Perspectives in Responsible Sourcing

The Gap Sweatshop Story: Child Labor in India. What happened?

By now you’ve seen it: newspapers all over the world are carrying the headline about Gap’s link to bonded child labor in an India sweatshop. The U.K.’s Sunday Observer broke the story on the child workers producing for Gap after a journalist captured video footage of the New Delhi slum.

So, what’s the deal?

Children, sold to the factory by their parents, were found laboring in squalid conditions to produce a line of Gap kids clothing intended for the Christmas season. The children were tattooed with the number of the sweatshop to which they were bonded. They have been told they must work off the debt of the payment made to their parents to provide them jobs but they earn no wages while they are still “learning.” They work 15-20 hours a day and are beaten regularly. They are hit with rubber pipes if they cry. The workplace is reportedly hot, filled with flies, and with raw sewage leaking from toilets into aisle ways.

One boy says he wants to work there so he has a place to sleep at night. He wants to earn money to buy a house for his mother. But he is not being paid for his work and his sleeping quarters are on the roof.

The reporter’s first hand accounts and video footage, available in the video feeds from the BBC and ABC News, are as depressing and appalling as the text descriptions.

How did this happen?

It appears that the Gap supplier in India subcontracted the work order to this unnamed operator without notifying the Gap. According to one article, the sweatshop manager “gloated as he explained to us how the child labour deal was arranged. He claimed one of the multi-national firm's Indian suppliers sub-contracted it to his bosses with a handshake, promising cash on delivery. ‘It's how we do business here in India," he told us. "You westerners are too quick to judge life here.’”

What was Gap’s response?

Gap responded by canceling the order, committing to destroy the goods that were produced by children, launching an investigation, and calling an emergency meeting with all regional suppliers.

Dan McDougall, the journalist that broke the story, said, “I’m satisfied with that response. I think they’re doing everything they can, but in terms of the broader issue, perhaps more money could be invested in auditing their suppliers and more monitoring on the ground. That’s the key because clearly the systems they have in place failed.”

What now?

This story has galvanized anti-poverty campaign group War on Want to push Prime Minister Gordon Brown for independent regulation of the clothing sector. According to War On Want spokesman Paul Collins, “This is the latest of a series of scandals that have emerged over almost a year … So long as retailers like Gap are allowed to regulate themselves, rather than have an independent regulator look at their factories and their subcontractors - then these scandals will continue to emerge."

Interestingly enough, the timing of this corresponds with a similar debate in the U.S. Just last week, a U.S. Senate panel heard testimony on sweatshops in the toy industry. U.S. Senator Byron Dorgan is “pushing legislation that would make it illegal to import or sell goods in the United States that are made abroad in sweatshops or by prisoners…” [see a related article for more details.] More on this testimony to follow in a later blog.

Don’t forget the subcontractors

Gap has a larger social compliance program than most companies. They employ 90 internal social compliance staff to work with their supply chain, including suppliers in India. They report having ceased relationships with 23 suppliers last year due to labor standards concerns.

If they have dedicated so many resources to this area, how can they still face such grave challenges in the supply chain? What about those companies concerned about labor conditions but have less resources available than the Gap?

I think one lesson for companies looking at this event is: don’t forget the subcontractors. [see a related article on this topic.] I don’t mean to suggest that Gap has forgotten them. I imagine that they have purchase order requirements that forbid unauthorized subcontractors and that this Indian supplier simply ignored the contractual agreements. However, many companies are not even considering the second and third tiers in their supply chain. As Dan McDougall notes, “This isn’t a problem for Gap; this is a problem for every High Street retailer. They all subcontract to the developing world.”

China’s New Employment Contract Law

What some are calling the most important change in Chinese labor law in the last decade, the new employment contract law for China, is finally here. China’s legislature passed the law last Friday, June 29, 2007, after two years in the making.

The full text of the law has not yet been released, so no one knows for sure how it differs from the previous drafts. The Standing Committee of the National People’s Congress did provide a summary of the requirements, however, and according to the summary, we can expect to see the following from the new law:

Mandatory Labor Contracts
A main feature of the contract law is to require contracts for all workers, including migrant workers, to be signed within one month of hire. The goal is to provide broader protections to workers and make more workers, such as migrants and temporary workers, eligible for benefits. Even workers hired through labor agencies are to be given the same protection and benefits as permanent workers.

