Unlike labour law, corporate codes of conduct do not have any authorized definition. The concept "corporate code of conduct" refers to companies' policy statements that define ethical standards for their conduct. There is a great variance in the ways these statements are drafted.
Corporate codes of conduct are completely voluntary. They can take a number of formats and address any issue - workplace issues and workers' rights being just one possible category. Also, their implementation depends totally on the company concerned.
Potential authors of a code are the founder, board of directors, CEO, top management, legal departments, consultants. The process can involve employee representatives and/or randomly or otherwise selected employees.
The Conference Board (A not-for-profit, non-advocacy business membership and research organization, connecting senior executives from more than 2,300 enterprises in over 60 nations) distributes the formats in three categories:
In its survey, the United States Labour Department made a distinction between the following kinds of formats:
Fundamentally, a code of conduct depends on its credibility: the extent to which it is taken seriously by industry, unions, consumers and governments. Credibility, in turn, depends on monitoring, enforcement and transparency: the extent to which foreign contractors and subcontractors, workers, the public, nongovernmental organisations and governments are aware of the code's existence and meaning.
A code can be made transparent through its posting and dissemination and through training regarding its provisions. Monitoring can be internal (e.g. through a committee, ombudsman, regular reporting obligation, field visits, or hot lines) or external (e.g. through an NGO, outside auditor, or consultant). Responses to violations by employees, subsidiaries, vendors or business associates can include: monetary fines or penalties, the imposition of probationary status, demands for corrective action, providing education to the violator (particularly in the case of child labor violations), cancellation of an individual contract, and severance of the employment or business relationship. Positive reinforcement of respect for the requirements of a code of conduct includes retention of current contracts and awarding of additional contracts.
Worldwide interest in corporate conduct was initially awakened in the 1980s by scandals in the defense industry and on Wall Street. Companies viewed business ethics as a way of promoting self-regulation and deterring government intervention and regulatory action. Corporate interest quickly led to the "institutionalisation" of business ethics programmes, consisting largely of codes of conduct, ethics officers and ethics training. (See, KPMG, The Age of Ethics KPMG is the abbreviation for the names of the founding members: Klynveld, Peat, Marwick, Goerdeler. KPMG is a business services firm operating in 155 countries.)
Among the first companies to establish codes of conduct were General Electric, General Dynamics, Martin Marietta (now Lockheed Martin), and other defense contractors. These companies had all experienced procurement scandals (although General Dynamics and Martin Marietta were not formally charged with wrongdoing). Now, the defense sector actively polices itself. In 1986, seventeen contractors signed the Defense Industry Initiative on Business Ethics and Conduct, which declares that each of the companies will review its ethical practices annually.
Naturally, corporate codes of conduct existed prior to the movement of the 1980s. For example, Johnson & Johnson's Credo was published in 1943. As early as 1935, General Robert Wood Johnson urged his fellow industrialists to embrace what he termed "a new industrial philosophy". Johnson defined this as the corporation's responsibility to customers, employees, the community and stockholders. According to Johnson & Johnson, the corporation has drawn heavily on the strength of the Credo for guidance through the years at no time was this more evident than during the TYLENOL® crises of 1982 and 1986, when the company's product was adulterated with cyanide and used as a murder weapon. (Johnson & Johnson's homepage: http://www.j&j.com.)
Following the pricing scandals that rocked the defense industry in the 1980s, General Electric became a prime example of an American corporation in need of an image overhaul. In response, the company created a corporate ombudsman's office, originally for the purpose of examining its government defense contracts. The company also drew up a summary of in-house rules on ethical concerns, called Integrity: The Spirit & the Letter of Our Commitment, which is 80 pages long and is available in most languages that are spoken in the General Electric worldwide network, including Arabic and Urdu. In early 1993, the office started a network of toll-free help lines for each business unit in the United States. Employees can call the hot lines anonymously to ask questions about the guidelines and to report suspected violations. (See KPMG, The Age of Ethics.)
The programmatic approach was further accelerated by the enactment of US Sentencing Guidelines in 1991, which provided potential monetary incentives for corporations to institute ethics or compliance programmes. Under the Guidelines, a company could gain leniency in sentencing based on several "mitigating factors". One of the most important mitigating factors is having a programme "to prevent and detect violations of the law". The Guidelines detail seven criteria against which such programmes are to be judged. These include the existence of standards or codes of conduct, training or other communication regarding the standards, and the designation of a high-level individual to oversee compliance. Obviously, the Sentencing Guidelines have had a great impact on the quantity and quality of corporate codes in United States. (See European Institute for Business Ethics (EIBE), What Can We Learn from the U.S. Federal Sentencing Guidelines for Organizational Ethics?)
Companies often created compliance systems as a public demonstration of effort to clean up their own ranks before the courts did it for them. For example, Nynex (now Bell Atlantic) set up an ethics office and a hot line in 1990, before the federal Guidelines were in place, because of a company scandal in the late 1980s. Eight purchasing managers at Materiel Enterprises Company, Nynex's purchasing subsidiary, attended wild parties thrown by vendors. Although the managers did not accept money or gifts, Nynex instituted a code of conduct to protect itself against future conflict-of-interest situations.
