7
Nongovernmental Labor Regulation and Information Disclosure

PRESENTATION

At the time of this workshop (July 2002), accounting scandals at several large multinational corporations dominated newspaper headlines and political debates. Dara O’Rourke of the Massachusetts Institute of Technology opened his presentation on voluntary labor monitoring systems (O’Rourke, in press) with a quotation from President George W. Bush:

At this moment America’s greatest economic need is higher ethical standards, standards enforced by strict laws and upheld by responsible business leaders. Self-regulation is important but it’s not enough….. Greater transparency will expose bad companies, but, just as importantly, protect the reputations of the good ones.

—President George W. Bush, July 9, 2002

O’Rourke noted that Bush’s calls for increased transparency, improved corporate accountability, and new methods for auditing the auditors, although focused on financial reporting, were “all relevant to our topic.” He also noted that financial auditing was a “much more mature and more regulated form of company self-reporting” than voluntary monitoring of labor conditions.



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7 Nongovernmental Labor Regulation and Information Disclosure PRESENTATION At the time of this workshop (July 2002), accounting scandals at several large multinational corporations dominated newspaper headlines and political debates. Dara O’Rourke of the Massachusetts Institute of Technology opened his presentation on voluntary labor monitoring systems (O’Rourke, in press) with a quotation from President George W. Bush: At this moment America’s greatest economic need is higher ethical standards, standards enforced by strict laws and upheld by responsible business leaders. Self-regulation is important but it’s not enough….. Greater transparency will expose bad companies, but, just as importantly, protect the reputations of the good ones. —President George W. Bush, July 9, 2002 O’Rourke noted that Bush’s calls for increased transparency, improved corporate accountability, and new methods for auditing the auditors, although focused on financial reporting, were “all relevant to our topic.” He also noted that financial auditing was a “much more mature and more regulated form of company self-reporting” than voluntary monitoring of labor conditions.

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The Growth of Voluntary Labor Regulation O’Rourke said that systems of nongovernmental labor regulation have grown rapidly over the past five years (Gereffi, Garcia-Johnson, and Sasser, 2001; Herrnstadt, 2001) because of “the failures of traditional state regulation of labor and environmental issues.” These failures are due not only to the limited technical and financial capacity of poor governments, he said, but also to developing countries’ failure to enforce their own laws. Another reason for the rapid growth of nongovernmental labor regulation, he said, is that global supply chains have developed and grown so quickly that enforcement of labor laws by individual states may be difficult or ineffective. In addition, government regulators have not provided the information on labor conditions increasingly demanded by consumers, socially responsible investors, and activists in the developed world. O’Rourke said that the new systems of nongovernmental labor regulation have grown, not only because of these weaknesses in traditional government regulation but also because of “important successes” during the short time the systems have been in place. Today, O’Rourke said, there are “a multiplicity” of voluntary corporate codes of conduct and monitoring programs. They include internal programs, in which firms monitor labor practices in the facilities they own or purchase from, and external monitoring. Firms may hire a third party, outside the firm, to evaluate, audit factories, and certify compliance with corporate codes. In addition, O’Rourke said, there are independent verification efforts, involving organizations that are not paid directly by the company or the factory. O’Rourke said that “some of the most important” labor monitoring systems are those that involve groups of companies and other stakeholders. These include the Worldwide Responsible Apparel Production, created by the American Apparel Manufacturers Association; the SA8000 certification from Social Accountability International; and the Fair Labor Association, which evolved out of a Clinton Administration initiative, the Apparel Industry Partnership. In addition, O’Rourke said, the United Students Against Sweatshops and the Union of Needletrades, Industrial, and Textile Employees (the largest U.S. garment workers’ union) joined to develop the Worker Rights Consortium. The British government provides most of the funding for the Ethical Trading Initiative, a partnership of U.K. unions and businesses. O’Rourke also noted that the Fair Wear Foundation, based in The Netherlands, has begun to conduct supply chain monitoring and veri

