Bringing Codes Down to Earth
published in International Union Rights (www.ictur.labournet.org), issue 3, 2001

Lynda Yanz and Bob Jeffcott, Maquila Solidarity Network

Voluntary codes of conduct are one of the most hotly debated topics within the corporate social accountability movement. And despite the proliferation of company and multi-stakeholder codes, and monitoring and verification initiatives, the greatest challenge facing both companies and civil society organizations continues to be how to put voluntary codes of conduct into practice, that is how to make them credible, transparent and effective tools for both companies and workers.

Unfortunately, there are currently very few examples of credible code monitoring, verification and public reporting systems. In fact, there is still very little information publicly available on the relative effectiveness of different models of code monitoring and verification.

However, media exposÈs, the selective release of monitoring reports by companies, and reports from multi-stakeholder code monitoring pilot projects are revealing serious weaknesses in current code monitoring and verification programs and pointing to possible alternatives. Increased information on actual code monitoring experiences is beginning to bring the codes debate down to earth.

Case 1: Wal-Mart in China

On 2 October 2000 an article titled 'Inside a Sweatshop: Wal-Martís China Problem' appeared on the cover of the US magazine Business Week . In bold type, the two opening sentences of the article state: 'Wal-Martís self-policing in a Chinese sweatshop was a disaster. What kind of monitoring system works?'

This is the kind of media coverage that business executives have nightmares about. A reputable, mainstream publication was not only linking Wal-Mart to sweatshop abuses in China, it was also publishing the companyís admission that it had misled the public about its ties to the factory, and that its monitoring program had failed to notice the most serious abuses. Being caught using sweatshops isnít the worst thing that can happen to a company; being exposed for covering up the abuses and failing to correct them is.

For months Wal-Mart had publicly denied that it had ever had ìany relationship with a company or factory by this name anywhere in the worldî. In fact, Wal-Martís Kathie Lee brand handbags had been made in the factory, and in 1999 Wal-Mart had contracted two commercial auditing firms, PricewaterhouseCoopers and the California-based Cal Safety, to carry out five audits of working conditions at the factory.

While the commercial auditing firms had reported excessive overtime and the failure to pay legal overtime rates, they had failed to uncover serious instances of physical abuse, including the beating of workers by security guards, workers being forced to pay illegal deposits for the first monthís food and lodging, and the imposition of fines and penalties that resulted in many workers owing the factory money after several months of employment.

Significantly, the workers did eventually report these and other abuses to local government labour officials, information that they were not willing to share with Wal-Martís so-called independent monitors.

Case 2: Nike in Indonesia

On February 22, the Global Alliance for Workers and Communities released a report on labour practices in nine Nike supply factories in Indonesia . The report was based on a study by the Centre for Societal Development Studies of Atma Jaya Catholic University in Jakarta.

The Global Alliance is a controversial NGO/private sector initiative, involving the International Youth Foundation and the World Bank, in partnership with Nike and Gap. The Allianceís stated objectives are to assess workersí aspirations and developmental needs. While the Global Alliance has repeatedly claimed that it is not a code monitoring or verification body, the work of the Alliance has regularly been used by Nike to deflect criticism for labour rights violations, and, in some instances, to discredit more critical reports by local labour rights organizations.

The Global Alliance report confirmed that serious labour rights abuses that were earlier documented by more critical Indonesian NGOís were continuing to take place in Indonesian factories producing for Nike. It also called into question the effectiveness of Nike so-called ëindependentí code monitoring program, which had been carried out by the commercial auditing firm PricewaterhouseCoopers (PWC).

On the negative side, the release of the report further confused the issue of whether the Global Alliance was acting as a code monitoring body. It also raised a larger strategic question of how labour rights advocacy groups should respond to the recent trend for corporations to pick and choose NGOís to investigate labour practices and/or monitor code compliance.

Based on interviews with more than 4,000 Indonesian Nike workers, the Global Alliance report documented the following serious instances of verbal, physical and sexual abuse by management personnel:

56.8% observed verbal abuse of co-workers;

13.7 % observed physical abuse;

25.7% observed unwanted sexual comments; and

15.8% observed unwanted sexual touching.

According to the report, ìverbal punishment is often the result of not reaching targeted outputs, sewing machines breaking down, products that are rejected, workers who canít keep up with the line, or workers requesting annual leaveî. In other words, abusive treatment by management personnel is linked to the pace of work, which is largely determined by production demands and order deadlines imposed by Nike.

