Are investors going to do something about safety in factories like Rana Plaza in Bangladesh?

RI interviews supply chain specialist Heather White about the reality of researching safety and labour issues and engaging with clothing companies in these days of fast fashion.

This week, an investor group including nearly 200 signatories from 16 countries in North America, Europe and Australia with combined assets valued at over US$1.5 trillion urged manufacturers and retailers to join the Bangladesh Accord on Fire and Building Safety following the April 24 collapse of the Rana Plaza factory causing more than a thousand employee deaths. RI talks to Heather White, President of New Standards Research, and a specialist in the field of Asian corporate supply chains, about the realities of safety and work conditions in the apparel sector in Bangladesh and other major clothing manufacture countries, and whether investors are doing enough to ensure such catastrophes are prevented.

RI: How widespread is the problem of poor buildings/health/life/corruption risks in Bangladesh and other major regional apparel countries?

Heather White

The apparel industry operates in a high-risk environment in Bangladesh and other low GDP countries throughout Asia. It is a situation of disasters just waiting to happen. The apparel brands share the same several hundred factories and no one company is willing spend the funds necessary to make necessary improvements such as exterior fire escapes. In Bangladesh given that factories are in high rise buildings one would have thought basic fire safety protections would be the first job for any credible compliance auditor or apparel brand doing business in the country. The Bangladesh fire trap facilities have been a concern for a decade, but no one took action until now. Local government looks the other way, and the factory owners are sometimes corrupt.RI: Do International Labour Organisation (ILO) standards mean anything in this context?

Heather White

In Bangladesh ILO standards have meant little. The standards are known to the factory owners through the Code of Conduct sent to them by the brands working with them. The ILO’s Better Work program doesn’t bring the kind of teeth to the process that the average person would expect from an international body tasked with protecting workers globally.
Names of factories and brands are not made public in Better Work’s reports; hence we have little way of knowing what gets done by way of pressure for improvements or solutions to long-term violations. Critics have asked that the Better Work factory names and buyers be made public. If NGOs trade unions and grass roots groups do not know which factories have the worst conditions they have no ability to press for change. Reports that describe conditions without the specific locations and manufacturers involved are not very helpful. Programs in developing countries that rely on voluntary measures generally are not working. In the Bangladesh context “window-dressing” is about as far as things go.
Cambodia has been described as the ILO’s showcase country for improving labor standards, yet they too have seen a recent factory collapse – just last week – and the shooting of three workers demonstrating outside of a Puma footwear factory. These problems underscore continuing serious violations of workplace standards. This is the third time workers have been shot on factory premises that I’m aware of. Cambodia is not yet a showcase country for good labor practices.

RI: How does the supply chain operate in terms of supplying major international clothing brands, and how has the trend of fast fashion contributed to worker safety issues?

Heather White

When a disaster occurs we are subjected to hearing several brands, most recently Benetton, claim that the factory was not authorized to produce for them, or that production had been recently cancelled, or they had only placed one order with the factory. These excuses are not credible when one factors in the C-TPAT security regulations that are a part of export requirements in our post-911 world. Detailed shipping manifests are required to identify PO numbers with buyer’s goods and the suppliers who produced them. Of course, in places like China unauthorized subcontracting is a major ongoing issue, but in Bangladesh where there are many QC inspectors and there is social monitoring, the majority of brands know who is producing their goods. The brands send QC inspectors regularly. I recently interviewed a product designer in China who said the brand he works for has 42 full time QC inspectors in his factory daily throughout the production period. Fast fashion and respect for workers’ rights are not compatible at the moment. When fast fashion first started in Italy (in illegal Chinese workshops) trafficked workers put in 30+ hours at a time and people literally died at their sewing machines. Today it is still the case that when an order comes in production is literally not supposed to stop until the goods are finished and ready to ship. The level of fast turnaround required by fast fashion puts tremendous pressure on factories. Global apparel buyers have already ferreted out the lowest cost suppliers in the world’s poorest nations, yet they insist on further discounts if shipment is a day late – for any reason. H&M reports they now have 12 selling seasons a year and many other brands now have as many as 8 seasons, causing chaos as the factory squeezes labor as a variable cost. Overtime becomes mandatory and the violations that accompany excessive overtime become worse as well. Brands give theirsuppliers the OK to violate local overtime laws in order to ship the goods on time. No multi-stakeholder initiative that I am aware of has yet resolved this problem.