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fication. Finally, he said the French, Swedish, Dutch, and Swiss Clean Clothes Campaigns have launched four pilot projects around the world to test and evaluate different approaches to labor monitoring. O’Rourke mentioned a number of “related initiatives,” designed to encourage corporations’ voluntary systems of monitoring labor conditions. These include global agreements between multinational corporations and networks of unions, the UN Global Compact (participating companies report annually on labor rights and environmental standards), and the Global Reporting Initiative, an effort to standardize reporting among the many different monitoring systems. Variations in Voluntary Monitoring Because current voluntary monitoring programs are designed to achieve a variety of different goals, O’Rourke said, they use a variety of methods to monitor different aspects of labor conditions. Some “are just trying to find problems,” but he said that even activists are becoming less interested in this approach. Although exposés are critical for motivating firms and governments to take action, too many exposés may lead to issue fatigue among consumers and activists. Other efforts are designed to improve compliance within multinational firms’ supply chains or to provide information to support consumer campaigns and worker organizing and empowerment. Under certain conditions, these initiatives can support government regulation and democratize it by involving NGOs, unions, and consumers. However, some people believe that the new systems undermine traditional state regulation, weakening the sovereignty of developing countries by moving activities that belong to government into the private sector. O’Rourke said that the new systems vary widely in terms of what they monitor and how they monitor it. One factor causing this variation is that the labor standards included in various companies’ codes of conduct differ somewhat. For example, there are debates about how to interpret statements on freedom of association in the various codes. In addition, even when companies have “aspirational” codes of conduct that call for the elimination of discrimination, it is difficult to move beyond these codes and actually implement nondiscriminatory labor practices. Voluntary labor monitoring systems also have varying requirements on workers’ wages and hours. Despite these differences, he said, there are some similarities in “what gets monitored.” Almost all of these systems monitor compliance with the

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four core ILO labor standards—freedom of association, elimination of forced labor, nondiscrimination, and elimination of child labor (Nadvi and Waltring, 2001). In addition, most of them monitor conditions of work, including limits on hours, wage requirements, and provisions for basic health and safety. Also, he said, most of the systems monitor workers’ living conditions, such as the adequacy of dormitories and food provided by the employer. There are “major challenges in doing this kind of monitoring,” O’Rourke said, such as the long, mobile chains used in producing and purchasing apparel and other products for a multinational brand or retailer. These long supply chains, together with multiple layers of ownership and shifting locations, can make it difficult for auditors to track and monitor the correct factories in developing nations. In addition, monitors who are not closely affiliated with the owners of the factory may have difficulty obtaining access. And because factories in developing countries often supply a variety of buyers, they are faced with many different, and sometimes conflicting, codes of conduct. Some factories “have two or three sets of books” to deceive tax collectors and multinational purchasers about working conditions and the real costs of production. Noting that monitors need improved technical capacity to understand and investigate different labor problems, O’Rourke said that when he is present as a health and safety expert, it “is not a normal day in the factory.” He presented slides demonstrating that some health and safety problems, such as uncovered cloth-cutting blades, may be quite obvious to monitors, while other less visible health and safety problems may cause chronic illness or injury. He noted that accounting firms are entering the labor monitoring field “as fast as they can print the brochures” and need to improve their capacity and expertise. Use and Disclosure of Monitoring Information The new programs are now collecting “significant, huge” amounts of “very interesting data,” O’Rourke said. The downside is that most of it is not made public, but some information is beginning to come out. The first type of information now available is disclosure of the names and locations of factories—this is a big step to “pull back the veil of secrecy over industry.” Second, some monitoring groups are publishing the results of their certification audits. For example, the Fair Labor Association recently decided to make summaries of its audits available to the public. Third, some

