Cases in CSR. Success of Companies Voluntarily Implementing Issues Related to Labour Practices and Human Rights

Table of Contents

1 Introduction

2 Labour Practices
2.1 Creating a Decent Work Environment for Employees
2.2 Codes of Conduct and Their Influence on Workers
2.3 The Importance of Supply Chain Monitoring and Management
2.4 Limitations to Codes of Conduct

3 Human Rights
3.1 Violations and the Responsibility of Businesses
3.2 The Impact of Nestlé’s Efforts to Tackle Child Labour in Its Cocoa Supply Chain
3.3 The Seeming and the Real of Coca Cola’s Human Rights Policy on Water Scarcity

4 Successful – Or Not?

List of References

1 Introduction

The booming world economy and the explosion in economic prosperity and wealth in some countries were accompanied by negative impacts on the environment and society in others. Weak law enforcement and corruption hinder governments to sufficiently tackle the issues arising out of global growth (Groza et al., 2011; Wettstein et al., 2019). With their gain of influence in the global sphere, transnational corporations and large businesses are increasingly challenged to adopt adequate corporate governance mechanisms, particularly where government authorities have forsaken (Ruggie, 2007; Weissbrodt and Kruger, 2003). Guidelines such as the ISO26000 for the Social Responsibility of Businesses and Organizations support the implementation of policies for best practice and offer guidance on issues in the context of organizational governance, human rights, labour practices, the environment, fair operating practices, consumer issues and community involvement and development (ISO, 2010). The violation of human and labour rights are the most staggering challenges of global society. Multinational companies (MNCs) of considerable global production scale, particularly those operating within heavy-footprint and labour-intensive industries, have the potential to create widespread improvements to human rights and working conditions by realizing policy measures down their supply chain (Diller, 1999; Wettstein et al., 2019).

This essay analyses the success of voluntary policies implemented by MNCs operating in the manufacturing sector that aim to tackle issues and challenges arising out of poor labour practices and human rights infringements. Since the former are closely interlinked with human rights abuses (the ISO26000 even considers labour issues as human right violations) (ISO, 2010; Virginia, 2012; Wettstein et al., 2019), the first section focuses on the success of policies aiming to improve working conditions in the fashion supply chain while the second section examines the performance of Coca-Cola’s and Nestlé’s human rights policies and their effects on local communities. Both sections conclude with the realization, that the success of voluntary policies is often hampered by their inability to tackle issues holistically, mainly caused by the lack of company commitment in favour of profit maximization.

2 Labour Practices

2.1 Creating a Decent Work Environment for Employees

Labour rights refer to the relationship between workers and their employers and encompass policies and practices at the workplace. They evolve around subjects such as working hours, minimum and living wage, equal pay and opportunities, workplace conditions, health and safety at work, and paid leave (ISO, 2010). With globalisation came the division of labour and the international movement of resources, production, trade, causing deterioration in working conditions (International Labor Organization, 2019). They are often linked to poverty, inequality, discrimination and the systemic abuse of vulnerable working groups, and are therefore often accompanied by severe human right violations (Virginia, 2012). To exploit regional competitive advantages of countries with low wage levels and to benefit from the economic upside resulting from lower production costs, manufacturing processes are often outsourced to locations with substandard labour practices (Adams, 2002).

2.2 Codes of Conduct and Their Influence on Workers

Fast fashion industry giants like H&M have a long tradition of attracting criticism regarding their sourcing strategies and rampant labour rights issues in their supply chains. The catastrophic collapse of the Rana Plaza factory in Bangladesh on April 24, 2013, which killed over 1,100 workers, resulted in increasing demand for transparency in global fashion supply chains to hold companies accountable for labour right shortcomings, especially for the abuses of those working in poor environments such as sweatshops (Human Rights Watch, 2017). In response to perpetual mistrust regarding labour practices in their supply chains, companies established CSR policies such as codes of conduct to counteract public allegations and further their commitment to responsible business ethics (Schwartz, 2001).

