Putting Pressure On Purchasing Practices in the Corporate Supply Chain

Roughly 15 years ago it became very clear that sweatshop labor was a widespread problem in U.S. corporations’ supply chains. In 1992, DatelineNews found nine-year- old children making private label clothing for Wal-mart. The National Labor Committee exposed unsafe working conditions and child labor at Gap suppliers in American plants. A succession of production speedups and forced overtime scandals at Disney, Nike and other retailers throughout the 1980s and 1990s raised the profile of the sweatshop issue dramatically. (The Sweatshop Quandary, ICCR 1998). By the mid- 1990’s labor activists, students, governments, and investors like ourselves began pressuring U.S. manufacturers and retailers to better working conditions and to be held accountable for the conditions in the factories assembling their clothing and footwear. Through dialogue and shareholder resolutions, investors and activists helped push widespread awareness of and the necessity for supply chain codes of conduct, and regular onsite monitoring.
That’s the good news –awareness has grown and vendor standards exist broadly across multinational corporations’ supply chains. The bad news is that the codes and monitoring systems crafted over the past decades are showing signs of age and weakness. Over the past two years, Clean Clothes Campaign and Ethical Trading Initiative, to name a few, have reported evidence that traditional code monitoring systems may have reached the limit of their effectiveness. One of the most visible and damaging blows to the validity of monitoring systems came last November BusinessWeek published an investigative piece entitled “Secrets, Lies and Sweatshops”with a subtitle that summed up the problem neatly:“American importers have long answered criticism of conditions at their Chinese suppliers with labor rules and inspections. But many factories have just gotten better at concealing abuses.”The article chronicles examples of audit abuse including the common practice of keeping two sets of books to appease auditors and distributing scripts to employees to recite if they are questioned. A top supplier to Wal-mart, Tang Yinghong, told BW: “A new breed of Chinese consultant has sprung up to assist companies evading audits. Tutoring and helping factories deal with audits has become an industry in China.” In response to the magazine’s findings, at least one corporate executive, Nike’s VP for corporate responsibility conceded “We’ve come to realize that, while monitoring is crucial to measuring the performance of our suppliers, it doesn’t per se lead to sustainable improvements.”
The basic conundrum remains: how can companies and suppliers improve working conditions for hundreds of thousands of employees while satisfying the insatiable appetite of the global consumer? How can monitoring be recast? How can compliance and purchasing systems be tightened to benefit the workers?
One angle Trillium Asset Management plans to examine is the link between purchasing practices and poor working conditions. There is growing evidence that many purchasing inefficiencies exist (change orders and production rescheduling, for example) that lead to poor working conditions and demonstrably negative impacts on product quality, delivery times and cost. We’ve joined a purchasing practice working group coordinated through the Interfaith Center on Corporate Responsibility consisting of other socially responsible investing firms, human rights groups and researchers. The goal of the group is to work together through 2007 gathering expert opinion and establishing best practices around purchasing, then take those findings to lobby for improved buying practices as a way to better working conditions. The Gap has done work around this by partnering with an NGO and letting them pull apart their purchasing practices, and putting together a report about the problems within their supply chain. By analyzing their purchasing practices they can improve efficiency while approving working conditions. The time is right to dig deeper into corporate supply chains through purchasing practices.