While the long arm of the law is a factor in business decision making, sometimes the arm of ethics is longer still. Consumer power is increasingly being wielded to affect company behaviour. The boycott mechanism has long been a means for political protest; for many years, a significant number of consumers avoided buying South African products. Recently, however, boycotts have been called to protest against the actions of specific companies. Nestle's sales suffered from the boycott protesting about their policy on selling baby milk in the third world, and Shell were forced to change their plans for disposal of the Brent Spar oil platform when German consumers stopped buying Shell petrol. A 1995 poll of 30,000 consumers in the UK showed that one in three had boycotted stores or products in the past because of concerns about ethical standards, and six in ten were prepared to boycott in the future. Almost two in three of those surveyed were more concerned about ethical issues now than five years ago. (See, International Society for Business, Economics and Ethics, How Ethical Auditing Can Help Companies Compete More Effectively at an International Level?)
Pressure groups are growing more professional and more vociferous. While in the past, unethical behaviour by a company might have been kept quiet through skilled public relations, there is now a greater likelihood that employees from within a company will alert relevant pressure groups, as loyalty to employers has lessened while concern for the public good has grown. It is also more likely now than in the past that the pressure group will be successful in generating significant publicity about the incident. (International Society for Business, Economics and Ethics, How Ethical Auditing Can Help Companies Compete More Effectively at an International Level?)
In response to consumer pressure, a whole sector of ethical corporations has arisen in recent years. Some companies have made principled withdrawals from countries where they could otherwise manufacture profitably this was the course taken by Levi Strauss did in China. Levi Strauss has adopted a strong "good guy" image, because of its refusal to use subcontractors that exploit workers in developing countries. Protest from outraged consumers may force companies manufacturing in India or Thailand to sack the underage children they were previously employing. Codes prohibiting child labour have been introduced, especially among apparel manufacturers, merchandisers and retailers. (See the apparel company codes in the list of company codes).
Consciousness of the growing interdependence of all people on the earth globalization calls for more uniform treatment of people and their environment in every corner of the world. Globalization is one factor that has pushed multinationals to initiate uniform standards of conduct in all countries in which they operate. It may have seemed acceptable decades ago for Shell to apply lower environmental standards to its drilling in Ogoniland than those applied in Europe or North America, but in an era of acute consciousness of the interdependence of the world ecosystem, the same standards are rightly expected on every continent.
In 1986, Frederik Philips (former President of Philips Electronics) and Olivier Giscard d'Estaing (Vice-Chairman of INSEAD) founded the CAUX Round Table of business leaders from Europe, Japan and the United States. CAUX is committed to energising the role of business and industry as a vital force for innovative global change. At the urging of Ryuzaburo Kaku, Chairman of Canon Inc., the Round Table has focused attention on the importance of global corporate responsibility in reducing social and economic threats to world peace and stability. CAUX Round Table Principles for Business were drafted by a committee composed of Japanese, European, and US business representatives, and include a relatively long section on workers' rights.
Although, a number of surveys have been carried out on corporate codes of conduct, it is difficult to estimate how common they actually are. Certainly, codes are very common among those companies that respond to surveys, but the rate of response tends to be low. For example, only 264 companies out of 1900 responded to the Conference Board survey in 1991.
|However, this survey is important, because it is the only international
survey that follows up on the results of a previous survey, conducted in 1987. By and
large, the participants were the same companies that had participated in the earlier
survey, from the United States (186 companies), Canada (34 companies) and Europe (40
companies). Most of the companies surveyed were large, with median annual sales of the
participants at $1 billion.
In 1991, 82% of the responding companies had codes of conduct. As was the case in 1987, companies in the financial sector were less likely to have codes (57%). Nearly half of the codes discussed or submitted by survey respondents had been enacted since the last study was published (45%). Codes were much more typical of US companies than of European companies. (The Conference Board, Corporate Ethics Practices, 1992.)
KPMG surveyed 1000 Canadian companies in 1996, but only 251 responded. Of these, 83% indicated that they have a published mission statement, and 66% reported having a code of conduct. (See KPMG, 1997 Business Ethics Survey Report)
In an International Centre for Human Rights and Democratic Development (ICHRDD) survey in 1996, the proportion of Canadian companies that had codes of conduct was much smaller. Only one in five of the 43 Canadian companies that responded reported having adopted a code of conduct for international operations. A total of 98 companies were surveyed. (See, ICHRDD, Canada's Largest Corporations Lack Codes of Conduct on Treatment of Workers Overseas)
|In the Conference Board survey, the compliance code was the most common code type in all regions. Over 90% responded that their company's statement requires particular types of employee or company behavior. Three-fourths of the responding organizations with codes said their statement is a credo that explains the company's accountability to its key constituencies (e.g. employees, customers and suppliers). Management philosophy declarations are the least common format still, more than half of the companies with codes use this type of statement. Canadian firms are more likely to use philosophy declarations than are US or European firms. (The Conference Board, Corporate Ethics Practices, 1992.)|
Survey responses indicated that most codes are hybrids of more than one type. Of the three types, the compliance code is likely to have been in existence the longest. The median date of adoption for compliance statements is 1985.