Taking a value chain approach, H&M’s code of conduct covers the requirement to adhere to national law, the deference of worker’s basic rights, the elimination of child labour, the creation of a safe working environment as well as the arrangement of reasonable working hours and compensation, not only within the organization, but also in their global network of suppliers (H&M Group, 2010). Accompanying their policy, H&M launched a Fair Living Wage Strategy in 2013 to ensure decent pay for people working in the fashion industry. Claiming the success of these initiatives in their sustainability reports, the company articulates positive developments regarding their wage progress and also states that “supplier factories pay significantly higher wages than the relevant minimum wage” (H&M Group, 2018, p. 73). At first glance, this testimony ensures the fair pay to workers, however, more in-depth investigations of the factual circumstances present a different image. Firstly, meeting the legal minimum wage does not necessarily reflect on the real cost of living (Banerji et al., 2018). Even though they receive the equivalent to the country’s legal minimum wage, employees working in H&M supplier factories in Bulgaria, Turkey, India and Cambodia earn significantly less than they require to make a decent living, preventing them to accommodate for basic needs such as food, rent, healthcare, and education (Musiolek, 2018). Furthermore, H&M ignores the influence of changes in regulations and the macroeconomic environment when evaluating the salary development of their workers. A report by the NGO Turn Around H&M debunks that wage increases are mostly based on minimum wage raising by national governments. Additionally, the company’s ignorance towards inflation results in the decline of actual wages in some production countries, impairing their promise of fair remuneration (Turn Around H&M, 2018). Thus, the success of H&M’s Fair Living Wage Strategy is therefore highly questionable.

Paying wages below the subsistence level, however, is only the starting point for other issues connected to labour practices. According to NGO reports based on myriads of interviews with workers across different facilities, H&M’s compensation structure often accompanies overtime work to counterbalance low wages, leading to over exhaustion after long working days (McMullen and Sanjita, 2016). Workplace conditions are often unbearable, with high temperatures leading to fainting during shifts, which appears to be ordinary in multiple facilities. If employees are late to work or sick, they are penalized by salary deductions, which is against labour rights legislation in the countries H&M operates in (Preston and Leffer, 2016). Most employees only have short-term contracts, excluding them from benefit systems and adding additional pressure due to missing job security. These subpar working conditions even prevail in manufacturing facilities owned by platinum and gold suppliers, which are supposedly H&M’s best-in-class contractors (Preston and Leffer, 2016). The workers’ right for freedom of association is often hampered because of bribery, uneven distribution of power between unions and management and influence of political parties distorting interests of the workforce. Workers in H&M factories report that they fear to organize independent unions because of retaliation practices against union leaders and its members (Musiolek, 2018; Preston and Leffer, 2016). Harassment as well as verbal and physical abuses against female garment workers have been reported across different factories in Asia (Global Labor Justice, 2018). H&M functions as a prime example for the common discrepancy between the maxims formulated in company codes of conduct and reality in fashion supply chains. A study on the impacts of Reebok’s code of conduct on one of their footwear suppliers in China shows some success regarding abidance to Chinese labour law, however, the achievements can be classified as a ‘race to ethical and legal minimum’ (Yu, 2008). Beyond partially complying with legal requirements, the consequences for factory workers were quite the opposite to improving their overall working environment: the management traded the achievement of minimum labour standards with the right to increase performance pressure on its employees, essentially worsening working conditions (Yu, 2008).