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organizations are making information public in the form of benchmarking systems, which enable outsiders to compare the performance of individual factories. O’Rourke said that most of the information goes to the factory, where it is needed to correct labor problems, and to the multinational corporations that pay for the monitoring. Some programs, such as the Ethical Trading Initiative, have “club transparency,” that is, they share audit results with companies, unions, and NGOs that belong to the initiative, but not with the general public. In contrast, the Worker Rights Consortium makes its factory reports public “almost immediately,” with some delay for discussions with the companies that purchase from or own these factories and with workers’ organizations. Voluntary monitoring information can be valuable for a number of different purposes, O’Rourke said. It can be used to assess labor conditions across supply chains or across different industry sectors. Analysts “can begin to see patterns of noncompliance and patterns of compliance.” One of the most important attributes of the information, according to O’Rourke, is that it demonstrates “what is really possible” in developing nations, in contrast to the “aspirational” ILO standards (Fung, O’Rourke, and Sabel, 2001). The information can also be used to identify patterns of violations of international labor standards. In addition, monitoring systems gather information directly from workers about their views and concerns. These data can be especially useful for understanding problems in countries such as China, where there are no free, independent trade unions through which workers can express their concerns. And, O’Rourke noted, the growing supply of information from monitoring includes data on corrective actions that can be valuable in learning “how we can improve conditions.” Finally, he said, corporate data could shed light on broad labor conditions throughout an entire country. Moving Monitoring Forward In the future, O’Rourke said, the many different monitoring systems existing today may move toward more standardized reporting, which would allow the systems to work together and the public to compare reports from the different systems and establish benchmarks. The information that is currently made available has launched a dialogue, and it is important to continue and expand this dialogue, rather than trying to end it by claiming “the problem has been solved.” O’Rourke called for more disclosure of the

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information, both to multi-stakeholder groups who can analyze and summarize it, and to unions and NGOs. Another group that needs information is consumers. However, O’Rourke said that the idea of a “no sweat” label for products “has been called into question,” partly because of the difficulty of getting accurate information on labor conditions across complex global supply chains. Consumers need more information than can be provided on a label, including data on a corporation’s approach to identifying and solving labor problems and the role of workers in those solutions. O’Rourke also predicted that governments in developing nations could use these data as a “rich addition” to what they already possess, in order to motivate action to provide workers with labor rights. To improve voluntary monitoring and reporting, O’Rourke said, the first step is “increased transparency.” The public needs more information on monitoring results (including raw data from factory audits) and methods. A public debate over this information will spur improvements in methods. He called for approaches to moving information not only “up to consumers” in the developed world but also down to the workers themselves, local NGOs, and local government officials in the developing world. Workers could comment on factory reports, based on their own experiences in those factories. O’Rourke said we should acknowledge that these monitoring systems are young efforts, testing different approaches. He said the public would benefit from the ability to critique “cynical versions” of labor monitoring, just as it critiques cynical versions of financial accounting. O’Rourke suggested that the committee think about how to connect the “very rich, interesting empirical data” from nongovernmental monitoring systems focused on individual companies with country-level data. He concluded with a plea for further research, especially field research on the monitoring approaches being used and their effectiveness. This research could help identify the best approaches for obtaining accurate information and enhance efforts to regulate the global workplace. DISCUSSION Reflecting the variety of approaches to monitoring, the NRC invited representatives of a corporation, a nonprofit monitoring organization, and an NGO to respond to Dara O’Rourke. The first respondent was Dusty Kidd, Vice President for Compliance at the Nike Corporation. Kidd commended O’Rourke for his “even-handed” analysis of the many monitoring initiatives underway. Reflecting on the variety of approaches, Kidd com

