By  on May 16, 2006

NEW YORK — Major apparel brands and retailers are looking to go beyond their codes of conduct and cursory on-site factory audits to bring about a new era in corporate social responsibility.

The goal of such brands as the Gap, Levi Strauss and Nike lies in dispensing with what has sometimes resembled a dysfunctional parent-child relationship between brand owners and the factories that produce their goods. Now, these firms are looking to recast themselves as customers that do more than demand compliance, but provide the necessary resources and training.

"No one likes to be the police — no one likes that relationship," said Michael Kobori, vice president of code of conduct for Levi Strauss. "The industry is spending 80 percent [of its resources] on monitoring and only 20 percent on building the factories' ability to remediate these issues. We need to flip this around."

For Kobori and others involved in investigating global labor standards, this change has been slow to occur, largely because corporate social responsibility is still in its infancy.

Alice Tepper Marlin, president of Social Accountability International, a nonprofit organization focusing on workers' rights, has been a firsthand witness to what she says has been the corporate world's rapid change in thinking about social responsibility.

"If you went back 15 years and suggested to a company that their consumers and the public would hold them responsible for the employment practices and environmental impact of companies they purchased their goods from, you would have been viewed as a voice from Mars," said Tepper, who has been working in the field since 1969.

While companies readily acknowledged their responsibility for areas such as worker's rights and safe factory conditions, Tepper conceded that implementing change has been a slow process, "and it's got a long way to go." The first stage of development for apparel companies, according to Tepper, was kicked off in 1991 when Levi's became the first major brand to issue a code of conduct for its global suppliers. A proliferation of codes from other brands ensued.

From there, the emphasis shifted to learning how to effectively audit, inspect or monitor factories. Tepper asserted that most companies should now be entering a third stage, focusing on providing factories with the means to fix the root cause of a problem.But a report on rampant abuses occurring at Jordanian apparel factories released by the National Labor Committee on May 3 showed that some key players in the industry have failed to make the necessary investments to develop effective auditing procedures. The 162-page report was a familiar list of offenses that continue in the apparel industry, including excessive overtime, harassment, beatings and failure to pay wages. During the year spent gathering evidence and interviewing workers, the NLC found these factories manufacturing for a Who's Who list of apparel brands and retailers, including Wal-Mart, Kmart, Kohl's, J.C. Penney, Gloria Vanderbilt, Mossimo, New York Laundry, Bill Blass and Victoria's Secret.

The report exposed sweeping abuse of immigrant labor in Jordan's factories, and it also highlighted how U.S. foreign trade policy and the effects of globalization play a crucial role in allowing these situations to develop.

Jordan became the fourth country to establish a free trade agreement with the U.S. in December 2001, allowing goods made in the country to enter the U.S. duty-free. The FTA also entitled factories to a host of other tax-related benefits. Factories are exempt from local Jordanian income tax on corporate profits, income and social services taxes on wages to non-Jordanian workers, import and export duties on raw materials, parts and finished goods for export and local building and land taxes. As a result, Jordan's apparel exports have risen nearly 2,000 percent to $1.08 billion in 2005, compared with $52.1 million in 2000.

Low-cost material from China has fueled the majority of this growth, according to the report, which stated, "The real winner in the U.S.-Jordan Free Trade Agreement is China, as fabric from China accounts for over 60 percent of the total value of the garments entering the U.S. duty-free."

Ultimately, the report accused brands and retailers of not improving the way they audit factories and of ignoring problems when they were found.

As an example, the report describes a one-day audit conducted by representatives of Woolrich. Because the factory knew when the visit would take place, the facility was cleaned, workers were coached on how to respond to auditors, the quality of the factory's food improved overnight and workers were allowed to leave at 6 p.m."It is the same drill, rehearsed and repeated for each auditing group," said the report, which viewed the auditors' acceptance of the validity of the factory's records as another failure.

"One set [of records] is for the gullible corporate auditors, while the other is for accurate factory records," reads the report. "At this stage of the game, corporations are well aware that supplier factories across the world utilize these two sets of records and they should not be so easily fooled."

Charles Aides, senior vice president in charge of sourcing for Woolrich, said the company had no such monitoring team in Jordan at the time the NLC alleges. "That's absolutely an incorrect statement by the NLC," said Aides. "I do not believe the NLC report is totally accurate." Still, Aides stressed that the company is taking the allegations seriously and was immediately in contact with factory management.

