responsibility for supply chain management, and 5) maintenance of internal accountability standards.

• Not only shall the disclosure be made public through SEC channels, but applicable entities shall also disclose the information on their Internet homepage with a link labeled “Policies to Address Forced Labor, Slavery, Human Trafficking and the Worst Forms of Child Labor.”

Another significant difference between SB 657 and the Business Transparency on Trafficking & Slavery Act is private sector support for the bill.  Missing at the introduction of SB 657, the new federal bill has received public support from Compass Group, a food-services firm and the “11th-largest private employer in the world” according to the press release from Rep. Maloney’s office.  

It will remain to be seen whether the bill comes to pass, but with bipartisan and private sector sponsorship, and SB 657 at its back, this federal bill already stands on solid ground. 

For more information on Supply Chain Transparency visit our Responsible Sourcing California Transparency page.  Also note that STR Responsible Sourcing is hosting two vendor-targeted seminars on slavery and human trafficking in Hong Kong and Shanghai. To receive future communication on this topic and weekly news on corporate social responsibility sign up for The Responsible Source.

Whistleblowers protected by the European Court of Human Rights

Imagine you worked in a job and things weren’t going well: Management has decided to cut staff and you find it impossible to fulfil your own duties because you’re overburdened. Your colleagues are in the same position. You’ve alerted management and pointed out that the practice is leading to serious quality defects in the service you provide. In fact, you’re no longer providing the service advertised and that clients pay for. However, management does nothing and appears to not care about your concerns. You raise the matter repeatedly until the situation and the services you provide deteriorate so badly, that the only available solution to effect change is to alert the authorities. More specifically, to file a criminal complaint against your employer for fraud because the services your company advertises are not actually being provided. What would you do? Would you risk your job, income, security and speak up?

The question of whistleblowers has hit the media repeatedly in recent years. Cases of employees speaking up and pointing to serious defects within their workplace have put the spotlight back on what kind of protection we afford such people. The US and UK are two examples of countries that have responded by implementing comprehensive protective legislation for employees who blow the whistle. But in most other countries employees still do not have the benefit of protection from the law when they do the ethical thing and speak out against wrong practices that they are witness to. At least in Europe, things might be about to change.

On 21 July the European Court of Human Rights (ECtHR) issued its judgment in the case ofHeinisch v Germany. The facts were those set out above and related to a nursing care home. Following the criminal complaint Mrs Heinisch brought against her employer she was dismissed without notice on the grounds of breaching her duty to loyalty to her employer by publicly damaging its reputation. Finding in favour of Mrs Heinisch, the Court noted that whistleblowing is protected speech under Art. 10 of the European Convention on Human Rights and that the following considerations weighed in favour of Mrs Heinisch:

1. The information she had disclosed was of public interest, particularly because those suffering detriment were probably not in a position where they could speak up.

2. Mrs Heinisch had approached management previously but had never received any indication that a solution would be found.

3. Mrs Heinisch had not knowingly or frivolously reported incorrect information.

4. She had acted in good faith

The German people have reacted with a combination of admiration and bewilderment – admiration for Mrs Heinisch and bewilderment at the law. How can a country that professes to encourage civic courage and ethical business still have a statute on their books that penalizes employees for doing the right thing? The question is a fair one as the Council of Europe issued a Resolution in 2010 recognising the importance of whistleblowing and urging member States to adopt comprehensive legislation to protect whistleblowers, as outlined in the Resolution. Now finally German politicians are stepping up and calling for such legislation to be implemented. It would then be up to other European states to follow suit. Until that happens, whistleblowers in Europe will have to rely on their national courts to apply the Heinisch jurisprudence.

European employers (and those in other countries) should take this judgment seriously and begin to look at their own approach to whistleblowers. Some basic questions to consider are:

• Is there a system in place through which employees can raise concerns, if need be confidentially and anonymously?
• Are concerns raised by employees taken seriously and addressed in a timely and adequate manner?
• Is the process of dealing with concerns transparent to the employee?
• Are policies and procedures in place to ensure that where employees raise concerns they do not experience any form of retaliation, e.g. dismissal, discrimination in employment decisions, etc.?