RI: What is the potential for any consumer/regulatory backlash over such issues?

Heather White

It has been years since shareholders and investor groups effectively used their bargaining power to fundamentally change brands’ supplier strategies. In recent years lengthy engagement dialogues prevailed, often setting aside the shareholder resolution option. In my experience engagement with apparel companies rarely works to improve conditions in factories. There is no deadline and no penalty for the delaying and stalling tactics often employed by the brands. The average consumer cannot find Bangladesh on a map and alone doesn’t have the ability to pressure brands on workplace standards. Consumers can participate in demonstrations and store actions coordinated by unions and NGO’s, or they can sign onto online campaigns such as we’re seeing this week to put pressure on the Gap to join the Savar Accords (The Bangladesh Fire and Building Safety Agreement). Some labor rights law firms have been exploring whether they can hold corporations liable for the deplorable working conditions that violate the laws of the countries where they do business. A few pension fund advocacy groups are exploring using the Foreign Corrupt Practices Act or governance clauses for boards of directors that address “breach of fiduciary responsibility.” That would be an interesting new approach if it worked.

RI: How can investors keep an eye on these kinds of risks?

Heather White

First they need to be aware of the many contradictions in play between financial performance and sub-standard working conditions in low GDP nations. If investors are engaging with companies on supplier issues their eyes need to be wide open, having done their homework. I continue to be amazed by how much leeway investor
groups have given the apparel industry on labor and human rights violations. Secondly, I don’t see how they can truly keep an eye on things given the poor quality of data they are usually working with regarding high-risk social issues in developing countries. It’s incredible that in 2013 the US and European investor communities that utilize social screening are not connected to the global networks of journalists and activist NGO’s that cover the issues important to shareholders. Primary field research is very rare. When I meet with NGO’s in Asia or Africa they generally have never heard of socially responsible investing and the funds that practice it. Researchers or other groups working in the sector seem to rarely contact them or develop long term relationships. On several occasions I have offered to connect various SRI funds’ research departments with NGO’s working on topics of concern.

RI: What is the likelihood of meaningful investor dialogue with factory owners, international groups sourcing from countries like Bangladesh?

Heather White

I’ve been impressed with the New York City Pension Fund and New York State Comptroller’s office approach, which is “file a shareholder resolution, then engage”. Those offices have achieved good results consistently over the past decade, and I believe that approach has been effective in getting immediate action from companies. I’m not a big fan of letter writing campaignsor engagement in its current form as an alternative to shareholder resolutions. Engagement dialogues may require confidentiality agreements. The trade-offs and co-opting I’ve observed in the name of “engagement” in the past several years are disturbing, with the benefits accruing to the corporations not to workers. My views are those of someone in the trenches. Recently, I was writing a report on a Pakistani footwear supplier. We measured a factory’s role in contaminating the local water. Everyone in Pakistan knows there’s a serious problem coming from unregulated tanneries supplying high-end footwear brands. All the brands have Codes of Conduct prohibiting such practices, yet the damage goes on for years. There is definitely a role for investors to play in these instances, but they are generally nowhere to be found. Certainly there is a strong argument for the local governments to be more pre-active and enforce their own laws. But let’s face it, the brands source from these countries precisely for the low prices that come from operating in unregulated unsafe environments. Are investors going to do something about it? So far the answer has been they are not going to do very much to effect real change.

Heather White is President of New Standards

Read Heather’s recent blog on Bangladesh and its accompanying film for the Edmond J. Safra Center for Ethics at Harvard.