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The ROI on CSR

Concerns about workers’ safety in the garment industry have spurred collective protest against several deadly factory fires and the recent building collapse in Dhaka, Bangladesh. Subsequent responses from the Bangladeshi government, the international community and retailers highlight the difficulty in seeking accountability for tragedies which ensue from a failure to develop, implement and enforce measures that ensure employee protection.

Faced with warnings of “financial repercussions from consumers, damage to their stock value or sustained public protests if they do not adopt stricter garment manufacturing standards,” some global clothing retailers, such as the United Colors of Benetton, initially denied any role in factory production of their products. Walt Disney left Bangladesh completely after the November fire, discontinuing production of branded merchandise. Other companies directly affected by the most recent building collapse focused instead on compensation and long-term financial aid for victims. The marred reputation of garment production in Bangladesh has complicated corporate public relations even for companies, like H&M, not directly involved in the Rana Plaza collapse, but part of the industry. In response to concerns about the potential economic vacuum resulting from this swift corporate exodus, the Bangladeshi government closed several garment factories for inspection, opened the door for garment worker trade unions and is considering plans to increase the minimum wage in this industry.

Whose job is it to implement and enforce standardized practice? The obvious answer here, with regard to international human rights obligations, would be the State. But often, the excuse given for the lack of standardized safety practices come down to cost. In addition to the roles of factory owners and supply-side companies, what role should large multinational corporations pay in footing the necessary expenditure to ensure worker safety?

Disney argued that it left Bangladesh “to bolster safety standards in its supply chain”. However, one might argue that given the flexibility of international supply chains, it was just easier to leave Bangladesh than to pay to fix any problems. According to the New York Times,

Some nongovernment organizations estimate that it would cost $3 billion, or $600 million a year for five years, to make the needed fire safety and building improvements to ensure that Bangladesh’s more than 4,000 garment factories were safe. Bangladesh exports about $18 billion in apparel a year.

Nobel Laureate and Bangladeshi Professor of Economics, Muhammad Yunus even argues that foreign clothes companies should play a role in protecting workers by collectively determining a minimum wage.

Recently, several European retailers signed an agreement to finance safety measures in factories in Bangladesh. Their American counterparts refuse to sign the agreement based on concerns about legal liability,

For example, if a Bangladesh factory burns and workers die, the victims’ families, represented by zealous American lawyers, might seize on the legal commitments in the accord to file lawsuits in the United States against retailers that bought apparel from the factory.

Notably, some UK retailers that are part of the Ethical Trading Initiative (ETI) also refused to sign. Underscoring the ETI is a need for retailers to “take responsibility for improving the working conditions of the people who make the products they sell”.

In contrast to the lack of action undertaken by US businesses, the US Government has increased pressure for enhanced safety measures in Bangladesh.

In January — two months after the Tazreen factory fire in Bangladesh killed 112 workers — the United States trade representative notified Bangladesh that Washington might withdraw, suspend or limit that country’s trading privileges. The trade representative was responding in part to a complaint that the A.F.L.-C.I.O. filed, asserting that the Bangladesh government had worked in concert with its apparel manufacturers to suppress labor unions.

The US government backed this up with the promise of financial support. “One administration official said it was working on a plan that would provide several millions dollars to the Bangladesh government to help strengthen its efforts to regulate factory buildings, especially on fire safety.”

Bangladesh isn’t the only country susceptible to concerns about workplace safety, as highlighted by a recent Cambodian shoe factory collapse. Similarly, labor exploitation in other industries seems to receive far fewer repercussions from investors and consumers. For instance, Samsung was accused last year of exploiting young workers, while Foxconn, maker of Apple products, has been subject to protests, including suicides, over worker conditions and accusations of bribery by supply-chain partners. Indeed Apple itself found child and bonded labor in its supply chain affecting multiple factories. Although these companies may suffer the occasional financial setback, any figures reporting reduced profit margins have yet to appear directly correlated to supply chain concerns. Perhaps the preference for garment worker advocacy says more about the consumerist value of an iPhone over the power of a t-shirt.

In responding to the Dhaka factory collapse, a representative from Labour behind the Label was quoted: “It isn’t the responsibility of the consumer to feel guilty about buying what is readily available in shops.” We would argue that consumer awareness (perhaps fueled by guilt) is what compels companies to act. But how is that (financial) impact measured? How should large companies, such as Walmart, go about determining any direct correlation between one PR nightmare measured against another? In terms of labor supply, this may be complicated by the existence of multiple suppliers and sub-contractors – how far down the supply chain is one company considered accountable? And, while supposedly a bad reputation damages business, as the examples above show, this may not always be apparent. For instance, CSR expert at U.C. Berkeley, Kellie A. McElhaney argues the pressure on Bangladesh-based multi-nationals isn’t coming from the market, but rather the advocacy efforts. In other words, companies aren’t feeling a negative financial impact directly from consumers unwilling to buy their products, but are making changes due to pressure from governments and civil society.