Businesses should welcome the Heinisch decision. By protecting whistleblowers who denounce unethical and illegal behaviour those businesses abiding by the rules and striving towards ethical practices are in turn given greater protection. And that should be good news!

New Minimum Wage in “World’s Freest Economy”

The government of Hong Kong has announced that the city’s first minimum wage will be set at HKD 28 (USD 3.61) per hour, effective from May 2011.  While this announcement may disappoint many capitalists who recognize Hong Kong as “the world’s freest economy”, others argue that the new minimum wage will aid in promoting the long-term economic development and decreasing high inequality in the city.

Laissez-faire supporters argue against having a minimum wage, saying that the city’s competitiveness may be impaired as labor costs increase; and that unemployment rates will likely increase, based on the simple demand-supply theory.

However, a free economy is not always equivalent to a healthy economy. One indication of this can be seen by looking at income inequality measures, such as the Gini Index (where 100 represents total inequality and zero represents complete equality). It is interesting to see that among the Asian countries, Hong Kong tops all Asian counterparts with a Gini Index of 53.3 (#16 in the world), having the widest income gap in the region and among all developed economies in the world. Singapore and Malaysia – the other two countries in the region without a minimum wage – also find themselves high on the list (# 29 and 36 respectively).  South Korea, which has one the lowest Gini Index in the region at 31.3, introduced minimum wage law in 1988 and saw a significant narrowing of income gap (and is now #104 on the list).

On the one hand, it seems unlikely that a minimum wage will lead to significant rises in unemployment.  In Hong Kong, there is a constant demand for the services that the lowest paid workers (e.g. cleaners, security guards and cashiers) provide. They are the ones who will benefit from the new minimum wage, and it appears unlikely that employers will save costs by laying-off workers since this demand for services will remain. It seems unlikely, for example, that Hong Kong consumers will tolerate dirtier floors, less secured premises and longer queues in front of the cashier registers.

However, it is realistic to think that some layoffs will happen, and the most vulnerable ones might be the older, lower-skilled or disabled workers. When I had a conversation with a security guard in my Hong Kong apartment building, he did not sound too excited about the idea of a minimum wage. He currently earns about HKD5500 a month (USD 705). The new minimum wage may guarantee him a monthly salary of more than HKD8000 (USD 1025), which is a significantly higher figure. However, he is more worried about losing his job than about the possible wage increase. “They will probably hire younger people, making us lose our jobs,” he said.

The new minimum wage could be a crucial step toward achieving the utilitarian notion of “the greatest good for the greatest number of people” and helping to reduce inequality in the city. Of course, implementing a minimum wage is not the only solution to income gaps. It has to go hand-in-hand with sound domestic policies.

Incorporating CSR: Recent legislative developments in the USA

One business case for corporate responsibility is straightforward - place one’s firm in a better competitive position if and when new regulations emerge. This case is timely, as three bills concerning social responsibility and security in the supply chain have been introduced at the federal and state level. They are still undergoing judiciary review, but if passed into legislation, companies will need to change their practices in new and effective ways in order to fulfill stern monitoring and reporting requirements.  

Minerals sourced from the Democratic Republic of Congo (DRC) or adjoining country

Bill H.R. 4173, known as the Restoring American Financial Stability Act of 2010, progressed to the final stages of judiciary review on May 20^th after receiving Senate approval. Entities already subject to the Securities and Exchange Commission’s reporting obligations will have to expand their reporting and public disclosure obligations if they source columbite-tantalite, cassiterite, gold, wolframite or their derivatives from the DRC or adjoining countries. 

Essentially, this bill demands that producers engage in traceability to ensure that their supplier mines do not finance violent regimes. Companies would be wise to begin gearing up to comply with the bill by mapping their supply chains and requiring each link in the supply chain to demonstrate traceability back to the mine.