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mended them all. He said any initiative that tries to get companies, NGOs, trade unions, and governments to work together for improved workplaces is “intrinsically good work.” However, the “real critical test” of these efforts is whether they actually help improve working conditions. Monitoring without remediation, he said, is a waste of time, and he called for better methods to measure progress. Emphasizing a point in O’Rourke’s paper, Kidd warned that monitoring programs created and operated by people from the developed world could reduce or supplant opportunities for local monitoring. Without more action and stakeholder involvement at the local level, he said, it would be impossible to sustain improvements in monitoring and remediation. In establishing Nike’s Labor Practice Department six years ago, his goal was to “work ourselves out of jobs,” but he recently had to ask a regional director to hire four more monitors. Kidd said that he and others at Nike strongly support increased transparency, and he hopes that other companies will become more transparent as well. He said that, at the UN meeting launching the Global Compact, the chairman of Nike was the only company representative who spoke out in favor of global transparency, global protocols, and global monitoring. Although monitoring efforts are moving forward, Kidd said, he asked whether current efforts are “really going to reach enough workers to be meaningful.” He reminded the audience that the workers currently being monitored represent a very small percentage of all workers in the developing world, and he urged them not to forget the “masses of people” in the informal sector and cottage production. Kidd identified some points in O’Rourke’s paper that indicate progress in voluntary monitoring. First, the comparison of voluntary codes of conduct revealed more similarities than differences, an improvement from four or five years ago. Second, there are many more companies, unions, and NGOs involved in Europe and the United States, although more participation is needed from developing countries. Kidd concluded his remarks with a reminder of how difficult monitoring is. He asked the audience to try to imagine monitoring labor conditions in “over 900 factories in 51 countries.” Monitoring is difficult not only at this macro-level but also at the micro-level. He pointed to the complexity of making a determination in a hypothetical example of a worker who was fired: Three months later, on learning of this problem, the monitor must decide whether the worker was fired for cutting a garment or

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for trying to form a union. Given these difficulties, Kidd said, “There is still just an incredible amount of work to do.” David Roe, counsel for the Lawyers Committee for Human Rights, said that O’Rourke’s paper was “an extremely good summary” of current work in nongovernmental reporting of labor standards information. He encouraged the committee to carefully consider the potential of the new voluntary labor monitoring and regulation systems to create positive spillover effects, affecting many more companies beyond the current small group of large multinationals. He also asked that they think carefully about the potential of these new systems to complement—or interfere with— government regulation. Roe said that voluntary monitoring arose because of a perceived vacuum in government and international regulation of labor conditions. The result, he said, was that “fools rush in where angels fear to tread.” Saying that he would include among the “fools” all of the participants in this workshop and in voluntary monitoring in general, Roe emphasized that the reason they were there was the “accurate perception that there was a vacuum.” Over the long term, however, this vacuum must be filled. Roe reminded the audience that the current array of voluntary monitoring efforts is only a “way-station,” not a substitute for government enforcement of labor laws and protection of labor rights. Roe reiterated O’Rourke’s call for increased transparency. He called for more data that are credible, comparable, replicable, and measurable. While agreeing with O’Rourke that current data from voluntary monitoring is “unsystematic,” Roe suggested focusing not only on improving the data’s credibility but on increasing their transparency. Transparency, he said, reflects “a commitment to learn from what’s going on” by exposing oneself to critics. Transparency increases the speed and depth of learning at a time when voluntary monitoring approaches are still being developed and tested. Roe argued that data from individual factories and companies may provide greater incentives for improving labor conditions than data on countrywide labor conditions. He said that ignoring the growing body of information from voluntary monitoring would mean avoiding the “public policy purposes” of labor monitoring. He described the database he is currently creating, which is made up of the units used to measure labor standards and compliance. When completed, the database will include measurement units (not actual data) from about 100 sources. The database

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may be used to analyze whether some types of labor issues are easier to measure than others and to see whether different measurement methods yield different results. Based on these points, Roe suggested that the committee’s public database include as much existing data as possible, with appropriate caveats. The database will be most useful if it allows people to sort and order the data. Experience in environmental monitoring, he said, demonstrates the technical feasibility of making very large amounts of raw data easily accessible to even the casual user, allowing searches based on the user’s criteria. He referred to the Scorecard website produced by Environmental Defense (<http://www.scorecard.org/ranking/>) as an example of a user-friendly database that includes detailed data on individual factories. Roe suggested designing the labor standards database in a way that would allow users to supplement or correct data posted on the website. He said that this can be done without requiring major effort from the website sponsor and without devolving into chaos. One option is to provide a delineated comment space available only to specified users. For example, only a specific industrial facility would be allowed to comment on data about pollution from that facility (as on the Scorecard website). Another possibility is to invite online posting of comments or data related to specific factual issues. In this design, all subsequent users would be alerted and led to the additional information, without confusion as to source and without requiring alteration of the database from which the original data are drawn. When the underlying database is updated, as presumably will occur at regular intervals, the supplemental materials could be automatically erased, and an opportunity for new comment on the new data could be offered. Alice Tepper Marlin, President of SAI, thanked Roe for his comments and congratulated O’Rourke on his “thoughtful and comprehensive paper.” She agreed with O’Rourke that monitoring systems are beginning to converge. For example, SAI, together with three other monitoring programs, has launched 12 different pilot projects in Costa Rica. The pilots are designed to develop integrated audits measuring organic agriculture, fair trade, and labor practices, and to market the four monitoring programs within the food industry. Tepper Marlin noted that O’Rourke had suggested evaluating current monitoring programs based on four criteria—legitimacy, rigor, accountability, and complementarity. She suggested adding a fifth criterion: scale of implementation. Although the efforts underway seemed large to the “fools” who rush in, she said, they actually focus on only a tiny portion of

