We audited a factory in Malaysia that employs migrant workers from Burma, Nepal, and Indonesia. The workers' passports had been confiscated and they'd paid exorbitant recruitment fees that required loans resulting in a debt burden that qualified them as forced labor.
Complaining - at the risk of being fired and not able to pay back their loans - was not an option. People worked excessive overtime whether they wanted to or not. They lived in broker-supplied "Condominiums," (so-called in the brochure, which also pictured a pool). These were three-bedroom apartments, each with one bath, one shower, one toilet, one working burner on the stove, for 24 women. There were no beds or bunks, just enough room for 24 side-by-side mattresses covering the floor.
To Comply or Not to Comply: Lessons 1, 2 and 3
What we found here might be extreme, but the conditions are the logical outcomes of a series of business decisions that are quite common. Every day factory managers ask themselves: "Do I comply with my customers' codes of conduct if it means not meeting a promised price and delivery schedule for that same customer?"
Managers tell us it's not that they like forcing the lines to work overtime, but to meet production and delivery targets sometimes everybody has to work harder and longer. If there aren't enough affordable local workers, hiring through a broker may be the only choice. Vetting that broker, monitoring contract terms and migrants' living conditions is a drain that they say defeats the purpose of getting HR off the books in the first place.
In the case of the printer company with the "Condos," just-in-time inventory management means their customer's orders change weekly. It's a small company but the unit price the factory gets is based on the volume price negotiated by competitors 40 times their size - giants the likes of Foxconn, Jabil and Flextronics. Operating on less than a 3 percent margin, the workforce is kept at bare bones, making overtime inevitable, and HR is outsourced, leaving the company vulnerable to some of the most serious compliance risks. The owner stated simply: when it comes down to meeting production targets or social responsibility standards on work hours, quotas, freedom of movement, even the risk of debt-bonded labor - business imperatives will win every time.
So what's the answer? After a dozen or so years digging into what makes the global supply chain tick and what it will take to ensure fair, safe and legal conditions for workers, three lessons have emerged.
Lesson 1 - For social responsibility to become commonly accepted, or "mainstreamed," it has to become an integral part of running a business.
Lesson 2 - For social responsibility to be embraced by more industries and facilities of all sizes, it must be simple to adopt and maintain.
Lesson 3 - For social responsibility to remain relevant, it must be cost effective and enhance a company's efforts to survive and grow, rather than be an obstacle to growth.
My Kingdom for a Control ... Lessons 4 & 5
Talking to factories and farms, their customers, their workers, and even their brokers, these "lessons" have shaped our holistic Systems Approach to Managing Social Responsibility (VSA). Developed in partnership with several large retailers, former plant managers, HR, production and quality experts, it's now the basis for most everything Verité does to bring workers' welfare into the business equation (our consulting, training, auditing, etc.) It's foundational to the Fair Hiring tools we just released as part of our Help Wanted Initiative to enable companies to avoid the kind of forced labor we found at that printer plant in Malaysia.
VSA doesn't require a separate system to improve Code performance. Instead, VSA helps managers improve the business processes that keep any company running, from a small grower, to a mid-size shoemaker, to a massive semiconductor manufacturer.
Lesson 4 - A standards-based approach views a company from the outside looking in; there is a lot more information and impact to be had if the view is from the inside looking out.
What works best is when companies understand how to develop the right controls to embed in their business processes to screen out compliance risks. In the case of the debt bondage and other labor risks we found at that Malaysian plant, for example, the task for management is to strengthen their current recruitment, selection and hiring processes with mechanisms to determine whether its labor broker was operating legally, ethically and in such a way to protect the welfare of the workers being supplied to the factory. Same for how a good grievance system would give them early warning on harassment, safety hazards, and denigrating working conditions - all of which are drains on productivity, not to mention good standing with their customer.
Lesson 5- The vast majority of SR problems are avoided if controls are working within the same group of day-to-day processes.
The beauty of a good operational or management control is that it multi-tasks, taking care of several risk sources at the same time. We'll spare you the spider-web chart that links controls with corresponding compliance issues. Rather, note that a good worker feedback mechanism, for example, can save headaches in a bunch of code categories.
Can you name them? Post your answers below, or send them to me at email@example.com.