The reports of 1987 and 1991 indicate that code drafting is a dynamic process. Nearly two-thirds of the compliance codes were revised between the two surveys.
In the KPMG survey (251 Canadian companies in 1996), 79% of companies with a published code of conduct said that the code is appropriately described as a set of "Guiding Principles", while 32% felt that "Rules and Regulations" was a fitting label.
In a US Department of Labor Survey, which focused on child labour in the apparel industry, 33 of 42 companies that provided reportable responses had corporate codes of conduct, statements of principles, or compliance certificates specifically addressing child labour in overseas production. Twelve further respondents did the same through contract requirements contained in purchase orders, letters of credit, or buying agent agreements. Nine respondents used a combination of both types of policy, while six had no policy on overseas child labour. (See United States Labour Department, The Apparel Industry and Codes of Conduct, Chapter E: Development of Apparel Industry Codes of Conduct)
A comparison of the codes of conduct included on this CD-ROM provides an idea of how differently codes can be formulated. An example of a specific and clear format is Halliburton's code, in which concepts and scope are well defined. Administration of the code is clear and unambiguous, including such issues as allocations of responsibility, delegation of substantial discretionary authority, communication of policies, monitoring and auditing, the reporting system, investigation of violations and disciplinary measures. Under each issue regulated by the code, there are sections regarding the purpose, policy and procedures related to the issue. However, this code seems to be an exception. Most codes are rather brief and general statements, which leave a good deal of room for interpretation and contain no administrative details.
Companies seldom face questions concerning the drafting of their codes. The Conference Board's questionnaires are an exception. The surveys of 1987 and 1991 revealed that the United States, Europe and Canada have very different patterns of executive and employee involvement in code formulation. According to the Conference Board, these contrasting approaches are informative about potentially divergent views among the responding companies in the US, Europe and Canada as to the primary nature and purpose of a corporate ethics code.
The near-universal inclusion of general counsel in the deliberations and drafting of US ethics codes suggests that many US companies believe their codes require the same careful drafting used in legal documents. The heavy reliance on top human resource executives may be due to a tendency to address aspects of the employer-employee relationship in corporate ethics statements.
In contrast to the US pattern, only 35% of the European companies consulted their general counsel when drafting their codes. They are more likely to discuss issues related to the code with employee representatives (55%). This procedure, meanwhile, is used by very few US companies (13%). Although the prevalence of codes among survey participants is lower in Europe than in the United States or Canada, there may be an effort among those companies that do have them to use ethics statements to develop uniform standards in harmony with European Union directives on employee rights and corporate social responsibility. European companies also used consultants more often when drafting their codes.
Canadian companies were most likely to involve the CEO and senior executives from major departments, and least likely to involve employee representatives. Employee representatives did not participate in code deliberations with any of the responding companies.
|The Conference Board questionnaire
identified 13 issue areas dealt with in corporate codes. Most codes include some formal
statement of the company's fundamental principles. Nine specific issues in codes were
named by more than 66 companies. Among these, six relate in some degree to the employee's
contract with the company.
Purchasing guidelines and security of proprietary information issues focused on employee honesty were the only specific areas of concern cited by over half the code companies. Of the remaining human resource-oriented issues, three acknowledge company commitments to the employee (workplace safety, confidentiality of employee records and employee privacy), and one focuses on employee obligations (intellectual property safeguards). The three remaining major subject areas relate to corporate social accountability for example in environmental, marketing, and product safety responsibility.
|There were few regional variations in subject matter. Codes in the US are
more likely to include sections on the security of proprietary information. Workplace
safety is a more frequent subject of European ethics statements.
Over the period between the 1987 and 1991 surveys, 20% of the European companies had added environmental responsibility to their codes. Among US companies, the most common addition was fundamental guiding principles of company. Among Canadian companies, the most common additions related to intellectual property and marketing.
Besides fundamental guiding principles, environmental responsibility was the only issue added in over 10% of the codes. (For examples of environmental accountability statements, see the codes of Nestle and Waste Management.)
|The interest in environmental problems has grown in the last ten years
especially among chemical companies. Member companies of the Chemical Manufacturers'
Association have adopted six codes of management practices under the Responsible Care
initiative, which was launched in 1988: Community Awareness
and Emergency Response, Pollution
Prevention, Process Safety, Distribution, Employee Health and Safety and Product Stewardship.
