How To Make Factories Play Fair

It is difficult to reform labor practices in countries where the rule of law is weak

Conceding that the current system of auditing Chinese factories is failing to stop widespread abuses, more and more American companies are experimenting with new ways to enforce labor standards. The Fair Labor Assn., a coalition of American retailers and name brands, advocates using a single set of standards rather than the current babble of competing corporate codes. That would relieve audit overload at factories.

The Fair Factories Clearinghouse, a joint effort launched earlier this year by L.L. Bean, Reebok, Timberland, and other companies, is pooling social-compliance information on thousands of factories. Once a plant is certified by a reputable agency, other buyers can accept the results. Buyers also can band together to pressure factories to improve. "If 6 or 10 buyers have access to consistent information, they will be better able to use their influence to compel factories to abide by their standards," says Doug Cahn, Reebok's vice-president for human rights.

Sears, Roebuck & Co. and other importers are giving factories more time to become compliant on the theory that cutting off a factory after a certain number of failed audits can drive violations underground. Except for such egregious infractions as dangerous work conditions or use of child labor, these companies work with suppliers that seem willing to improve. Factories that fail to stick with the program get axed.

Nike Inc. uses a "balanced scorecard." When evaluating suppliers, it looks at labor code compliance along with measures such as price, quality, and delivery time. During crunch times, it allows some Chinese factories latitude by, for example, permitting them to adjust when employees can take days off. Nike also is trying to streamline its methods of designing shoes and placing orders with key suppliers. It is even helping foreign factories develop more efficient production techniques. By reducing bottlenecks, Nike hopes to cut the amount of overtime required in Chinese factories and eliminate a major source of labor abuse. "If you improve efficiency and innovation, it changes the cost equation" for factories, says Eric D. Sprunk, Nike's vice-president for global footwear operations.

The question is whether such new approaches will improve the lot of the average Chinese worker. Issues like nonpayment of wages, overtime without extra pay, and refusal to let workers organize unions "are complex to solve, since they're about the rule of law in many countries," says Hannah Jones, Nike's vice-president for corporate responsibility. That's especially true in China, where local officials trying to draw factories to their area often don't enforce Chinese labor laws. "You can catch and fix a problem," Jones says, "but that doesn't change an industry."

By Pete Engardio and Dexter Roberts

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