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Wal-Mart Factory Rules Won’t Make Them Safer, Activists Say

Wal-Mart Stores Inc. (WMT)’s new zero- tolerance policy for suppliers that source garments from unauthorized factories won’t make workers safer, a labor-rights activist said.

Wal-Mart, the world’s largest retailer, in an undated letter to suppliers, said that starting March 1 it would “terminate its relationship with any supplier engaging in unauthorized subcontracting” when sourcing its merchandise. The new policy will require suppliers to hire people to inspect factories regularly and ensure they’re in compliance, the company said in the letter, which it released today.

The rules follow a fire that killed more than 100 people last year at a Bangladesh factory where Wal-Mart clothes were being made. At the time, Wal-Mart said a supplier subcontracted work to the “unauthorized” factory without the company’s knowledge. It later fired New York-based Success Apparel in connection with the unauthorized manufacturing, a person familiar with the matter said last month.

Wal-Mart’s policy won’t make factories safer unless it helps suppliers pay for improvements, said Scott Nova, who runs the Washington-based Worker Rights Consortium.

“If Wal-Mart is not going to absorb the costs of substantial factory repairs, improvements are not going to happen,” Nova, executive director of the labor-rights monitoring group, said in a telephone interview.

The zero-tolerance policy replaces a three-strikes rule, which had been in effect since May 2011. Under the new rules, suppliers must disclose names and locations of factories where products are “manufactured, augmented or packaged.” The company is vowing to sever ties to any supplier making merchandise in factories unknown to Wal-Mart.

Hosting Suppliers

Wal-Mart began sending letters to its suppliers today, Brooke Buchanan, a company spokeswoman, said in a telephone interview. The company is hosting U.S.-, Canada- and U.K-based Wal-Mart and Sam’s Club garment suppliers at its Bentonville headquarters Jan. 24 to discuss the changes, Buchanan said.

Wal-Mart is holding internal discussions about possibly providing loans to suppliers to help cover the cost of safety upgrades, she said.

The company plans to post the names of unauthorized suppliers and factories on its website so suppliers “couldn’t say ‘I didn’t know the factory I’m sourcing from is in red status,’” Buchanan said. Red indicates unauthorized facilities.

“A lot of these steps continue to put the onus entirely on the suppliers,” Scott Zdrazil, director of corporate governance for New York-based Amalgamated Bank, said in an e-mail. “As Wal-Mart investors, we need Wal-Mart to step up and ensure the integrity of its supply chain and demonstrate a reliable monitoring program.”

Amalgamated holds about 440,000 shares of Wal-Mart stock.

On Jan. 10, Zdrazil wrote to Wal-Mart Chairman Samuel Robson “Rob” Walton asking the company to publicly report known suppliers before the company’s 2012 annual meeting.

“Full disclosure of all of the company’s suppliers would go a long way to demonstrate Wal-Mart’s intent to ensure full supply chain compliance,” Zdrazil said.

Wal-Mart rose 0.5 percent to $69.58 at the close in New York. The shares gained 14 percent last year, compared with a 13 percent advance for the Standard & Poor’s 500 Index.

To contact the reporter on this story: Renee Dudley in New York at rdudley6@bloomberg.net

To contact the editor responsible for this story: Robin Ajello at rajello@bloomberg.net

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