In the KPMG survey of 251 Canadian companies in 1996, participants were first asked to score for importance seven issue areas in their codes of conduct. The scoring was on a scale of 1 to 4, and the criteria for scoring was the potential risk to their business posed by the issue area in question. The most important categories identified by the respondents were employee and workplace issues and the handling of company assets.
|Next, the companies were asked to rank individual issues as to their associated risk factor. Worker health and safety was the second most important issue in rank.|
Core labour standards
The ICHRDD survey of 43 Canadian companies in 1996 revealed that only 14% of companies responding to the survey reported having codes of conduct that refer to all core labour standards now recognized as basic human rights by the Organisation for Economic Co-operation and Development (OECD). These include the freedom of association and the right to collective bargaining, non-discrimination in the workplace, elimination of exploitative child labour, and the prohibition of forced labour. Although six companies claimed to have codes dealing with core labour standards, only one company in fact supplied a code referring to those rights. One-third of the firms with codes of conduct referred to some part of the core labour standards as defined by the International Labour Organization (ILO) and OECD. If we assume that the 55 companies that did not respond to the survey do not have codes that deal with the areas covered by OECD standards, only 6% of Canada's largest corporations have codes dealing with these rights.
According to the US Department of Labor survey of 42 US apparel companies in 1996, corporate codes that address labour standards vary from company to company with regard to the specific standards included. Some or all of the following elements are found in the various corporate codes provided in the course of the survey: prohibitions of child labour, forced labour and discrimination based on race, religion, or ethnic origin; requirements for workplace health and safety; provisions on wages, usually based on local minimum wage legislation or prevailing wages in the local industry; provisions limiting working hours, including mandatory overtime, in accordance with local laws; and support for the freedom of association and the right to organize and engage in collective bargaining.
Although many of the corporate codes of conduct address the same set of labour standards, there are significant differences in how these standards are defined. In some instances, the corporate codes follow international definitions of labour standards (e.g. those promulgated in ILO Conventions). In other instances, the corporate codes of conduct themselves define the standard. In still other instances, the codes do not provide any guidance on the definition of the standard.
For example, concerning child labour, a company's policy statement may: (1) state a minimum age that must be met by all employees who produce their products; (2) refer to the national laws of the host country regarding the minimum age of employment or compulsory schooling; (3) refer to international standards; or (4) use some combination of the three. In some cases, companies' policies prohibiting child labour in the production of their goods do not contain any definition of child labour at all, leaving the standard open for interpretation by their business partners.
The policies of three of the respondents - Salant Corporation, Sara Lee Corporation and Warnaco - require that workers producing goods for them be at least 16 years of age.
Dress Barn, Fruit of the Loom, Liz Claiborne, The Talbots, and Wal-Mart all require that workers in facilities that produce for them be at least 15 years of age.
Six respondents (Dayton Hudson Corporation, The Gap, Kellwood Company, Levi Strauss, Phillips-Van Heusen and VF Corporation), as well as Associated Merchandising Corporation (AMC), whose code is used by Stage Stores, require that employees in overseas facilities that produce for them be at least 14 years of age
Another group of respondents (Dillard Department Stores, Federated Department Stores, Home Shopping Network, JC Penney, Land's End, The Limited, Mercantile Stores Company, Nike, Oxford Industries, Price/Costco, Inc., Russell Corporation, Sears Roebuck & Co., Tultex Corporation and Venture Stores) require compliance with the applicable child labor law in the host country. Nordstrom requires that employees be over the national age for completing compulsory education.
Other respondents (Jones Apparel Group and Spiegel) require that their business partners comply with the host country's child labor law or United Nations standards, whichever is higher. Dollar General Corporation ('Dollar General') refers to international and human rights laws recognized by the United States or the United Nations.
Finally, the policy statements of a few respondents (Kmart Corporation and Woolworth), as well as the AAMA's "Statement of Responsibility," used by Hartmarx Corporation ('Hartmarx'), do not define child labor. (For much more information on the subject, see United States Labour Department, The Apparel Industry and Codes of Conduct)
According to the Conference Board report, companies were more willing to discuss their codes openly in 1991 than in 1987, when only a handful of respondents returned a copy of their code with a completed questionnaire. In 1991, more than one-third of companies with ethics statements supplied them with the questionnaire.
According to the KPMG survey of 251 Canadian companies in 1996, external distribution of the code was reported by less than 30% of respondents that had codes of conduct.
The ICHRDD survey of 43 Canadian companies in 1996 indicated that Canadian companies are reluctant to speak about their relations with workers abroad. Even companies that report having codes of conduct are reluctant to share them with the public. The study suggests that "Canadian business places a very low priority on communicating its response to issues it confronts in its overseas operations to the non-governmental sector. A large number of firms expressed no ... interest in the subject."
According to the US Department of Labor survey of 42 US apparel companies in 1996, a few companies made an effort to communicate information on their codes of conduct and monitoring programmes to the general public, including their shareholders: Levi Strauss and The Gap have sections on their codes of conduct in their annual reports to shareholders.