In theory, employers will not be able to abuse workers through “irregular” employment because (i) fixed-term contracts will become permanent open-term contracts once a fixed-term contract is renewed twice (or after it is completed; there are conflicting reports at this point), and (ii) if employers fail to sign a contract with an employer within the first year, it will be assumed that an open-term contract is in place.

Forced Labor
The law reportedly prohibits mandatory overtime. It also allows employees to resign without notice if they are compelled to work against their will.

Collective Bargaining
The new law reportedly strengthens the communist-party union by empowering company-based branches of the ACFTU to bargain with employers over salaries, bonuses, and other benefits for workers. In addition, companies must “consult” the union for any planned layoffs. However, the union cannot block layoffs, as had been proposed in earlier drafts of the law.

It is this part especially that worries some foreign company executives, who anticipate that labor relations will be greatly complicated by this development. In addition, some companies anticipate increased labor costs and loss of flexibility.

“It will be more difficult to run a company here,” says Andreas Lauffs, a lawyer at Baker & McKenzie in China.

These are the available details to date on the new law. I’ll keep my eyes open for the full text for further review when it is released.

Critics are pessimistic
As for the implications of this new law, critics argue that without enforcement of the law, workers will see no benefits from the new legislation. The onus may be on the ACFTU to begin to play a more active role in protecting worker rights. I discuss the enforcement aspect in more detail in my Ethical Corp column.

Nike's New CSR Report. They Just Did It - Again

The Nike Corporate Responsibility Report was released last week and it is a "must read!" Once again, Nike is breaking ground not only in reporting on their program but also providing transparency into their operations and strategic aims. Notably, and what all the media outlets are focusing on, is Nike’s commitment to eliminate excessive overtime in their contract facilities by 2011. They propose an ingenious route to achieve this goal, (which I will be discussing in my monthly column in Ethical Corp magazine.) Suffice it to say they are working on getting the beam out of their own eye first.

The whole report is extremely interesting and enlightening for those who want to understand more about addressing complex issues in the supply chain. I want to encourage you to read the report by throwing out three highlights from its pages:

1. Nike has been working on business integration in a big way. "Corporate responsibility is no longer a staff function at Nike. It’s a design function, a sourcing function, a consumer experience function, part of how we operate." This is déjà vu for me! I’ve been reading up on Marks and Spencer’s Plan A ("because there is no Plan B") program and the similarities are poignant. Both companies are making CR the way they do business, not just a program that works in isolation from the rest of the operation. Not only does it make sense to approach CR from a holistic viewpoint, but it helps ensure the success of the CR efforts by bringing the whole company into the game plan.

2. Nike views their environmental footprint as a key focus of their CR program. "An environmentally friendly product made under poor labor conditions is a hollow success. A product made under good conditions but that is bad for our planet is a missed opportunity. We don’t believe in tradeoffs."

3. Nike is looking at root cause and permanent systemic change in labor conditions in 130 key contract factories. "While monitoring continues to be a cornerstone of our approach, we are taking a broader, more holistic look at our supply chain, focusing on root cause identification and solutions that will drive systemic change." This approach will ensure more resources and training are delivered to the 20% of their suppliers that "account for 80% of long-term, strategic impact to Nike."

What else is Nike doing? Aside from the overtime commitment, they are working to implement human resource management systems in their factories, which includes delivering freedom of association training to contract factories. Nike plans to partner with other brands to jointly monitor up to 30% of their supply chain by 2011. They also plan to roll out lean manufacturing to all contract factories in an effort to raise wages.

For those who are unsure about what all of this means for the industry, let me summarize: Nike has officially raised the bar on what brands and retailers can and should do to ensure their goods are made in a way that positively impacts the lives of workers, communities, and the environment.

What Do Workers Want? Ask Them

I've heard some interesting speakers this week at Ethical Corporation's "Responsible Business Summit" in London. One speaker particularly struck me with his message. An executive from a Spanish telecom, notable for his background in theology, spoke about the importance of values. Speaking on the need for businesses to articulate their corporate strategy, he mentioned his travels in Africa. "When I am in Africa, I tell myself I do not have time to cry. But then I ask myself, what is the real responsibility in front of the child who cannot eat? Or the workplace where 40% of workers have HIV?"