The report also indicated that overtime during peak seasons was extremely high, that 39% of the workers interviewed were dissatisfied with overtime, and that workers were pressured to sign statements agreeing to ëvoluntarilyí work overtime. Workers also reported ëtheir base wage is quite low and does not adequately meet the increased cost of living and other needs.í

Significantly, these finding were virtually identical to those in a 1999 study by an Indonesian NGO, the Urban Community Mission . Of the 3,500 Indonesian Nike production workers interviewed in that study, 57% reported seeing fellow workers mistreated or yelled at.Ý44% complained of forced overtime. The Urban Community Mission report also revealed that the vast majority of workers were receiving much lower pay than Nike claimed they were receiving.

When the Urban Community Mission released its study in 1999, Nike responded by trying to discredit the report, calling it unprofessional. They contrasted the Urban Community Missionís study with the so-called ëprofessionalí and ëindependentí monitoring carried out by the commercial auditing firm PricewaterhouseCoopers (PWC), claiming that PWCís audits proved that the allegations of abuse in the Urban Community Missionís report were unfounded.

Two years later, Nikeís decision to release the Global Alliance report represented an admission that a local Indonesian NGO had more accurate information on labour practices in its supply factories than did its ëprofessionalí social auditor. Apparently, this decision was made after extensive internal debate within the company about the seriousness of the code violations documented in the report and the questions it would raise about the effectiveness and credibility of Nikeís code monitoring program.

While Nike had decided to address the hot-button issues of verbal, physical and sexual abuse exposed in the Global Alliance report, its response to workersí complaints of inadequate wages and excessive and forced overtime was far less encouraging. On wages, Nike promised to ìensure the factories have a clear communication process in place to educate workers on their compensation structure and calculationsî, but continued to insist that ìthe adequacy of wages is a contentious issue in Indonesiaî.

On hours of work, Nike admitted that excessive overtime is ìboth a Nike compliance problem as well as a structural problem within the apparel industry worldwide,î but then stated that a maximum of 72 hours a week was acceptable for factories that received a government exemption from the legal limit of 54 hours. It then pointed approvingly to its policy of requiring factories to notify workers in advance when overtime is required and to have workers sign agreements to ëvoluntarilyí work overtime, ignoring the reportís finding that workers feel pressured to sign these ëvoluntaryí agreements.

Totally missing from the study was the crucial question of freedom of association. Despite the fact that the right to join and form independent unions is a major issue in Indonesia, an issue for which Nike has repeatedly come under fire, the Global Alliance study failed to even mention the issue.

If Nike takes the Global Alliance report seriously, it will be compelled to reexamine its current code monitoring and verification program, including the apparent inability of its commercial auditors to gain sufficient trust of workers to determine whether violations are occurring. It will also have to face the underlying problem that its pricing policies and production demands are at least partially responsible for continuing abuses.

Case #3: PricewaterhouseCoopers

While the effectiveness of PricewaterhouseCoopersí audits was challenged by both the Global Alliance study and the Business Week exposÈ, the most damning evidence discrediting its monitoring practices emerged from a university-sponsored codes monitoring pilot project.

On September 28, Dara OíRourke, Assistant Professor at the Massachusetts Institute of Technology (MIT) and health and safety expert, released an inside report on PWCís monitoring methods . While doing research for the Independent University Initiative of five major US universities, OíRourke accompanied PWC auditors on inspections of factories in China and Korea, and also was able to evaluate PWCís findings in a factory in Indonesia.

His report documented major labour rights violations that PWC auditors failed to note, including use of hazardous chemicals and other health and safety problems, barriers to freedom of association and collective bargaining, violations of overtime laws, and timecards that appeared to be falsified.

OíRourke claimed that in the Chinese factory he visited, the PWC auditors failed to note that the union was run by management, and that in the Korean factory the auditors skipped over all interview questions about freedom of association during the worker interviews, stating that ìthere is no union in this factory, so I donít need to ask these questionsî. Both factories were reported to be in full compliance with freedom of association provisions. As part of the project OíRourke was working on, PWC audited 13 factories in seven countries, including countries known for restrictions on freedom of association, yet not one factory was reported to be in violation of freedom of association provisions.

On wages and hours of work, the PWC report claimed that workers in the Chinese factory were required to work overtime at a rate that was less than the minimum wage, and that workers worked overtime to complete their quotas. According to OíRourke, the PWC auditors made verbal suggestions to the factory managers on how to bypass national overtime laws. OíRourke also claimed that in the Korean factory overtime was neither recorded nor paid, and that the PWC auditors actually recommended that the factory circumvent overtime pay laws by paying a ëbonusí rather than legally required overtime premiums.