Within the company
According to the Conference Board report, there is a clear trend in favour of distributing the company's code to all employees. In 1987, nearly two-thirds of the responding code companies gave it to all their employees. Among 1991 survey participants, 77% followed this practice. The figure for Canada (83%) was slightly higher than that in the US or Europe. Of companies that have codes, 22% limited distribution to top and middle management (down from over one-third in 1987), and just three companies gave the code only to top managers.
Distribution to employees in overseas divisions is common, but not universal 72% of survey participants engaged in this practice. Canadian companies were somewhat less likely to distribute codes in this manner than were US or European companies.
European companies were more likely to modify their documents for use outside the home country (25%) than were US (14%) or Canadian companies (13%). In fact, nearly half of all European companies had branches, subsidiaries or divisions with their own codes (45%). This practice is much less common in US and Canadian firms.
The KPMG survey (251 Canadian companies in 1996) revealed that just over 80% of companies with a published mission statement believed that "the average employee is likely to be aware of it". A lower proportion of those with mission statements (73%) indicated that the mission statement was often referred to in policies and other statements. A published code of ethics, practice, or conduct was somewhat less common. Of those who had a published code of conduct, all but 4% indicated that the codes were widely distributed internally.
To contractor companies
According to the US Department of Labor survey (42 US apparel companies in 1996), only a very few respondents indicated that they have tried to ensure that production workers in overseas facilities know about their code or policy by specifically requiring that copies of such statements be posted. Only three companies stated that they unconditionally require contractors to post their code. The Gap requires that its code, which has been translated into 39 languages, be posted in each contractor facility. Liz Claiborne, which has translated its Standards of Engagement into more than ten different languages, requires all contractors to post the Standards in the local language in common areas, such as cafeterias or locker rooms, of every facility where Liz Claiborne products are made. Phillips-Van Heusen stated that it insists that every facility post its "PVH Shared Commitment" poster, which contains guidelines and standards on worker's rights. The poster is printed in English and Spanish, and is sent to Asia with instructions for it to be translated into local languages. Nike and Sara Lee stated that their codes are posted at some facilities. Nike indicated that its code is posted in all its footwear contractors' factories in two or three languages, but this is not necessarily the case for its apparel contractors. Nike stated that its footwear contractors produce exclusively for Nike, while its apparel contractors often produce for many other companies. Nike often uses individual apparel contractors for only a short period of time. Sara Lee indicated that it posts notices of employees' rights at its wholly owned facilities in English and the host language.
Managers of two-thirds (47 out of 70) of surveyed plants that currently export to US apparel companies indicated that they were aware of codes of conduct issued by their US customers. Based on company visits, awareness among managers about codes of conduct was highest in El Salvador (all eight companies visited knew about the codes) and Guatemala (six out of nine companies knew). In three other countries visited the Dominican Republic, Honduras, and the Philippines managers interviewed were more evenly divided between those who were aware and those who were not. In India, only two out of seven producers visited were aware of the codes of conduct of their US customers. However, only 34 of the 47 companies that indicated they were aware of codes of conduct had available a copy of the code (or contractual provision) that they could show and discuss with the visiting Department of Labor official. Thus, managers at less than half of the plants visited were able to produce a code of conduct upon request.
The plant visits by Department of Labor officials suggest that while posting of a US garment importer's codes of conduct seems to be common practice in El Salvador, it is not the norm in the garment industries of the other countries visited. In all, 21 of the 70 plants visited by the officials had posted a code of conduct of a US customer, and seven of these were in El Salvador (out of eight total plants visited in that country). Elsewhere, two plants visited in the Dominican Republic had codes of conduct posted, one plant in Honduras, two in Guatemala, two in India, and seven in the Philippines.
Although a significant number of suppliers knew about the US corporate codes of conduct, meetings with workers and their representatives in the six countries visited suggested that relatively few workers were aware of the existence of codes of conduct, and even fewer understood their implications.
The lack of awareness on the part of workers about codes of conduct may be attributable in part to the relatively low level of effort on the part of producers to inform their workers about the codes. Management regards codes of conduct and compliance with labour law as a management problem, and approaches the monitoring and supervision of these matters as management responsibilities. Workers are not seen by management as having a role in these activities.
Managers in 22 of the companies visited told the Department of Labor officials that they informed workers about codes of conduct 13 companies indicating they do so orally, and only nine stating that they do so both orally and in writing. Of all the plants that were visited in the six countries, there was only one example of a producer that had an explicit policy of informing workers about the code of conduct of its US customer. (For more detailed, company specific, information, see United States Department of Labour, The Apparel Industry and Codes of Conduct, section Transparency)
In the period between the 1987 and 1991 Conference Board surveys (264 companies in 1991), one-fourth of the responding companies had established a new ethics training programme, ethics committee or ombudsman's office. Ethics programmes were much less common in Europe and Canada than in the United States.