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the global workforce. In the long run, she said, we need to monitor the supply chains of tens of thousands of companies, not just the supply chains of the hundreds of companies currently involved. And we need to see “country-level strategies,” with government enforcement of labor laws that are consistent with the ILO fundamental rights and principles. Although transparency is important, Tepper Marlin warned against getting “bogged down” in an enormous amount of detail about a particular facility rather than focusing on the most important indicators. Among the most important indicators, she said, are those that measure improvement in freedom of association and other labor rights. Tepper Marlin said that certification programs are valuable in meeting consumer needs for “clear and simple information.” Factory audits designed to provide such information “become effective” when they lead to onsite remediation programs, with independent verification that improvements are being made. Certification audits can lead to institutional change, empowering workers and leading management to create ongoing methods to address grievances, health and safety issues, and other problems. She said that a one-day audit would not provide credible information to consumers and the public. In the SAI system, an audit requires at least 17 days, more than half of which are spent onsite at a factory and interviewing workers and managers. Tepper Marlin said that SAI’s records of requests for corrective actions at certified factories reveal patterns of problems and solutions. For example, she has learned that the most frequent problems are in management systems, compensation, and working hours, followed by less frequent violations in the areas of occupational safety and health and child labor. Problems with freedom of association are reported even less frequently, perhaps because auditors have difficulty ascertaining violations in this area. In addition to this small pool of information from certified facilities, the auditing organizations engaged by SAI have data from a much larger group of thousands of facilities that failed certification audits. Another useful source of information is complaints by observers who question certification results. SAI will soon post these complaints on its website. Finally, she said that SAI will also post reports on large companies. Each report will address the extent of auditing and certification among the factories that are owned by, or supply to, the company. The reports on some companies will include “as many as a thousand audits,” providing data that can be analyzed by facility size, location, and industry sector.

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Tepper Marlin called for more cost-benefit analyses to demonstrate to more companies the importance of voluntary labor monitoring. She said that large companies that do monitor their labor conditions, such as Nike, Levi’s, Toys R Us, and Avon, are concerned about free riders. These larger companies are investing time and money to monitor and improve labor conditions, and their efforts lead to improvements at factories that supply many other companies, including some that make no investment. Because of this problem, some large firms are beginning to ask about enforcement of labor laws, as well as intellectual property laws, when they are negotiating with a developing country about investing there. When more large firms begin to make such requests, Tepper Marlin said, this will strengthen and support the role of labor ministries, the ILO, and other national and international institutions. In further discussion, Dwight Justice of the ICFTU commented that none of the respondents had mentioned the role of trade unions in introducing the ILO core standards into voluntary codes of conduct. He noted that trade unions partner in the Ethical Trading Initiative, which recognizes them as “the formal voice of workers.” In his experience, the only two ways workers are protected are by enforcement of laws and by themselves. He questioned whether voluntary initiatives would encourage improvement in these two forms of protection. He said that private firms should not tell the public they are observing labor standards when these firms cannot really take on responsibility for enforcement of the labor standards. He warned the committee to look carefully at information from voluntary monitoring, because some of it is “erroneous,” and he concluded by saying that the easiest approach to monitoring is “by the workers themselves . . . when they have power.”