Manufacturing: The Burden of Good Intentions

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Conduct Becoming
Three years ago Nike, now among the most progressive companies on labor practices, took steps to curb what it saw as counterproductive auditing. In a daring move, it revealed its manufacturing sites — long seen as proprietary information — and suggested that companies manufacturing products in these same places collaborate on factory monitoring. Six months later Levi Strauss followed, and today is working with 15 other firms in 130 factories. Resources that once went to monitoring are now used on training overseas management, says Kobori, helping to create an environment in which factories have a bigger stake in how they are run. Even before that, Levi Strauss was moving away from its old monitoring system, taking what Kobori calls "a more anthropological, fieldwork" approach to gathering information. Rather than merely interviewing managers, or speaking with employees inside the factory, monitors would seek out workers at bus stops and cafés. The approach uncovered information on sensitive issues such as sexual harassment that standard audits would typically have missed.

Codes of conduct hammered out in corporate offices in the West can lose in translation when applied overseas. Mukhtarul Amin, managing director of Superhouse Ltd., an Indian clothes manufacturer that counts Esprit and Diesel among its clients, candidly admits that he can meet only 95% of his social responsibility commitments. Some, he says, are just too difficult, or aren't relevant to Indian society. French retailer Decathlon requires suppliers to have official documentation of workers' ages. "They don't know that a large number of Indians in rural areas have no such documents," says V. Srinivasan, a Superhouse manager. "So we have to make new workers get an affidavit from a magistrate. There's much running around to do, and it's all very time-consuming." As he speaks, the power cuts out and a private generator kicks in, raising the day's power costs. "Buyers come to developing countries to save," sighs Srinivasan. "But in the conditions we work under, our margins are tightly squeezed." So his firm controls costs in shrewd though legal ways: "Overtime pay is twice the regular pay. To cut costs, we don't make workers put in extra hours — we just employ more people."

Acute poverty makes it even harder to achieve CSR goals. Many migrants from northern China who come south for factory jobs want to earn as much as possible in a short time, then return home. Managers who refuse to let them work illegal overtime risk losing workers to less stringent factories. Likewise, in India, it's not possible to "create E.U.-like working conditions," says Anil Bhardwaj, of the New-Delhi based Federation of Indian Micro and Small & Medium Enterprises. "It might hurt our conscience to know that a child sold into slavery for 500 rupees [12 dollars] is making a shirt we might wear. But there are millions living on the fringes of society for whom 500 rupees is a lot of money. For them, it's a survive-or-perish choice."

Realists now accept that the "comply-or-die" model can actually hurt workers and damage the chances of building lasting partnerships with factories. "We thought monitoring was the answer, but we've learned the hard way that it isn't," Gap's then CEO Paul Pressler conceded in 2005. "Almost no factory is in compliance with our standards." As a result, the goal for many firms is no longer perfection, but more nuanced policies and a gradual raising of standards. Traditionally, Gap pulled out of factories in which it discovered child labor. Two years ago, it revised that policy. Now, if children are found in factories producing Gap clothes, the firm asks factory managers to remove them and find them schooling, for which Gap sometimes pays. The firm's new thinking, says Dan Henkle, Gap's senior vice-president for social responsibility, is not simply about monitoring, but about collaborating with factory staff so that they too feel responsible for conditions on the factory floor. It's messier, costlier and longer-term than a quick audit — and it's potentially riskier from a p.r. standpoint. But this is CSR for grown-ups. "The world is a complicated place," says Impactt's Hurst. "Try putting that on a label."