Training courses utilized a variety of formats. Some were limited in scope to discussion of the company's ethics statements, while others tried to promote ethical sensitivity through Socratic exercises that require participants to analyze case studies presenting common ethical dilemmas.
Survey respondents said that the major area for new programme initiatives has been the development of study groups for middle managers. Of companies with codes, one-fourth in the US and one-fifth in Europe started new ethics training courses of this type during the past three years. The practice was less common in Canada (13% of responding companies). Many new initiatives for top managers (in 38 companies) and entry-level employees (in 28 companies) were also begun. Videos on ethics were also popular, with 25 companies using this training method.
According to the KPMG survey (251 Canadian companies in 1996), only 21% of the respondents with codes of conduct claimed to have any kind of training in connection with their codes.
According to the ICHRDD survey (43 Canadian companies in 1996), only 6 of the 43 respondent firms, or 6% of the total survey sample, reported having some sort of policy concerning their dealings with repressive regimes.
A few respondents to the US Department of Labor survey (42 US apparel companies in 1996) indicated that they have special programmes to inform their own managers or other employees about their code or policy. Federated Department Stores, Levi Strauss, Nike and Oxford all stated that they train their employees on compliance requirements. Federated Department Stores has its corporate counsel, corporate quality control and overseas offices' managerial staff conduct training. Oxford, which places responsibility on its own employees to ensure compliance with its policy, reported that its managers receive training in compliance with applicable labour laws, and that its corporate human resources department and attorneys answer questions and interpret the laws. Levi Strauss said that it continuously educates its employees on its code including merchandisers, contract managers, general managers in the sourcing countries, and other personnel at every level of the organization. Fruit of the Loom, The Gap, Spiegel, and Warnaco indicated that they go over their codes of conduct with facility managers to ensure that these individuals understand them. Liz Claiborne stated that its Chairman periodically meets with key suppliers to emphasize the company's expectations with respect to workers' rights. Kellwood reported that it periodically brings foreign contractors to the US to receive training, including on Kellwood's code. Levi Strauss also conducts educational seminars for groups of contractors.
Some respondents have special training programmes for buyers or internal auditing staff. Wal-Mart buyers are required to attend special internal educational seminars on how to work more closely with manufacturers to ensure their compliance. Levi Strauss conducts annual global training programmes for its Terms of Engagement audit managers. In June 1996, for example, Levi Strauss conducted a five-day training programme in the Dominican Republic for Terms of Engagement auditors and sourcing managers from around the world. Liz Claiborne reported that it has intensified training for sourcing and manufacturing personnel in spotting labour abuses. Phillips-Van Heusen provides training to employees who are on its auditing teams. The company also indicated that it issues regular communications and newsletters to its offshore offices and to quality and sourcing personnel on developments and issues concerning workers' rights, including child labour.
In their plant visits, United States Department of Labor officials found that formal training of supplier plant managers and supervisors about codes of conduct was not common in the six countries visited. Of the 47 supplier companies visited where managers indicated awareness of the US codes of conduct, only 14 indicated that they had received some formal training regarding the US companies' codes. In addition, it was evident that the intensity of the training varied widely from company to company. (For more detailed, company specific, information, see United States Department of Labour, The Apparel Industry and Codes of Conduct, section Transparency)
Just over 40% of the participants in the KPMG survey (251 Canadian companies in 1996) indicated that there was a senior-level manager whose role specifically includes the implementation, monitoring, or assurance of the ethics programme. Of the 102 companies with such a senior manager, 16 reported that this manager had the title "Compliance Officer", while three indicated that the title of this manager was "Ethics Officer". Most often (in 22 cases), the "Human Resources Manager" was indicated as having this responsibility.
Of the 251 responses, 76 indicated there was a position within the firm that had responsibility for enabling "upstream communication" and equitable resolution of ethics or compliance problems. Of these, 14 reported that this role is a full-time assignment. In companies that reported this type of "ombudsperson" role, almost two-thirds had established the position three or more years prior to the survey.
In 78% of the responding companies, there was no formal policy to protect employees that report ethics violations or non-compliance with the law or with company policies. Of the 54 companies that indicated they did have such a policy, over half said that the policy was supported by a confidential hot-line or similar procedure.
A specific policy on conflicts of interest and specific guidelines in this regard were reported by 58% of all respondents. Of these, three-quarters require a compliance sign-off, and almost half have reviewed or updated the policy within the last year.
Over 60% of the respondents reported that they had never undertaken a comprehensive review of their ethics-related policies and performance. Over half of the companies that have undertaken such a review indicated that it was completed within the year prior to the survey.
According to the US Department of Labor survey (42 United States apparel companies in 1996), eight companies had no monitoring system to implement their codes of conduct. A further 28 companies had developed internal monitoring systems, using local or regional company personnel or employees from United States corporate offices to monitor labour practices. Internal monitoring may be used by companies that are reluctant to grant access to their facilities, procedures and business practices to outside monitors. It is most common among large, vertically integrated companies (i.e. those in which the corporation owns or directly controls all stages of the production process). Internal monitoring is less common for companies, particularly retailers, that do not own or control the factories that make the products they sell. Some retailers internally monitor only those plants producing private-label merchandise, which they import directly. United States retailers and manufacturers who use hundreds or thousands of foreign contractors may find it a logistical or financial hardship to monitor all of the facilities from which they source.