He went on to say that companies must be aware of the impacts of their decisions in other people's lives. Organizations must listen to their employees to understand their needs. He then made one simple statement: Family is the single most important issue to employees from all walks of life. Concerns related to work hours, salary, and education all tie back into this concern for family.

This reminded me of a survey conducted several years ago in a village of homeworkers in India. Via the Ethical Trading Initiative, a number of brands and buyers were trying to identify the primary needs of the homeworkers in order to effect positive change for this vulnerable class of workers. The homeworkers were presented with a list describing some of their potential challenges, including low piece rates, irregular work, safety issues, and child workers. The homeworkers then reviewed these issues and indicated the relative level of importance of each issue with its corresponding solution as developed by the brands.

Interestingly, the homeworkers were most interested in having educational opportunities made available to their children. Second came access to social insurance. Third, record keeping training that would help ensure payment of minimum wage and overtime. Safety and productivity training were at the bottom of the list, with the latter being classified as "not very beneficial" according to these workers.

This worker dialogue was an eye-opening exercise for the brands involved. It certainly makes the case for engaging workers as part of any responsible sourcing or ethical trading program. As the telecom theologist noted, this level of communication is vital for driving change. Understanding the needs and wants of workers will help fuel collaborative problem-solving rather than the hit-and-miss approaches typical of top-down efforts.

Labor Standards in Trade Agreements

There has been some conflict recently in the U.S. Congress regarding whether it is appropriate to include labor clauses in pending Free Trade Agreements with Colombia, Panama, Peru, and South Korea. Democrats are pushing to include language that would allegedly require countries to adhere to the core labor standards outlined in the International Labor Organization’s (ILO) Declaration on Fundamental Principles and Rights at Work, signed by the US in 1998.

Republicans worry that the language would open the door for countries to push the US on domestic labor laws and practices that might be contrary to ILO requirements; examples include teenagers working summer jobs or on farms or the use of prison labor to manufacture consumer goods. Their concern also stems from the fact that the US has only ratified two of the eight ILO core labor conventions on the above labor standards. Republicans fear that including ILO standards in Free Trade Agreements would make them binding in US law. However, Democrats maintain that the inclusion of labor conditions would not raise the bar to incorporate these non-ratified conventions but only "the Declaration we have already signed."

Given this exchange, you might not think that it is already standard practice to include labor clauses in US trade agreements. However, since 1993, the United States has included labor provisions in all bilateral and regional free trade agreements it has negotiated, as well as a bilateral textile agreement it negotiated with Cambodia, according to Sandra Polaski, Senior Associate at the Carnegie Endowment for International Peace, who formerly served as a United States negotiator on international labor matters.

This led me to question whether the language in the Democrat’s proposal somehow presents something new. Although the Democrat’s actual proposal has not been made available to the public, a one page summary of the proposal uses the following language: "basic international labor standards."

What language has been used in other agreements? The Cambodia agreement used the term "internationally recognized core labor standards. The U.S.-Jordan FTA also refers to "internationally recognized labor rights" and then defines them as follows: "internationally recognized labor rights: (a) the right of association; (b) the right to organize and bargain collectively; (c) a prohibition on the use of any form of forced or compulsory labor; (d) a minimum age for the employment of children; and (e) acceptable conditions of work with respect to minimum wages, hours of work, and occupational safety and health." The U.S.-Chile Free Trade Agreement contains the same language as the Jordanian agreement.

Given all this, there are 3 things I think lawmakers and business representatives should consider as they review the Democrat’s proposal:

1. Despite the disagreements in the Ways and Means Committee, there appears to be a surprising lack of reference to existing FTAs and their labor clauses. Lawmakers should consider these existing FTAs and what impacts they have (or have not had) on domestic labor practices, as well as the labor practices of our FTA partners, such as Cambodia and Jordan.

2. Public opinion supports the inclusion of labor rights in trade agreements. 93% of Americans believe that labor standards should be required in trade agreements, according to a poll conducted by the Century Foundation in 2006. The nine other countries included in the survey all had a majority of people in support of including labor standards in trade agreements, China with 84% and India with 56% in support.

