Business Week, June 23, 2003

Commentary: Sweatshops: Finally, Airing the Dirty Linen

By Aaron Bernstein

For more than a decade, consumer-product and retail companies have been fending off

sweatshop critics by hiring auditors to inspect their overseas factories for labor violations.

The companies use the reports to reassure consumers that they're grappling with the

sweatshop conditions prevalent in low-wage countries. But the entire effort has been of

limited public-relations value. For one thing, companies such as Nike (NKE), Wal-Mart

Stores, and Walt Disney have largely refused to release the audits to the public.

Essentially, they have asked critics to trust that they're taking care of the problem --

which of course few are willing to do.

Now, a handful of companies -- among them Nike, Reebok, and Phillips-Van Heusen

(PVH ) -- have for the first time gone public. Their factory labor audits were posted in

early June on the Web site of the Fair Labor Assn., a sweatshop-monitoring group started

in1997 with help from the Clinton Administration (table). (Nike Inc. released only

limited information, citing its pending U.S. Supreme Court case.)

This is a major and long-overdue step in the whole sweatshop debate. The FLA, which

includes a dozen brand-name firms as well as 175 colleges, has promised for years to

publicize audits of factories, most of which are owned by subcontractors. Now that it has,

human rights groups will be able to see for themselves whether the process is valid. The

move also puts pressure on Wal-Mart, Disney, Gap (GPS) and every other company that

does labor monitoring, to release their audits, too." When you put these reports in the

public domain, it creates a huge incentive for companies to remedy the problems," says

Michael Posner, an FLA founder and head of the Lawyers Committee for Human Rights,

a New York advocacy group. "It's like the old Reagan line: 'Trust, but verify."'

Commendable as it is, the FLA companies' gutsy move still leaves plenty of fundamental

problems unsolved. For example, the FLA doesn't even try to make sure that factories

pay a living wage by the standards of the countries in which they operate -- a frequent

activist demand. Nor do FLA inspectors report on whether factories respect the right to

form independent unions in countries like China that repress them. The FLA, under

pressure from its member companies, also declined to require that the actual factories

inspected be named, making it more difficult for watchdog groups to check up on the

reports.

In addition, some critics say the FLA has watered down its overall inspection regime as it

has struggled to get up and running. Currently, the group requires companies to inspect

just 5% of their factories -- too few to be credible, says Heather White, the head of

Verité, the only major nonprofit doing global factory inspections. Indeed, White recently

stopped doing FLA audits partly for this reason, though she applauds their public release

as a milestone.

Another complaint: Most of the FLA monitoring is handled by for-profit auditing firms

that don't usually talk to workers off-site. Although this is considered the best way to

uncover systematic labor abuses, it's also more expensive, and many companies don't

want to spend the money.

Still, the first batch of audits is remarkably candid. In fact, one depressing result of seeing

them for the first time is the realization of just how little has changed after all these years.

In more than 40 factories inspected, the audits found all the ills that have plagued lowwage producers for years, from arbitrary firings to forced overtime. "There's not much sense of progress being made on these long-standing issues," says Prakash Sethi, a

Baruch College management professor who heads the independent monitoring effort at

Mattel Inc., the only other company to publicly release its audits.

On the plus side, though, the FLA audits list what the factories are doing to fix the

problems, such as training managers and giving workers pay stubs. It's too early to tell

how far the factories are willing to go with the reforms, but this should become clear as

follow-up reports come out next year. "Overtime, you'll be able to judge the progress

being made," says Doug Cahn, Reebok International (RBK) Ltd.'s vice-president of

human rights programs. "Our goal is to be sure that the factories have systems to find

problems and fix them, so we don't keep finding the same things day in and day out."

So why do other companies refuse to let the public see their audits? Wal-Mart Stores Inc.

and Walt Disney Co., like many other consumer-product companies, have been dogged

by sweatshop allegations for years. Says Disney spokesman Gary Foster, whose company

does audits on a regular basis: "We're an easy target because we have one of the most

highly recognized names out there, but this is an issue we take very seriously." Problem

is, outsiders have no way to know whether Disney does in fact do thorough auditing.

Foster concedes this is a problem and says he is looking into whether releasing audits is a

good idea. Wal-Mart declined to comment.

Airing dirty linen is always painful. If critics respond solely by focusing on all the

problems the companies have voluntarily exposed, the Disneys and Wal-Marts of the

world are sure to keep their own labor conditions under wraps. The better approach: to

praise the FLA's openness while insisting that more be done -- and holding other

companies to the same standard.

Bernstein follows the sweatshop debate from Washington.