Buying agents were relied on to monitor compliance with corporate codes by 12 companies in the survey. This procedure avoids the financial and logistical burden of monitoring, but also removes the US corporation from the direct line of control in implementing its policy. Only four companies used an outside auditor, and only two an NGO for the monitoring of their codes. (For more detailed, company specific, information, see United States Department of Labour, The Apparel Industry and Codes of Conduct, Implementation of Apparel Industry Codes of Conduct )
All 70 of the plants exporting garments to the United States that were visited by Department of Labor officials confirmed that they are subject to regular visits by their US customers or their agents to verify product quality and to coordinate production and delivery schedules. About 90% of the companies visited stated that monitors or inspectors verifying product quality generally also examined working conditions in the plant, with emphasis on safety and health issues (climate control, ventilation systems, fire escapes, etc.).
Whether monitoring visits are announced or unannounced differs widely from company to company. In 41 of the companies interviewed (58%), monitoring visits by the US importer, its agent or its representatives were announced in advance. In 13 companies (18%) they were unannounced, while there were both announced and unannounced visits in 16 companies (23%).
While monitoring for product quality and even for health and safety conditions is customary in the garment industry, the field visits by Department of Labor officials suggest that monitoring for compliance with labour-related provisions of the US garment importer's codes of conduct is not. This applies particularly to child labour. Where such monitoring does occur, the degree to which it extends to all labour standards addressed by the codes as opposed to exclusively safety and health issues seems to vary widely across suppliers. Foreign suppliers that are wholly owned by a US corporation, or contract directly with a US corporation with a presence abroad, seem to be subject to the most frequent and most thorough monitoring of codes of conduct, including those related to child labour and other labour standards.
Monitoring the implementation of child labour provisions of codes of conduct is very challenging. Generally, the closer the relationship between a US garment importer and the actual producer of the items, the greater the ability of the US company to influence labour practices in the production process, including prohibitions on child labour. Conversely, it is more complex and challenging to implement labour policies in longer chains of procurement and production in one example drawn from the Philippines, there were five steps between producer and final buyer. With more levels of buying agents, contractors, and subcontractors, the US importer has less ability to influence labour practices.
The field visits also revealed numerous instances of contractual monitoring of codes of conduct. Contractual monitoring is most prevalent in the case of US retailers, which do not have a significant presence abroad.
In these situations, the burden of monitoring compliance with the US importer's child labour policies rests with the foreign agent, contractor or subcontractor, typically through a self-certification process. In these instances, the role of the US importer in monitoring compliance of its code of conduct is minimal. In Honduras, Fabena Fashions is required by Macy's and Wal-Mart to sign a contract including a no-child-labour clause. In Tirupur, India, the producer Chenduran Textiles exports about one-half of its output to the United States. Its main US customer is Tropic Textiles of New York City, a supplier to Wal-Mart. Tropic requires Chenduran to certify that no slave or child labour is used in the production of goods through a paragraph in the contract or bill of lading. Tropic accepts Chenduran's self-certification of the clause and does not have any in-country monitoring, education, implementation, or enforcement programmes. Also in India, Pankaj Enterprises is an exporter of mid-grade apparel items based in New Delhi that exports to the United States. Pankaj's US buyers require that no child labour be used in the manufacture of garments. Pankaj buys its fabric, and guarantees that no child labour is used in the production of garments through a self-certification process. There is no monitoring by the importer or its agents.
In some instances, US importers use a combination of contractual and active monitoring, using auditors from the importer itself or its agents to verify compliance. In the Philippines, Liz Claiborne has a policy of monitoring and supervising its contractors, which must certify that they are in compliance with the code of conduct. In addition, contractors are subject to frequent visits from Liz Claiborne's Philippines office, which monitors implementation of the code of conduct as well as quality control. Warnaco requires that contractors certify that child labour has not been used, and also audits suppliers in Honduras for full compliance with its child labour policies, including age verification. Macy's, Wal-Mart, and The Limited have checked personnel records at Fabena Fashions to verify the age of workers. In India, Zoro Garments supplies 75% of its production to the US market. Zoro's major US customers are Rustic River, Quick Silver, Blue Print, and JCPenney, while Phillips-Van Heusen is a former customer. According to Zoro's management, representatives of US customers have visited Zoro's factory occasionally for quality control inspections. Most of these visits were walk-throughs with some general questions raised about the use of child labour, but no checklist of requirements was administered. Phillips-Van Heusen had previously raised the subject of codes of conduct with Zoro's management and asked the company to fill out a questionnaire. When Zoro was producing for Phillips-Van Heusen, there was a clause in its contract related to child labour. Primo Industries in El Salvador, a contractor for Liz Claiborne, Land's End, Polo and JCPenney, met with Liz Claiborne several years ago to discuss and sign the Liz Claiborne code of conduct. The plant manager told Department of Labor officials that Liz Claiborne is "the toughest on child labour". He also said that American inspectors visit the plant approximately twice a month to check on quality control and see whether their rules and regulations are being implemented.