3. Even if all trade agreements have a labor standards clause, each agreement may vary based on the obligations and enforcement mechanisms that are tied to labor standards in each FTA. Each FTA will have to stand on its own merits in these aspects and the current conversation surrounding phraseology of labor standards must go much deeper to understand whether the agreements will have sufficient clout to encourage improved conditions for workers.

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.

What's Ahead in 2007?

I don’t have a crystal ball, of course, but I’ve been talking with a number of brands, retailers, investors and other stakeholder groups in our industry and I propose there are three emerging trends that will move to center stage in 2007: (i) supplier ownership, (ii) collaboration; (iii) convergence.

SUPPLIER OWNERSHIP

More and more companies are looking to engage suppliers in creating sustainable improvements that will positively impact the lives and conditions of workers. To do so, brands and buyers are promoting the adoption of management systems that will help suppliers run more efficiently as well as manage social compliance issues in a planned and organized manner.

I first caught the vision of supplier ownership in 2004 when I was preparing to speak to a group of factory managers at a CSCC conference in Hong Kong. The topic was on how to manage compliance to a range of different codes of conduct. It occurred to me that the most organized factories usually had appointed a social compliance manager to handle all of the buyer assessments. This manager was in charge of providing the monitor with access to the production area, to the workers, to records required to assess compliance with local laws, etc. These suppliers didn’t feel as victimized or inconvenienced by the assessment process because they were already prepared for it. Being prepared and taking on ownership of their own compliance practices was an effective way for factories to overcome some of the challenges they faced when confronting the compliance process. Ownership could empower suppliers and help them see social compliance as a means for improving their own business practices rather than an inconvenient exercise that should be avoided or managed only through deception.

Now three years later, the concept of supplier ownership is gaining momentum in the world of responsible sourcing. Companies with mature monitoring programs such as Levi Strauss, Reebok, Nike, and Timberland are experimenting with aspects of supplier ownership. The hope is that suppliers will become partners in the process of improving labor conditions and undertake new management systems aimed at ensuring not only social compliance but also production efficiency, with well-managed production processes that will reduce work hours and improve worker well being. Study after study seems to show that well-managed businesses can work fewer hours, produce more, and with well-rested and well-paid workers, by changing only the level of efficiency in production management. Companies are encouraging their suppliers to put aside the cooked books and get down to the business of business – running more efficiently and in compliance with local laws. In the end, it is cheaper and easier to do things right than spend the time and resources to hide behind fake records and coaching or bribing employees to lie.

COLLABORATION

Brand and retailer initiatives continue to emerge with the goal of fostering collaborative approaches to responsible sourcing. Following in the footsteps of the Fair Labor Association and the Ethical Trading Initiative, there is also the Business Social Compliance Initiative in Europe, l'Initiative Clause Sociale in France, and CSC9000t in China. Some initiatives focus around sharing assessment results and working together to promote improvements in like-supply chains, such as the Fair Factories Clearinghouse in the US, and SEDEX in Europe. These programs see the most success when they have members with similar product-types who actually have a chance of using the same suppliers (this lack of like-supply chains is probably the biggest limitation for the FFC right now.) However, more and more stakeholder initiatives are emerging that are sector-specific, including the Electronics Industry Code of Conduct program, the Council for Responsible Jewelry Practices, and the Framework for Responsible Mining. These initiatives make collaboration the foundation of their efforts. These follow other sector-specific programs such as ICTI (toys) and WRAP (previously apparel, though WRAP is now seeking to re-make itself as a multi-sector initiative.) We will continue to see the emergence of focused initiatives such as these in 2007 and beyond.