For more information on “Business, Conflict & Peace” in general, consult the Business & Human Rights Resource Centre’s new portal. Leila Merouchi’s post, “The future of Afghanistan's mineral riches,” portrays another conflict zone where social responsibility in the mineral sourcing process will no doubt be a hot topic in the near future. 

Aggressive enforcement of trade laws relating to textile or apparel articles 

Bill H.R. 5393, known as the Textile Enforcement and Security Act of 2010, was introduced into Congress on May 25^th. It is still at the beginning of the legislative process, but should it come to pass, U.S. Customs and Border Patrol will be granted authority to more aggressively combat textile and apparel fraud. Textile and apparel articles whose country of origin and importer documentation is mistakenly or falsely described will be seized or forfeited. Fines, penalties, and an electronic verification system of textiles and apparel items are also part of the bill. In addition, the resources and importance of US Customs and Border Protection are likely to grow. 

The motivation behind this bill is “to start protecting American workers and American jobs”. “Fraudulent activities such as front companies posing as legitimate U.S. businesses, undervalued goods, illegal preference, and free trade agreement claims have gotten increasingly worse, costing more U.S. jobs.” In order to avoid judicial penalties and a correlation to the staggering economy, textile companies should pay keen attention to customs documentation within their supply chains. 

California retail sellers and manufacturers to eradicate slavery and human trafficking from their supply chains  

Senate Bill 657 was passed onto the Committee on Judiciary on February 18th. If accepted, it will require retail sellers and manufacturers doing business in California and with two million dollars or above in annual sales “to develop, maintain, and implement policies related to their compliance with federal and state law regarding the eradication of slavery and human trafficking” from their entire supply chain, including the supplier of raw materials. The company policy shall also include compliance with “laws regarding slavery and human trafficking of the country or countries in which they are doing business.”  

Wide and varied supply chains make compliance with this bill difficult. However, helpful tools such as The Department of Labor’s 2009 List of Goods Produced by Child Labor or Forced Labor do exist.  

No matter the reason (violent regimes, fraudulent trade or slavery and human trafficking), more extensive and stringent supply chain reporting and monitoring requirements seem to be a new focus of legislature. It is time to re-evaluate your sourcing policies and ensure you cover your entire supply chain.

Posted by Alexander Katz and Susanne Gebauer

Ethical Issues: Another Risky Area for International Brands

Ethics issues may often be seen as human resource issues or internal compliance affairs, but for public companies, especially international brands, it's another story. As recent ethical scandals have shown, ethics can have a high impact on the image and interests of shareholders and stakeholders alike. Literally speaking, international brands have a fiscal responsibility to avoid ethical scandals.

Rio Tinto made news headlines this year when four employees from this mining giant were charged with bribery and stealing trade secrets in China. They were not alone in marching across the news headlines. On March 24, news reports emerged that Daimler, the German carmaker, agreed to pay a $185 million fine for bribing foreign government officials, including Russian and Chinese officials. Another German brand, Siemens, was exposed in a similar scandal in Business Week on April 8. 

Consequently, Siemens has to hand over $1.6 billion in fines due to a violation of the U.S. Foreign Corrupt Practices Act. The latest news on this topic brings us to Avon, the US-based, global cosmetics giant. Four executives were put on administrative leave pending investigation of bribery allegations that started in China. The fine is yet to be determined, but the decline in stock price is apparent: “Shares fell $2.77, or 8 percent, to close at $31.99.”(Washington Post)

The news stories above reveal something in common. First of all, the immediate economic loss to the brands is enormous due to the fines. And yet the bigger or immeasurable loss may come from the stock markets. What’s worse, these big names are listed in more than one stock market. The sheer decline in one market reached 8 percent (for Avon), let alone the loss in multiple markets. Another common impact is on the company’s daily managerial work. As mentioned in the news, senior management employees involved in such scandals are often suspended pending the investigation.

Given these facts, the exposure of ethical issues appears to be more harmful to a brand name than certain sweat-shop allegations, such as child labor, forced labor and so on.