The authors of the report were particularly pointed in their criticism of Wal-Mart, which they contended was consistently found manufacturing in the worst of the world's factories.

"Behind Wal-Mart's bargains are cheap goods made by thousands of workers being held under conditions of indentured servitude, forced to work 100 hours a week while being cheated of a least half of the wages legally due them," reads the report. "The use of slave labor in Jordan is complimented by cheap fabric from China. This is Wal-Mart's low-price secret."

When the report was released, Bill Wertz, Wal-Mart's director of international corporate affairs, said, "The abuses this report apparently alleges are total violations of our standards." Wertz said Wal-Mart has sent two company officials to Jordan to look into the allegations.

Wal-Mart stopped doing business with one of three factories in Jordan, Ivory Garment Factory, two years ago after the company's inspectors found labor violations, Wertz said.

"We have not ceased doing business with the other two factories, because we are attempting to use our leverage to obtain improvement of working conditions," Wertz said. "We have become less quick to cut factories off because of input from the NGO [non-governmental organizations associated with the United Nations] community and others that this is not necessarily in the best interest of the workers."Dan Henkle, a senior vice president of social responsibility for the Gap, said these sorts of issues are likely to arise in companies that are in the early stages of developing compliance standards.

"These companies are in different stages of development, which just needs to be understood," said Henkle.

The problem, he said, is that companies focus their early compliance efforts on addressing what can be readily seen and dealt with inside factories, such as health and safety issues. Getting beyond those issues is the key and has forced companies like Gap and Levi's to drastically change their auditing processes in the past few years.

Henkle pointed out that when the Gap made social responsibility a priority, around the time Levi's issued its first code of conduct for suppliers in 1991, not only was there no road map explaining how to effectively discover what was occurring inside factories, there wasn't a wealth of people with the necessary background to initiate such programs.

Henkle had been a vice president of human resources for the Gap division. Today, he oversees a global network of more than 90 people who monitor the company's suppliers. Auditors now go through training on the best ways to interview factory workers, which often requires approaching them in places away from the factory. Henkle is also focused on getting local trade unions and non-government organizations involved in the monitoring process to provide early warnings of problems inside the factory. The most recent effort involves reaching out to other companies that may be using the same factories in an attempt to standardize compliance expectations.

"The big lesson for us is that we can't do this on our own, and everyone who has a stake should be involved," said Henkle.

Kobori started working for Levi's in the mid-1990s in the company's government affairs and public policy department. Since then, he has seen the firm update its code of conduct several times to include guidelines on liquid waste from its laundry facilities. It has also twice in the past six years strengthened provisions on workers' rights to organize.

Levi's employs 23 full-time monitors around the world and overhauled its auditing procedures in 2002. Kobori likens the current monitoring model to that of cultural anthropology, using local assessors to speak with workers at bus stops, during lunch breaks or as they leave the factory."Prior to that, I don't believe we were gathering information from workers effectively," said Kobori. "It was up to the individual and their skills and ability to get information. We realized we needed to improve the process."

Levi's auditors now go through a three-day training program before heading into the field. Factory audits on average last between two and three days.

Companies that are able to improve their auditing processes are now taking a look in the mirror and recognizing that the way they operate is also having an impact on how factories carry out their work. SAI's Marlin said she believes only leading-edge companies are truly grappling with how their business decisions affect factory operations.

"The most advanced companies are looking at what they can do to lessen the number of last-minute design changes," said Marlin. "When we try to get factories not to work 85 hours a week, the owners often say it's impossible, because they get too many seasonal changes without enough lead time. It's a problem for brands and retailers, because that's how they've driven costs out of their systems. The most difficult part is how do you get the designers to think that way."

Henkle agrees and said building awareness of the issue throughout the company has been a new priority.

"We're trying to get better at surfacing these issues as they happen," said Henkle. "There's nothing better than concrete examples."

Nate Herman, director of international trade at the American Apparel & Footwear Association, said the removal of global quotas should help companies focus on compliance efforts.

"There's been a lot of consolidation in terms of sourcing," said Herman. "Because you're able to focus on fewer countries and fewer factories, you're able to build long-term relationships. There's more of a worthwhile investment in that."

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