Ensuring worker safety in the supply chain

The landmark fire and building safety agreement for Bangladeshi factories signed recently by apparel retailers is providing an opportunity for investors and other stakeholders to look at distinctions in how US and European companies may view their responsibility for ensuring workplace safety in their supply chains. 

The joint memorandum had been under negotiation for two years prior to the collapse of a factory complex in Rana Plaza outside Dhaka that killed more than 1,100 workers on April 24. Signatories to the document commit to financing and implementing a program that entails third-party inspections of suppliers’ factories and other improvements where necessary. The agreement assigns all suppliers making products for signatory companies to one of three categories defined by the percentage of annual production in Bangladesh, by which terms suppliers agree to accept inspections, fire and safety training, and remediation of any problems. 

Of the 40 companies that had signed up by early June, only three had headquarters outside of Europe: PVH, the parent company of Calvin Klein, Tommy Hilfiger and Izod; Abercrombie & Fitch (A&F); and Canadian supermarket owner Loblaws.

While big European companies such as Carrefour, Benetton and H&M have signed on, the biggest US retail names, including Walmart, JCPenney and Gap, are notably absent. Walmart and Gap have both expressed concerns about the enforcement and legally binding nature of the agreement, with Gap the most vehement in its refusal to expose itself to increased litigation. Walmart announced plans in mid-May to improve workplace safety in Bangladesh, promising to immediately stop production at factories where dire safety failures were found, and to pressure both factory owners and government agencies to make further safety improvements. But the firm didn’t mention helping to underwrite the cost of any improvements. 

US hold-outs

‘There’s a real question of why US companies are not signing on to the safety agreement,’ says Liana Foxvog, organizing director of the International Labor Rights Forum (ILRF), which helped initiate negotiations for a safety accord in early 2011 after an earlier factory fire in Bangladesh trapped and killed 29 workers. Foxvog believes the statements issued on May 15 by the two major retail trade associations offer some clues. ‘Both statements fall far short of what is truly needed to save workers’ lives in Bangladesh,’ she says. 

Indeed, the National Retail Federation seems to go on the attack in its brief release, suggesting the global labor consortium’s plan ‘gives no practical and immediate solutions to the challenges facing the Bangladeshi garment industry’ and is actually geared toward advancing labor unions’ interests. 

Additional US firms are likely to sign on after more thorough legal reviews of the pact, says Adam Carrel, senior manager of the climate change and sustainability services group at Ernst & Young. He ascribes the gulf between how US and European firms view such protocols to a cultural attitude among stakeholders outside the US that’s less ready to equate corporate success with broader societal well-being. 

‘Companies in Europe or Australia have had to work harder to get a social license to operate,’ he says, referring to the process by which businesses establish rapport with immediate stakeholders and gain approval for the right to exist. ‘There’s slightly less pressure on US companies to aggressively explain why they’re socially beneficial beyond being a job creator or tax payer.’ That’s changing, however, and the evolving focus on sustainability will force US companies to catch up with their European counterparts, Carrel notes. 

In a New York Times opinion piece on May 2, Foxvog and ILRF executive director Judy Gearhart argue that supply chain monitoring programs established by companies fuel corruption in the Bangladeshi garment industry by placing ‘additional requirements on factories without ensuring the financing needed to meet them, thereby encouraging factories to keep secret any safety risks they may have – precisely because they know brands are likely to walk away if they find out.’ To ensure safety in their supply chains, global brands need to make a contractual commitment to the safety of the workers making their products, the op-ed adds.

Disney leaves Bangladesh

Walking away is precisely what Disney decided to do a month and a half before the Rana Plaza disaster. In a March 4 letter to thousands of licensees and vendors, Disney ordered a halt to production of branded merchandise in Bangladesh and a handful of other countries and outlined new rules for overseas production. Driving the decision to exit countries with questionable worker safety standards, according to a May 1 New York Times article, was uneasiness about the company’s heavy reliance on outside firms such as licensees to ensure working conditions align with company standards.

Domini Social Investments lauded Disney for focusing on countries where it has more buying power and leverage to effect change. But as Disney continues to allow its branded merchandise to be produced by licensees in 101 other countries, contingent on approval of the factories by independent monitors, it’s fair to wonder how its assessment of risk and leverage to effect change in those countries differs from its evaluation of Bangladesh. A Disney spokesperson referred Corporate Secretary to the May 1 Times article for the company’s position, but did not respond to an email request for clarification on this point.

‘We’re calling on companies not to walk away from Bangladesh, but to stay and fix the problems they’ve created,’ says Foxvog. ‘If they just walk away, who’s left behind? The workers, who are already suffering. They deserve to have jobs, and decent jobs at that.’ As it has done after prior factory disasters, the ILRF is pushing retailers to pay compensation to the families of workers killed in Rana Plaza. 