2.3 The Importance of Supply Chain Monitoring and Management

A study conducted by Locke, Qin, et al. (2007) across over 800 of Nike’s suppliers supports the necessity of standardized processes to implement codes of conducts. While some of the examined factories almost completely translated the company’s code of conduct into appropriate labour practices, others failed to meet the standards and encounter issues such as excessive work hours, unfair payment and harassment (Locke, Qin, et al., 2007). While the required standards were the same for all suppliers, the lack of implementation procedures created diverging results. Another factor that limits the effectiveness of codes of conduct originate in inadequate monitoring methods (Pedersen and Andersen, 2006). In the case of a Chinese manufacturer supplying a European sportswear company, the management falsified auditing results by threatening its workers with the loss of the supply contract and therefore their jobs in case of non-compliance with the code of conduct predefined by its European customer. Pressured into cooperation during code inspections, the employees made untruthful statements on working hours, overtime and rest days (Sum and Ngai, 2005). Similar procedures are applied by supervisors and management in factories supplying H&M. Their workers said it is not uncommon for work inspectors to be present during employee interviews conducted for auditing purposes (Preston and Leffer, 2016). While control mechanisms are established, their weak execution causes them to be insufficient to uncover the actual working conditions in productions sites (Pruett, 2005).

However, even an appropriate supply chain monitoring system by itself does not automatically result in visible behavioural changes at factory level. Locke et al. (2009) point out the fundamental constraints of auditing: while the qualification and vigilance of auditors influence the quality of the process, audits fall short of recognizing volatility of labour conditions. While at the time of the survey standards could be met, conditions can deteriorate quickly and thereafter remain at substandard level without being addressed until right before the next audit (Locke et al., 2009). Ultimately, not compliance with code of conducts improves labour conditions for workers, but their reflection on the organizational structure in the companies affected. Maintaining close relationships between buyer and supplier encourages management commitment to consider their employees’ wellbeing (Bendixen and Abratt, 2007). A subsequent study by Locke, Kochan, et al. (2007) on the influencing factors beyond corporate codes of conduct on improving labour practices based on the example of two Nike production sites in Mexico corroborate this finding. Being almost similar in production characteristics and under the influence of the same policy, geographic location or nationality of ownership did not account for the differences in working conditions between the plants, but rather the organizational approach of coordinating work. Interestingly, as the researchers further point out, realizing management behaviour according to the code of conduct also depends on the relationship between company and supplier: a collaborative partnership benefits working conditions whereas a relationship at arms-length seems to hamper improvements. The plant management with close connections to Nike organized work around autonomous work groups and enabled job rotations, only used overtime hours within limit, and invested in employees’ skill development, whereas plant managers in the other facility focused on investing in equipment and controlling its workforce with a strict focus on productivity. The former plant had an overall better performance, paid greater wages, achieved higher productivity and had lower labour costs (Locke, Kochan, et al., 2007). While close collaboration between supplier and buyer not only improves employee satisfaction, it also results in increased profits for both partners.

Unfortunately, most buyer-supplier relationships in the fashion industry are purely based on profit maximization targets rather than profound mutuality, eliminating varied opportunities for reciprocal benefits. As Yu (2018) points out, big corporations use their market power to reduce production costs, which, in consequence, distributes the responsibility to improve labour standards among subcontractors in their global supply chains. To secure their own profit margins, suppliers shy away from implementing labour standards that raise their cost of production, at the expense workers’ wellbeing (Roloff et al., 2015). Overall, the effectiveness of codes of conduct on improving labour standards is hindered by the overriding pursuit of economic outputs. Locke et al. (2009) argue, that merely compliance focused implementation of voluntary policies fails to access the potential of improving labour standards beyond marginal changes. However, a committed oriented approach unlocks the opportunity to engage with suppliers, uncover the root causes of current issues, and create advancements for everyone involved. The study of the two factories of Nike suppliers supports this method.

2.4 Limitations to Codes of Conduct

At first sight, the implementation of codes of conduct seems as a promising initiative to rebalance social obligations of companies within their global supply chains. However, in most cases the “‘achievement of labour rights’ is translated into ‘compliance with labour code’” (Sum and Ngai, 2005, p. 197), where codes of conducts as a voluntary policy solely constitute as a business strategy. While their existence is necessary, adherence without further commitment makes them insufficient to address and overcome the heinous labour practices prevalent in sweatshops. While having no accountability arising out of non-implementation, codes of conduct can be utilized as a marketing tool to enhance a company’s image (Narine, 2012). To implement and further success of voluntary initiatives, companies are required to adopt a holistic view that does not create trade-offs between profits and workers.

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