As a matter of fact, such detrimental risks could be avoided or downgraded, even though it might not be possible to completely root out due to certain economic, cultural and political environments. Stricter policies, follow-up on implementation, and closer monitoring would serve as good approaches. Although a good number of companies explicitly incorporate integrity in their company policy or code of conduct, it usually turns out that such policies are less consistently implemented in the overseas branches or operations, as indicated by the news articles on ethical breaches.

In order to have better ethical monitoring, administrative costs will certainly increase, as it may require frequent internal audits conducted by headquarters representatives, external consultation on current ethical practices and so on. Nevertheless, such investment would be minimal, but more worthwhile in the long term, compared to the official financial penalties and reputational damage. The benefits will then be reflected in the avoidance of economic losses and the protection of the brand name.

As corporate social responsibility evolves, maybe it is also time to have more focus on how effectively ethics and integrity policies are put into practice at home and abroad.

Washing a dirty human rights record green

In the run-up to the summit in Copenhagen there has been much talk about climate change and the need for immediate concerted global action. A very recent report has decreased the time-line for corrective action considerably and pressure for a successful summit has increased even more. But, unsurprisingly, the US has already dampened hopes for any binding agreement whilst China, surprisingly, has emerged as a front-running eco warrior.

In the mean time, commentators have suggested that maybe we should be looking to companies, as opposed to states, for climate leadership (see, for example,
http://www.nytimes.com/2009/12/06/opinion/06diamond.html?pagewanted=1&_r=1 ).
This is an interesting perspective and, in terms of social responsibility and sustainability, a great leap forward. Nevertheless, it may be prudent to take all this with a pinch of salt.

A perfect case study is the relationship between Indonesia and one of the world’s largest pulp and paper factories, Asia Pacific Resources International Limited (APRIL). On the one hand, Indonesia, the third-largest contributor to global warming (after the US and China), must desperately seek to limit its greenhouse gas emissions, much of which stem from the peat land in the Kampar Peninsula. However, to date, the only detailed plans for carbon-cutting action in the Peninsula have been submitted by APRIL who, as critics point out, is in fact a significant contributor to the problem in the first place and is desperately seeking further logging concessions.

Given the global crisis and the need for action sooner rather than later a proactive approach – for whatever reasons (see the New York Times for a discussion: http://www.nytimes.com/2009/11/30/science/earth/30climate.html?_r=2&ref=global-home ) – would appear to be the required step. And surely we should welcome any remedying action by contributors to the climate dilemma. But at what cost exactly is this pro-climate action being taken? A joint report by the NGOs Forest Peoples Programme (FPP) and Scale Up (http://www.forestpeoples.org/documents/asia_pacific/indonesia_rights_briefing_oct09_eng.pdf) explains that 33,000 people depend wholly or in part on the forests in Kampar Peninsula. However, APRIL’s proposed plans would “imply clearance of the degraded forests around the periphery of the Peninsula and, as presented, does not specify where local people would make their living or what rights they would have in the newly designated plantations, buffer zones or core conservation areas.”

Further enquiries by the NGOs revealed that APRIL had already secured 97,000 ha of plantation permits in the Peninsula. “None of the communities had been given clear information about the project, no efforts had been made by the company to assess communities’ land use systems or customary rights, no measures had been taken to identify their representative organizations, and no negotiations had been undertaken to secure their agreement to the proposed project.”

As commentators have pointed out, APRIL’s green plan appears to have finally gained them access to an area protected by permit requirements. There is no doubt that climate action must be taken now and that companies play an invaluable role, however, it would be tragic if we allowed ourselves to become blinded to rights abuses covered up by greenwashing campaigns. Although green efforts are welcome, they don’t paint the whole picture.

Daphne Guelker
Research Associate

8 hours of Q&A with the U.S. Department of Labor

The eight-hour Q&A session with the Department of Labor has just kicked off at 1:00pm EST on Monday, December 7.  Secretary of Labor Hilda L. Solis took live questions from the public for about an hour.  Next sessions running from today until Wednesday, December 9 include live Q&A with the Occupational Safety and Health Administration and the Wage and Hour Division.