Based on field visits, it appears that most monitoring conducted by US corporations primarily covers quality control issues. As such, there seems to be relatively little interaction between monitors on the one hand, and workers and the local community on the other. It also appears that monitors have a technical background in production and quality control and are relatively untrained with regard to the implementation of labour standards. (For more detailed, company specific, information, see United States Department of Labour, The Apparel Industry and Codes of Conduct, chapter E: Monitoring)
None of the surveys discussed above dealt with the issue of enforcement of codes internally within the companies themselves, in cases where management or employees of the company may violate the code. A quick overview of the codes attached in this CD-ROM, indicates that most codes do not include any enforcement provisions or are not specific regarding enforcement measures. For example, the Boeing code states simply that "violations of the company standards of conduct are cause for appropriate corrective action including discipline."
However, there are also codes that are specific regarding disciplinary measures. A good example is the Halliburton's code, which states that:
The disciplinary measures, which may be invoked at the discretion of the Executive Committee, include, but are not limited to, counseling, oral or written reprimands, warnings, probation or suspension without pay, demotions, reductions in salary, termination of employment and restitution.
Persons subject to disciplinary measures shall include, in addition to the violator, others involved in the wrongdoing such as (i) persons who fail to use reasonable care to detect a violation, (ii) persons who if requested to divulge information withhold material information regarding a violation, and (iii) supervisors who approve or condone the violations or attempt to retaliate against employees or agents for reporting violations or violators.
According to the US Department of Labor survey (42 United States apparel companies in 1996), companies that pass the screening process and become contractors of US corporations may face a range of corrective measures should they fall short in complying with the code of conduct.
In Guatemala, although garment contractors and subcontractors were unable to articulate the US companies' policies to address violations of their codes of conduct, they expressed great concern about the possibility of losing their contracts if they were found to have child labour problems. A representative of Phillips-Van Heusen stated that in May 1996, his company had identified three young workers (under 15 years of age) in a plant operated by a subcontractor in San Pedro de Sacatepequez. Upon learning of their presence, Phillips-Van Heusen required the company to dismiss the three young workers immediately.
In the Dominican Republic, many companies stated that US clients had requested changes in the physical conditions of the factories during their visits to the companies. These changes often included requirements for eating facilities, restrooms, and more lighting or ventilation. In most cases, changes affecting working conditions were related to safety and health issues. Most of the companies that had contracts with Levi Strauss in the Santiago Zona Franca said that all companies were requested to reinforce, move, or rebuild wooden mezzanines where sewing machines were stationed as a fire safety precaution.
Undergarment Fashions mentioned that JCPenney, in addition to performing periodic visits to the plant, also had a rating system to evaluate the contractor's performance. Under this rating system, a company must receive at least 50 points in order to maintain its current contract. If the company does not obtain a satisfactory rating, it is put on probation and given a reasonable period of time to make the requested changes.
High Quality Products, located in Zona Franca Los Alcarrizos, a contractor for the Jones Apparel Group, said that Jones Apparel terminated a contract with Bonahan Apparel (in Zona Franca Bonao) because of Bonahan's refusal to recognize the establishment of a union in its plant.
In Honduras, Rothschilds made a number of recommendations regarding clean toilets, lighting, ventilation, drinking water, and hours of work for 14- and 15-year-old workers at Global Fashions.
In part because of the priority to improve quality, but also because of a concern about violations of labour standards (and child labour provisions in particular), US garment importers have cut back sharply on subcontracting and also reduced the number of their foreign suppliers. From the point of view of foreign garment producers, the streamlining of suppliers in the US garment industry has resulted in clear winners and losers.
On the one hand, suppliers to the United States market that can meet the considerations of quality and timeliness of product while complying with codes of conduct have been rewarded with continued orders. They have also received additional orders which have been diverted to them from producers that rely on subcontracting schemes.
On the other hand, marginal suppliers in terms of quality and timeliness of output, physical plant, or ability to comply with labour standards have lost their contracts with United States importers. They have had to resort to sales to other, less profitable markets, including their own domestic market.
Continued access to the US market is a very large incentive for overseas garment producers to meet quality and timeliness requirements and to comply with codes of conduct. Thus, the prospect of continued ability to ship to the United States reinforces compliance with appropriate standards. Foreign countries also have a great deal at stake, as unused import quota allocations translate into the loss of export revenue in the short term and loss of the import quota in the longer term. (For more detailed, company specific, information, see United States Department of Labour, The Apparel Industry and Codes of Conduct, chapter F: Enforcement)
Globalization and Workers' Rights