CONVERGENCE

As brands and retailers increasingly sign-up to these initiatives, we can hope for a converging of some of the many standards and programs into a few. The ETI, once thought of as a UK-based initiative, now boasts an increasing number of non-UK members, including the U.S.-based Gap, Inc. Many members of the ETI have chosen to adopt the ETI Base Code as the code of conduct used in their supply chains, in order to use an existing multi-stakeholder code that promotes the use of a common industry code. In fact, the Body Shop forewent their previously developed code to adopt the ETI code and promote the concept of a universal code of conduct. The Gap recently announced their intention to do the same. As positive as these developments look for convergence and a universal code, there is some competition for the ETI. Last week, the Financial Times reported the first detailed disclosure of a new initiative aimed at consolidating responsible sourcing codes and monitoring efforts under one umbrella. Ironically, however, rather than adopting another existing initiative, such as ETI, the retailer group, comprised of heavyweights such as Wal-mart, Carrefour, Metro and Tesco (already an ETI member) have opted to develop yet another new initiative, the Global Social Compliance Program. According to the FT article, this has been done so far without any stakeholder consultation, though the group assures us they would like a stakeholder advisory board to ensure the credibility of the effort. Wal-Mart makes mention of this project in their last ethical sourcing report, but provides no true specifics. The FT article cites the CIES food organization as the lead in the GSCP, who promises to make more details public within a month or so. This initiative will likely continue to make headlines throughout 2007.

2006: Year in Review

Happy New Year! 2006 was a busy year in the world of ethical trade and responsible sourcing. Looking back, there have been some big headline events during the year, impacting workers, consumers, and brands from Jordan to Europe, from the U.S. to China. Here’s a brief summary of some of the pivotal developments from 2006:

The National Labor Committee made headlines around the world with their expose on the conditions of foreign imported workers in Jordan and potential violations of the US-Jordan Free Trade Agreement clause on labor standards. Congress even introduced an anti-sweatshop bill that would prohibit the import, export, or sale of sweatshop goods in the U.S. (this bill remains in committee, however, and will most likely stay there). In Jordan, the Ministry of Labor quickly responded to the damaging report by shutting down the worst offending factories and enlisting help from the ILO to improve training of their labor inspectors.

Meanwhile, in Bangladesh, more fatal fires plagued the garment industry there, with hundreds injured in related stampedes. General unrest in export industries led to full scale rioting and the closure of entire free trade zones. Some factories were burned, others looted or severely damaged. Ensuing talks dragged on for months, but finally resulted in garment workers winning a wage increase that was 10 years overdue.

In China, the top legislature received nearly 200,000 comments during the first round of public comment on a controversial draft labor contract law. While supporters praise the increased protections for workers, opponents, mainly U.S. business interests in China, bemoan the loss of flexibility in the employment environment, as the law would make it much harder to dismiss low performing workers. The law is again undergoing a public comment period. In the meantime, China continues to struggle with a worker shortage now going on three years. Affected cities continue to raise wages in the hopes of attracting workers. Separately, the Communist Party union, the All China Federation of Trade Unions (ACFTU) determined to force up to 60% of foreign companies operating in China to unionize, starting with Wal-Mart.

Other noteworthy events: An ILO report noted a worldwide decline in child labor. The ILO also called for the strengthening of labor inspection worldwide. The United Nations launched responsible corporate investing principles. Oxfam pushed sportswear firms to uphold worker rights. A report on the Mexico electronics industry disclosed serious labor rights abuses. Wal-Mart recently won a ruling on foreign workers, after being sued for failure to uphold the rights of workers employed by their overseas suppliers. Reebok, H&M, and Timberland all issued detailed reports on their monitoring efforts. Nike put worker rights over production needs when they cancelled a contract with one of their largest soccer ball suppliers, triggering a global soccer ball shortage.

And finally, 2006 was also the big year for coverage of the old news of factory cheating. Our news database shows 3 such articles in 2004, 4 in 2005, and a whopping 7 in 2006, crowned with the year-end BusinessWeek cover story, "Secrets, Lies, and Sweatshops." Never mind that even the small Los Angeles factories had a culture of cheating long before I started working as a monitor in 1997; for some this continues to be a revelation. Here’s a new flash, folks: it’s been happening for over a decade! The cheat sheets, the coaching, the techniques have all been done before – and it continues to happen from the U.S. to India. This leads into an important new development in responsible sourcing and a topic for next week’s blog: What to expect in 2007.

Cloning Cambodia

I just spent an interesting week in New York, absorbing the myriad speakers, sessions, and workshops at the annual Business for Social Responsibility conference. While there were several highlights to the conference, one session in particular stands out in my mind.

