Categorized | TVFA Posts, Ved Nanda

Corporations Have a Duty to Practice Public Responsibility

It took the disastrous collapse of a building in Bangladesh that housed several garment factories and the loss of more than 1,000 lives for the world to begin to pay attention to the plight of garment workers there.

The workers are paid the minimum monthly wage of about $37, occasionally go unpaid, and protesters are often intimidated. There is no collective bargaining, no unions without the owners’ consent. Lack of regulation and poor, badly enforced safety standards combine to create a dangerous workplace.

Last November, 112 workers were killed in a fire in another garment factory near Dhaka, the Bangladeshi capital. Last Monday, more than 20 workers were injured in Cambodia when a metal and concrete shelter outside a garment factory collapsed, tumbling into a pond.

After the November fire, the Walt Disney Company decided to pull its operations out of Bangladesh. The European Union’s trade commissioner warned that if the Bangladeshi government failed to take prompt action to improve labor standards, the EU would consider suspending Bangladesh’s duty- and quota-free access to EU markets.

In the aftermath of the recent tragedy, the government announced a labor law reform package aimed at complying with international standards.

Bangladeshi woman

A Bangladeshi woman holds a portrait of a relative lost in the garment factory collapse (AP)

The garment industry is huge in Bangladesh, as many fashion companies and big retailers moved there from China, choosing Bangladesh’s highly developed system for manufacturing and shipping large volumes of high-quality garments at a low price. Now second only to China in export volume, Bangladesh’s garment production accounts for 80 percent of the country’s exports and is worth more than $19 billion, employing almost 4 million workers, mostly women, in 5,000 factories.

On May 13, more than 30 mostly European companies — including H&M, Mango, and the parent company of Zara — signed a legally binding labor safety agreement. Among American companies, only Abercrombie & Fitch and PVH, the parent company of Tommy Hilfiger and Calvin Klein, signed on. PVH also committed to pay $2.5 million toward factory safety improvements. But several other major American retailers — among them Wal-Mart, Sears, and the Gap — have resisted signing the accord.

Under the agreement, disputes will be settled by binding arbitration, enforceable in the courts of the retailers’ home countries. However, the National Retail Federation, which represents many American stores, has criticized this provision as “legally questionable,” and “a process that serves only the unions, not the workers they represent.”

Gap representatives said because the “litigation landscape is different in the U.S. than in Europe,” it would sign the agreement if the legally binding provision is replaced by a provision under which a retailer not complying with the standards would be expelled from the program.

Wal-Mart and Japan’s Fast Retailing Co. have decided to implement their own programs. Wal-Mart proposes to include hiring and paying an outside auditor to inspect every factory in Bangladesh that produces goods for Wal-Mart and publish the results on its website. It is also establishing an independent call center for garment workers in those factories to report unsafe conditions.

How effective are private, voluntary efforts to address labor and safety issues? Honestly, not very. “Despite many good-faith efforts over the past 15 years, private regulation has had limited impact,” says Richard M. Locke, who has spent more than a decade studying the issue. “Child labor, hazardous working conditions, excessive hours, and poor wages continue to plague many workplaces in the developing world, creating scandal and embarrassment for the global companies that source from these factories and farms.”

Locke focused his study on Nike, whose image was tarnished in the 1990s because of accusations of underpaying workers in Indonesia, use of child labor in Cambodia and Pakistan, and poor working conditions in Vietnam and China. In response, in 1992, Nike developed its own corporate standards for working conditions, wages, hours, and health and safety, and required its suppliers to accept those standards. It also uses private audits to ensure compliance and expanded its oversight staff, spending millions of dollars to improve working conditions at its supplier factories.

Locke says he found “Nike auditors and compliance staff to be serious, hard-working, and moved by genuine concern for workers and their rights,” and was impressed with “Nike’s commitment to labor standards.”

Nevertheless, he concluded, Nike has been unable to ensure that its high standards have consistently been met. While some factories have complied with the code of conduct, “others have suffered from persistent problems with wages, work hours, and employee health and safety.”

Nike isn’t alone. “Consider the global brand empires,” Locke says. “They want high-quality products delivered as quickly and cheaply as possible. They also fear that harsh working conditions could, if discovered, create scandal and hence risk to their reputation. Yet, because they are competing with one another, they are unwilling to pay extra for improved working conditions, which could lead to price increases that threaten market share.”

The reality is that many developing countries refuse to enforce even their own regulations. These problems are systemic, and the solutions must be systemic, as well.

Private initiatives and voluntary self-regulation are important incentives to government action, which is essential to promote and protect labor rights. And government regulation and functioning institutions are essential if private initiatives are to succeed. A few decades ago, several multinational corporations set goals of social responsibility.

The results, however, were mixed. So a shift has taken place from simply creating those goals to devising means to ensure enforcement. Public-private partnership is essential to make this happen.

Market pressure is essential to ensure compliance by suppliers, ethical investing by large institutions, and auditing and certification. The United Nations’ Global Compact Initiative and Guiding Principles are laudable. They are based on a three-pillar framework: the state’s duty to protect human rights; the corporate responsibility to respect human rights; and the need for greater access to effective remedy for victims of business-related human rights abuse.

In addition, several federal and state statutes have imposed due diligence requirements on corporations with the goal of addressing human rights concerns. A new class of for-profit public benefit corporations are in development. Last month in Colorado, Gov. John Hickenlooper signed the Public Benefit Corporation Act, which states that benefit corporations are “intended to produce a public benefit and to operate in a responsible and sustained manner” while also taking into account shareholder interests.

Notably, directors of such corporations are authorized to consider social, environmental, and other goals in addition to maximization of profits as they make decisions, which is a major change from the customary bottom-line thinking.

Benefit corporations and corporate social responsibility norms demonstrate how far we’ve come. Only the marketplace will demonstrate how far we’re willing to go.

Ved Nanda (vnanda@law.du. edu) is Thompson G. Marsh Professor of Law and director of the International Law Program at the University of Denver Sturm College of Law.

Leave a Reply

University of Denver Sturm College of Law

@View_From_Above

Resources
Visit the DJILP Newsroom

Posts by Date

December 2014
M T W T F S S
« Oct    
1234567
891011121314
15161718192021
22232425262728
293031  

Translator

EnglishItalianKoreanChinese (Simplified)Chinese (Traditional)PortugueseGermanFrenchSpanishJapaneseArabicRussianGreekDutchBulgarianCzechCroatianDanishFinnishPolishSwedishNorwegianHebrewSerbianSlovakThaiTurkishHungarianRomanian

TVFA Contributors