For more information go to: http://www.dol.gov/regulations/index.htm#chats

A Look at Viet Nam’s Wildcat Strikes

Last week in Viet Nam, a Nike footwear supplier saw an end to a five-day 14,000 worker strike, after agreeing to increases in transportation stipends and improvement in canteen food quality.  The strike occurred at a Korean invested facility outside of Ho Chi Minh City.  For Viet Nam, this is nothing new.  Since 1995, the country has averaged over 100 strikes per year and the number has been increasing.  The strikes have come as a result of discontentment in low wages, quality of canteen food, and factory adherence to labor laws – violations in overtime and contract laws are frequently violated in the country.  But above all, the perception of low wages has been the primary cause of the strikes. 

After a wave of strikes in late 2005, the Viet Nam government hastily signed a minimum wage increase on January 6, 2006 for Foreign Direct Investment (FDI) enterprises.  The decree called for a minimum wage increase of 40%, effective February 1, 2006.  So the idea was if the minimum wage was increased workers would be happy, strikes would no longer occur, and factories would operate smoothly with no disruptions...  Right? 

Not-So-Fast

The business community complained.  Their complaints were essentially two-fold:  1) control the workers and 2) reconsider the time period for minimum wage implementation.  Recent strikes in Viet Nam caused not only operating losses, but property and equipment was damaged due to violent protests.  Of all the strikes that had occurred in Viet Nam from 1995 thru 2005, almost all of them did not go through the legal process and were therefore illegal.  The government, up to that point, had done little to enforce elements of the law on striking workers.  Secondly, businesses did not necessarily gripe about the increase to wages, but rather the short time span given to implement the changes.  After companies had created budgets and plans for year, the government decided to increase wages, basically on whim.

The government’s response to the complaints?  Delay implementation for another two months to April.  Now everyone’s happy.  Workers get a raise and employers have time to implement the increase. 

Not-So-Fast-Part-2

As a result of the delay in minimum wage implementation, Viet Nam suffered its worst case of labor unrest.  According to the Ministry of Labor Invalids and Social Affairs, 303 strikes occurred during the first half of 2006 – more than two times the number of strikes in 2005.  While companies were given time to implement the minimum wage increase, workers grew very impatient with their low wages.  Viet Nam has since revised the Labor Code to clarify procedures for legal strikes, improve the arbitration process, and shortened the length of time to resolve disputes. 

So far the changes have not stopped strike action.  In October 2007 alone, it was reported that 38 companies went on strike due to low wages, poor conditions, and poor food quality.  And yet, in a span of two years the government plans to increase wages again.  With inflation at 9.5% for the year, workers are saying that their purchasing power is quickly eroding.  As a response, the government is increasing the minimum wage by about 12% in 2008. 

If history serves as an indicator of future performance, then it doesn’t look like these increases will prove to stop the strikes.  This begs the question, whether Viet Nam is actually interested in having the illegal strikes stopped.  So far, Viet Nam seems content to placate its workers by incremental increases in minimum wages and inconsequential changes to legislation as issues arise.

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Paul Dinh has been a Research Associate with CSCC's Research and Development Department since 2005.

Celebrate World Earth Day

World Earth Day was launched 37 years ago in the US, to promote and publicise environmental awareness across the planet. Year on year it has gained in momentum, and is now celebrated by more than half a billion people worldwide. The original World Earth Day is considered to be the foundation of the modern environmental movement.

The mission of World Earth Day's organisers is to promote civic engagement at all levels, from the individual decision to switch to energy-saving lightbulbs, to international agreement on limiting pollution. In 2007, millions of Americans are expected to join the campaign on Capitol Hill, demanding a drastic reduction to greenhouse gas emissions: their target is that emissions should be at 1990 levels by the year 2020, and 80% below that by 2050.

Why not sign up to Friends of the Earth's Tip of the Day, and take responsibility for doing your bit to achieve that target!