Achieving the lowest possible costs for production is standard business practice. But some businesses aim to achieve this at the expense of safety standards. Apparently neglected are opportunities to invest in enhanced worker protection with minimal cost to the consumer. The UN Working Group on Business and Human Rights recently “urged brands to address how buyer behavior and pricing strategies may prevent investments in safer factories and living wages for workers.” Corporate buyers and consumers themselves have a role in signaling a willingness to increase costs to ensure safe and fair work conditions.

At what point do businesses, and consumers, decided that a propagated sense of good will constitutes “enough”, particularly as some businesses with outstanding concerns about worker protection are lauded internationally for efforts against exploitation? For example, given the above cited issues over Apple’s supply chain, should the company’s Senior Vice President of Operations Jeffrey Williams, have been honored this year in Davos at the Business Leader Awards to fight human trafficking by UNGift?

Moreover, to what extent should consumers hold businesses that actively promote ethical businesses practices to account – are they more accountable than businesses that do not promote such strategies? Businesses in various industries have begun to invest in collaborative ethical initiatives to identify and address trafficking and exploitation, such as The Tourism Child-Protection Code of Conduct (for child sex tourism and child trafficking). This voluntary commitment involves establishing an ethical policy against commercial sexual exploitation of children, training personnel, providing information to travelers and reporting annually to the Code of Conduct Steering Committee. Without legal liability for non-compliance with ethical commitments, we are interested to see the changes that emerge from these agreements. Is it “enough” to work to create an internal ethics policy and/or educate suppliers on trafficking? Or should companies be held accountable to a broader-base of anti-exploitation measures? Perhaps, as Avaaz recently argued, as part of a campaign targeting businesses in Bangladesh, those businesses are positioned to take on leadership roles:

[…] H&M and Gap are well placed to turn what have become death traps into safe factories […] We’re targeting these two companies because they’ve made commitments to ethics, and we feel that this leadership makes them well placed to not only lead their own companies but also to lead the rest of the industry to sign up to these strong and enforceable agreements.

Some companies believe they are above the law, despite ethical commitments. Walmart, for instance, has been not only criticized for treating workers poorly at home and abroad, but insists on rejecting collaborative efforts to engage and promote best practice. Conversely, are those businesses that make no such ethical commitments given a free pass?

Holding international companies to account is tricky business. The case treating workers well, both employed directly and as part of the supply chain, needs to be investigated and incorporated into policy. This would include further studies such that undertaken by MIT Professor Richard Locke of Nike suppliers, which showcased the rewards (better conditions and productivity) of investment in worker safety (via monitoring and inspection). Notably, those efforts should involve ongoing engagement and evaluation. For instance, despite many positive changes made by Nike, female workers at a Nike supplier were recently injured over protests for increased wages.

Idealistically, businesses argue that the power of industry can, in some cases, more positively influence worker rights than the State. Cynically, this may be a way to circumvent the State’s interference. In any case, it might actually be valid if businesses developed comprehensive and robust strategies to ensure compliance with their own standards for worker safety and wage protection, and, if those protections were standardized throughout the industry. Sadly, despite promises, the result has been a global race to the bottom.

The UN Guiding Principles on Business and Human Rights provide a framework for the State to protect workers and businesses to respect human rights. The UN Working Group on Business and Human Rights recently emphasized the role of clothing brands to ensure worker safety in Bangladesh. It argued those brands have a responsibility to be transparent in their efforts to uphold workers’ rights and “[i]f they are linked with negative impacts on human rights through their suppliers, they have the responsibility to exercise their leverage as buyers to try to effect change.” The Group underscored the importance of protecting workers from violations from “business actors”. However, while the State has a vested economic interest in ensuring employment (and economic growth/stability) for its citizens and it is bound by duties to protect those citizens from exploitation; it is also duty bound to uphold other human rights obligations, including the right to life. The focus on corporate responses to the consequences of inadequate worker protections should not overshadow the responsibility of both Government and businesses to protect those workers in the first place.


2 Comments

  1. […] effect between trafficking and labor exploitation/ abuse by employers and the impact of corporations. The Congressional Research Service notes: “According to the United Nations, human trafficking […]

  2. […] anticipation of the World Cup. Mirroring the media outcry over the state of the garment industry in Bangladesh, coverage here was spurred by the deaths of these workers over the summer from heart attacks, heart […]

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