The report blamed PWCís monitoring methods rather than individual auditors. It noted that auditors gather most information from managers rather than workers, and depend largely on data provided by management. According to OíRourke, all interviews with workers were done inside the factories, and managers were allowed to help select workers to be interviewed and to bring them to the offices where they were interviewed. The managers therefore knew who was being interviewed, for how long, and on what issues.

Case #4: DNV in China

In September 2000, the Hong Kong Christian Industrial Committee (CIC) charged that the Yongsheng shoe factory in southern China was in violation of the SA8000 standard, and was improperly certified by the Norwegian social auditing firm Det Norske Veritas (DNV). The factory produces for Adidas and other brand-name shoe companies.

SA8000 is a multi-stakeholder code initiative of the New York-based Social Accountability International (SAI). Although the SA8000 standard is one of the highest among the multi-stakeholder code initiatives and its guidance document one of the most thorough, its social auditing program has been criticized by Hong Kong-based labour rights organizations for its reliance on commercial auditing firms and its alleged failure to involve workers in the monitoring process.

CIC also questioned the effectiveness of the SA8000 complaints procedure. SAI has since suspended the certification of the shoe factory, and is now reviewing DNVís accreditation as an SA8000 auditor.

A December 18 article in the South China Morning Post (Hong Kongís English-language daily) raised further questions about the effectiveness of the SA8000 factory code verification and certification system. In the article, DNVís China representative, Sangem Hsu Shuaijun, stated that enforcing labour standards in southern China is impossible, and that DNV was fed up and prepared to pull out of SA8000 auditing in China.

ìYou have in southern China all the factors working against the auditors,î Hsu is quoted as saying. ìThere are the multinationals, which want low labour costs; the factory managers, who donít like us because of fines for non-conformity; and even the local Chinese Government in many places, which wants this business and does not want it threatened. All this is working against the cause of the workersî.

In the same article, Alice Kwan of the Hong Kong Christian Industrial Committee is quoted as saying ìsince the workers are not involved in the audits, SA8000 is strictly a thing between transnational companies and consumers. It is a publicity stuntî.

Case #5: COVERCO in Guatemala

In 1999, the Guatemalan NGO independent monitoring group COVERCO released the first of two public reports documenting worker rights violations in a Guatemalan supply factory producing for the US apparel merchandiser Liz Claiborne . The report revealed incidence of verbal abuse, paying new workers an ëapprenticeí rate below the minimum wage, forced overtime, and denying a pregnant worker the right to medical attention on work time.

What was unusual about the COVERCO report was that the pilot monitoring project on which it was based was carried out at the request of Liz Claiborne, and that the company authorized the reportís publication. At COVERCOís recommendation, Liz Claiborne also developed a Spanish comic book version of its code of conduct for distribution to all workers, and facilitated training workshops for both workers and management.

Interestingly enough, Liz Claiborne was not publicly attacked about workplace violations documented in the COVERCO report, it was praised for allowing a credible southern NGO to investigate those conditions, and for making the results of the investigation public.\

Of course, the release of the report now obligates Liz Claiborne to work with the supplier to bring it into compliance with its code of conduct and Guatemalan labour law. If it fails to do so, much of the credibility gained through the exercise will be lost.

COVERCO has since been accredited as an external monitor in Guatemala for the Fair Labor Associationís code monitoring program. According to COVERCO, they made the decision to seek accreditation after the FLA agreed that they could set the following conditions for participating companies :

In all monitoring work, COVERCO will take into consideration the highest applicable standard, the FLA Code, national law, and international law.

COVERCO owns all the data and analysis it produces.

COVERCO will make public key findings of its research and monitoring.

COVERCO reserves the right to participate in other groups and to seek other accreditations, and to monitor for companies that are not FLA members.

Lessons

In the Wal-Mart, Nike and Liz Claiborne cases described above, transparency was a central question that challenged the traditional self-regulatory practices of the companies involved.

Interestingly, neither Nike nor Liz Claiborne suffered significant negative publicity as a result of its decision to allow the publication of worker interviews and external monitoring reports. In fact, both companies received some ñ limited ñ positive publicity for their decision to make public disturbing findings. However, these companies will face renewed criticism if the same or similar labour rights abuses are reported in yet another study two or three years in the future.