The International Labor Organization (ILO) and the International Finance Corporation (IFC) spoke about their partnership in rolling out the ILO’s Better Factories program into three new countries after a successful pilot in Cambodia.  The Better Factories Cambodia program was an evolution of the ILO monitoring project mandated by the labor standards provision of the US-Cambodia bilateral trade agreement.  Given that, it should come as no surprise that Jordan is one of the new target countries, given its current struggle to demonstrate compliance with the labor standards clause of the US-Jordan trade agreement following a highly public expose on the maltreatment of foreign workers in the export processing zones.  Lesotho and Vietnam are the other two target countries.

When asked to describe the learnings from Cambodia, Ros Harvey, head of the Geneva-based ILO Better Factories program, responded with three: (1) place a bigger focus on remediation, starting from the time of recruitment and the skill levels of the monitors, to ensure greater facilitation; (2) talk about the sustainability of the program early on; and (3) champion the link between improved working conditions and productivity. What did they get right in Cambodia? The interface between the ILO’s tripartite constituents (workers, employers, government) and the international buyers.

Interestingly, a representative from the World Bank shared a few comments about an experience with El Salvador and how that country did not want to follow the Cambodia model during an industry crisis at the end of 2004. Factories were closing every week and the World Bank was looking for a way to help sustain some of the enterprises. Perhaps El Salvador had considered what Ms. Harvey ultimately told Cambodian officials, “Labor standards alone won’t save you. You must be competitive on price, delivery times, and quality as well.” The World Bank ended up using a factory-based model that focused on productivity indicators.

The Better Factories program will not remain limited to the apparel industry, according to Ms. Harvey. While Lesotho will be the first stop in Africa, there will a continued focus on that continent in the future, to include agribusiness and the supply chains of multi-national corporations, including processing plants and plantations. Ms. Harvey also emphasized that, despite the current trend to move beyond monitoring of suppliers, “monitoring is a valuable public education exercise” and an essential part of any program.

GRI and Sustainability in the Supply Chain

I don't know about you, but I've been seeing a lot about the Global Reporting Initiative (GRI) over the last few months. This is partly because the GRI recently released its third iteration (G3) of their reporting standard on issues of sustainability and corporate social responsibility, but it's also been receiving high praise from business leaders. What is so special about the GRI? 

By all appearances, it is the most widely used of sustainable reporting standards, boasting 69% of companies on the Dow Jones Sustainability Index and 60% of the S&P 100. According to Social Funds, nearly 50% of sustainability reports, including social responsibility reports, released in 2005 were reported using the GRI standards. As a further boost to the universality of the GRI, last week the GRI and the United Nations Global Compact announced that the GRI could be used by member companies when preparing the Communication on Progress for the 10 principles of the UNGC.

Yet despite its wide appeal to reporting companies, what impact does it have on the supply chains of those companies? Can this reporting standard help drive sustainability and social responsibility in the supply chain? This was the question posed to a panel at the recent Reporting Sustainability conference in Amsterdam, held in conjunction with the G3 launch. As I listened to this panel discussion, I was interested in some ideas that emerged from Petrobras, Brazil's largest industrial company, a member of the UNGC, and a veteran of the GRI.

According to Ana Paula Grather, Petrobras' Social and Environmental Report Coordinator, the company uses its sustainability report as a platform for dialogue with suppliers. It requests suppliers to complete a voluntary self-assessment on labor standards, safety, environmental performance, and other issues. In 2005, 1,400 Petrobras suppliers participated.  Petrobras uses the results of these surveys, which will eventually become mandatory, to draw a "map of vulnerabilities" and identify areas of improvement.  Petrobras also offers support to its small and medium-sized suppliers, or potential suppliers, to help them develop and exercise corporate social responsibility.

According to Ms. Grather, culture remains the biggest challenge for Petrobras in driving CSR in the supply chain.  Many suppliers continue to see the costs of CSR as a barrier to implementation.  Petrobras aims to work together with suppliers to show them the business case for social responsibility as well as the self-development and improvements that result.

I think the experience of Petrobras would apply to most companies seeking to promote better practices throughout their supply chain. A special note for apparel and footwear companies: the GRI is about to release a special reporting supplement for this sector. Having reviewed this supplement during the public comment period, I can tell you to be on the lookout for specific reporting requirements for the supply chain. More on that when the supplement is released!