SOCIAL TOPICS (Archive): HUMAN RIGHTS

Published, March 1997

       by Heather White

       Codes of conduct are emerging as a key starting point in the debate over improving international labor standards. Once the codes or sourcing guidelines are in place, the next step is their assimilation directly into companies’ sourcing practices. Studies show that codes of conduct continue to be domiciled in corporate affairs and shareholder relations departments and are not distributed widely to suppliers.

       A recent Department of Labor report found that while the majority of companies surveyed had supplier codes of conduct, upon inspection less than 50% of their overseas vendors could produce a single copy of the code.

       As American companies begin to take a more pro-active approach on compliance issues, to be effective they need to align their business practices directly with the codes. Achieving this alignment is actually more challenging than one would imagine. U.S. firms sourcing products in developing countries overseas often do not visit the production facilities. In many cases orders are signed at trade shows or in vendors' showrooms. Buyers receive information concerning shipdates, quality, and prices. Wages and materials’ costs are generally not included, nor is information about the factories producing the order.

       For American companies buying overseas, improved management of all the links in one’s supply chain is key to obtaining compliance with supplier standards. Terms of the codes must be auditable and built explicitly into the business process. Essential starting points include:

       • translating all supplier materials into the local languages of the producers, including codes of conduct, purchase orders, and sales agreements
       • including clauses which limit the amount and type of subcontracting permitted
       • creating escrow accounts to compensate workers in case of supplier violations of the sourcing guidelines
       • using as compliance personnel individuals who do not have competing agendas between reporting violations and their job responsibilities
       • understanding the supply chain: contractors routinely receive commissions from factories for giving orders to them. They are not likely to compromise such relationships over compliance issues if they are the sole agents in charge of verification of fair labor practices.

       Price pressure on suppliers can directly affect labor standards in the workplace. Excessive price pressures do lead suppliers to subcontract orders to the informal sector, substandard factories more likely to be sweatshops that employ child labor or exploit home workers by not paying them.

       The irony is that the competitive marketplace rewards those factories that are out of compliance and that violate workplace human rights standards. Substandard factories can offer lower prices as a result of their lower labor costs and overhead.

       These practices hurt responsible firms who spend the money required to comply with the law. This is as true for U.S. companies in compliance with OSHA and the Fair Labor Standards Act competing with sweatshops in Los Angeles or New York, as it is also true for companies in developing countries.

       American firms now assert that they will monitor overseas facilities, but in cases where they wish to pay only rock-bottom prices, they are sending a double standard to their suppliers. They want cheap goods along with new expectations for labor conditions reflective of higher cost products.

       In matching the terms of codes of conduct with business practices, companies hopefully will recognize that the prices they offer will need to fall into alignment with fair labor standards.

Heather White, executive director of Verité (Verification in Trade and Export), worked for many years as a sourcing agent arranging production for U.S. companies in China. Prior to founding the non-profit Verité in 1995, she spent three years at MIT’s Sloan School of Management researching the social and economic consequences of East Asia’s rapid industrialization. Her inquiry suggests strategies for balancing industrialization with fair labor practices — the current mission of Verité.