Unfortunately, the health and safety indicators provided by such organizations as the Global Reporting Initiative (GRI) are too vague to give much direction to companies that choose to disclose information about workplace conditions and offer nothing that relates to associated risks in their supply chains, says Tom Cecich, chairman of the Center for Safety and Health Sustainability, which advocates for stronger health and safety indicators for companies’ sustainability reporting. The GRI didn’t revise the four health and safety standards for the latest version of its reporting guidelines, but it has promised to create a new health and safety working group to improve those indicators.

Among the 2013 list of the global 100 most sustainable companies compiled by Corporate Knights, a media and research firm in Toronto, less than 10 percent report using GRI indicators for health and safety, says Cecich. ‘In the rush to be rated sustainable, health and safety of workers isn’t high on the list of what’s meaningful for companies,’ he explains. The center’s own research finds that one of the 100 companies had 49 fatalities in the year for which it was rated one of the world leaders in sustainable practices. ‘That seems a significant disconnect,’ Cecich observes.

A daunting task 

The tangled web of tiered and outsourced supplier services rife in the retail apparel industry highlights the enormity of the challenges retailers face in trying to monitor worker safety provisions and other human rights-related practices in their supply chains. 

The questionnaires that upstream suppliers fill out and submit to a third party for review for any red flags are the primary way downstream companies gain knowledge of the practices of their suppliers. Over time, manufacturers have figured out how to complete them without setting off any alerts, says Carrel.

While he believes there’s still value in self-certification, he says companies need to develop their own independent understanding of where the human rights risks are likely to be in their supply chains and must build an audit framework based on that. There also needs to be a more cohesive corporate top-down approach to validating the certification program. 

‘Companies can no longer rely on saying they’ve outsourced that, or that there are too many tiers in the supply chain,’ says Carrel. Driving this will be not only consumers’ and non-governmental organizations’ expectations in the West, but also gradual strengthening of education in developing countries that will inform workers more about universal human rights and awareness of abuse, he adds. 

Gap doesn’t rely solely on questionnaires for knowledge of suppliers’ work conditions, a spokesperson tells Corporate Secretary. In Bangladesh, the firm sends experts trained in fire safety to look at electrical wiring, fire exits and the integrity of fire safety programs in factories. Gap says it has also set aside funds for remediation when needed, which include money to offset the cost of displaced workers during factory closings for improvement. Others, such as JCPenney, say they have direct oversight only of suppliers that produce their private-label goods and a select number of their exclusive brands, while their national brands manage their own suppliers. 

After a factory fire in Bangladesh killed 29 workers in December 2010, A&F asked Bangladeshi factories producing its goods to undergo an electrical audit by third-party monitoring firms, according to sustainability information on the company website. Each factory that has gone through the extensive audit has committed to making improvements, hiring electrical engineers to oversee corrections to findings in the electrical audit and investing in new factory equipment when necessary. While improvements are ongoing, Bangladeshi factories will undergo a follow-up audit to verify the needed improvements have been implemented. 

A&F has also signed on as a buyer partner with Better Work, a joint program of the International Labor Organization and the International Finance Corporation. The arrangement gives companies a voice in Better Work’s governance structure by electing representatives to an advisory committee to engage with governments and industry stakeholders on strategic issues. The partnership also allows companies to join with other buyers in the same factory to reinforce best practices and participate in training at factories.

TIPS FOR IMPROVING SUPPLY CHAIN SAFETY

The Portal for Responsible Supply Chain Management provides useful tools and information to support practitioners in developing their own approach to CSR in the supply chain. The website suggests that the following four aspects should be covered in any health and safety program: worker protection, process safety, emergency preparedness & response and hazard information. 

In order to address these:

 Adopt adequate measures. Conduct a risk mapping (in factories and dormitories): first tackle the global working environments, then consider the choice and condition of machines and equipment, and finally, see whether workers need training for their jobs and/or personal protection equipment.

 Monitor key health and safety indicators. These include frequency and gravity of accidents, level and cause of absenteeism, turnover, and so on.

 Check whether workers have access to a healthcare system for their basic needs. See whether your company can improve healthcare provisions if necessary and possible.

 Provide environmental health and safety training. This is often an excellent idea to induce and ensure good practice. It not only allows workers to work safely, but also ensures the firm’s compliance with legal regulations and international standards.

 Require suppliers’ compliance with international health and safety standards. This is a first step to behaving responsibly and promoting a responsible supply chain. International standards are practical recommendations – not legally binding, but strongly recommended.

 Audit suppliers’ facilities. This contributes to ensuring compliance and facilitates the implementation of corrective measures when and where needed.