Because it decided to disclose a negative report, and because it publicized its plan to correct at least some of the problems identified, Nike has gained credibility. By collaborating on a pilot monitoring project with a respect local NGO, and by allowing that NGO some ownership of the results of the process, Liz Claiborne has also gained credibility. Because it ignored the reports of its critics, relied solely on hired commercial auditors for information, and withheld information from the public, Wal-Mart has lost credibility.

However, transparency in monitoring, verification and public reporting do not in themselves address the question of who is best equipped to carry out code compliance verification. On this theme both the Wal-Mart and Nike examples converge.

In response to the growing number of negative reports on the failure of so-called professional social auditors to detect labour rights violations, some companies are beginning to admit that the commercial social auditing model has serious limitations, and perhaps is not an adequate response to the problem. While commercial auditing firms may be best equipped to carry out book audits of company records, they have not proven to be very effective instruments for assessing workersí attitudes and experiences.

In response to growing criticism of commercial social auditing, Nike, Liz Claiborne, the Gap and other major companies are beginning to involve NGOs and non-profit monitoring organizations in worker interviews and/or external monitoring. Through its participation in the US Fair Labor Association (FLA), Nike and other FLA member companies are expected to make more use of the non-profit organization VeritÈ and local NGOs like COVERCO in their external monitoring programs.

However, while corporations like Nike are now selectively releasing reports from NGO investigations, in most cases they continue to determine which issues will be addressed in those investigations and which reports will and will not be released to the public. Merely calling for NGO participation in external monitoring is therefore no longer a sufficient answer to the codes monitoring dilemma.

With the emergence of the multi-stakeholder code initiatives such as SA8000 and the FLA, worker rights advocacy groups need to seriously and quickly address this central problem of who can most effectively carry out independent monitoring of compliance with codes of conduct, international standards and local law.

While advocating for a greater and more authentic role for local human rights and other non-governmental organizations in external monitoring, we must also acknowledge that, with the possible exception of Central America where there are now three local NGO monitoring groups , there is not currently a sufficient number of local NGOs that have the experience or the desire to act as independent monitors for all of the thousands of supply factories producing for major brands around the world.

While training of NGO monitors should be a high priority, this in itself will not resolve the monitoring dilemma. Increased transparency and worker involvement in the monitoring process are also essential, as is the need for companies to address the conflicting demands they place on suppliers to meet code requirements while at the same time cutting production costs and turn-around time.

To bring codes of conduct down to earth and make them effective tools for companies and workers, a number of changes must occur:

The public must have increased access to information on production locations and companiesí progress in reaching code compliance.

Suppliers must be adequately compensated for the costs involved in meeting compliance, and relieved of some of the pressures of unreasonable production deadlines.

Workers must, at the very least, know that codes of conduct exist, and be aware of their rights under the code, local laws and international standards.

Workers and interested third parties must have secure means to register complaints, without fear of retaliation for doing so.

Companies must be prepared to commit themselves to ongoing training of workers and factory managers and personnel on workersí right under codes of conduct, international standards and local laws. Such training should be carried out by trusted local labour, womenís and human rights organizations, with the cooperation of northern companies and their southern contractors.

A Life of Fines and Beatingí, Business Week, October 2, 2000, pp. 122-128.

Workersí Voices, An Interim Report on Workersí Needs and Aspirations in Nine Nike Contract Factories in Indonesia, A three part report of the Global Alliance for Workers and Communities, in partnership with Atma Jaya Catholic University and Nike. Inc., February 22, 2001, 126 pages. Available at: HYPERLINK "http://www.nikebiz.com/labor/" www.nikebiz.com/labor/

ìCruel Treatment Working for Nike in Indonesia, Urban Community Mission, December 1999, 29 pages,. Available at: HYPERLINK "http://www.summersault.com~agj.clr/alerts/letters/survey.rtf" www.summersault.com~agj.clr/alerts/letters/survey.rtf .

O'Rourke, Dara (2000), ëMonitoring the Monitors: A Critique of PricewaterhouseCooperís Labor Monitoringí white paper, released Sept. 28, 2000, 15 pps.

Correspondence from Hong Kong Christian Industrial Committee to Social Accountability International and DNV, dated September 7, 2000.

1st Public Report, Independent Monitoring Pilot Project with Liz Claiborne, Inc., COVERCO, October 15, 1999.

Open Letter from COVERCO, February 2001.

COVERCO (Commission for the Independent Verification of Codes of Conduct (COVERCO) in Guatemala, the Independent Monitoring Group of El Salvador (GMIES), and Independent Monitoring Team (EMI) in Honduras.