Who's watching the watchers? A review of two recent critiques of Better Factories Cambodia, Corporate Social Responsibility and Multi-Stakeholder Initiatives over the past 2 decades

As every school kid in the U.S. who has learned about the unvirtuous triangle of sugar, slaves and rum in cross-Atlantic trade routes in the colonial days of the Americas knows, neither global value chains nor human exploitation within those chains are new to the human experience. Over the past two decades, however, there has been a proliferation of inter-governmental, nongovernmental, mixed public-private, business and multi-stakeholder initiatives designed to address the negative impacts of modern global value chains on workers and communities.  Early 2013 has been a time of reckoning for and reflection upon these initiatives with the publication of two important critical studies of their impacts and effectiveness. In February 2013, the International Human Rights and Conflict Resolution Clinic of Stanford Law School in conjunction with the Worker Rights Consortium (WRC) released the report Monitoring in the Dark An evaluation of the International Labour Organization’s Better Factories Cambodia monitoring and reporting program.  In April 2013, the AFL-CIO released its critical report on CSR and Multi-Stakeholder value chain monitoring initiatives Responsibility Outsourced: Social Audits, Workplace Certification and Twenty Years of Failure to Protect Worker Rights.  These two reports raise important questions about the impact and effectiveness of Better Factories Cambodia (BFC) and CSR and multi-stakeholder global value chain monitoring initiatives and should be required reading for all CSR practitioners, especially in the wake of the recent factory building collapse in Bangladesh and factory fires in Bangladesh and Pakistan.  Clearly 2013 should be a year of reflection, reassessment and redirection for CSR and multi-stakeholder initiatives because, as detailed cogently in both these reports, they are not working despite the best intentions of those involved.

Better Factories Cambodia (BFC) was an innovative initiative of the International Labor Organization (ILO), the International Financial Corporation (IFC), U.S. and Cambodian governments and employer and trade union groups that started in 1999.  The goal of the initiative was to certify that the Cambodian garment manufacturing sector complied with international labor standards in producing clothing and textiles for global markets.  BFC led to the establishment of a permanent partnership between the ILO and IFC called Better Work which symbolizes a partnership between the social and financial development models.  Better Factories programs have since been established in Haiti, Indonesia, Jordan, Lesotho, Nicaragua, and Vietnam and will soon be established in Bangladesh and Morocco.  In addition to entrenching the idea that a country can increase its global manufacturing market share by ensuring humane working conditions, BFC and Better Work broke the longstanding cold war between the ILO and Bretton Woods Institutions like the World Bank and IFC.  While there is still a long way to go before the World Bank and IFC fully embrace the ILO's principles of freedom of association, worker rights and social dialogue between workers, employers and governments within their international development framework, Better Work is an important step in bringing the interests of working people to the attention of the global financial infrastructure.

While BFC has been hailed as a success and model for other countries, the assessment produced by Stanford and WRC draws attention both to changes that occurred to the program after the first five years of its decade-long existence and to the manifestation of certain fundamental structural flaws in the BFC framework that have been revealed over time.  When BFC was first established, it was in the context of the international Multi-Fibre Arrangement (MFA) and its sub-agreement the Agreement on Textiles and Clothing (ATC), which allocated quotas for garment and textile manufacturing among various countries.  In addition to the reputational advantages afforded by participation in BFC, the Government of Cambodia and manufacturers were incentivized by the leverage that could be exercised by the U.S. government in denying access of Cambodian apparel and textile products to the U.S. market if they were not manufactured in accordance with the ILO fundamental rights at work.

In 2005, however, there were two critical events that appear to have hampered the effectiveness of the BFC program.  First, the MFA and ATC expired, removing the leverage of potential denial of access privileges to the U.S. and global markets.  Second, the BFC became partially self-sustaining, meaning that much of its funding now comes from the manufacturers and brands that use its auditing services.  The result, argue Stanford and WRC, is that there is much less transparency in the monitoring and auditing processes conducted by BFC.  Rather than being treated as active participants in the auditing process, Cambodian workers are treated as passive audit interviewees who do not get to see the individual factory audit reports, which are for the eyes of factory owners and international buyers only.  The Stanford-WRC report also points out that despite a decade of BFC's presence, independent trade unions are still struggling in Cambodia and wages have stagnated at the same low pre-BFC levels despite inflation so that workers are often not able to purchase enough food to sustain basic nutrition levels, causing them to pass out on shop floors.  Other persistent issues noted in the report include excessive overtime, violations of freedom of association, lack of authentic collective bargaining, occupational safety and health violations and child labor. Moreover, the authors found that many of the Cambodian factories subcontract projects to entities that are not part of the BFC program and not subject to labor inspection requirements of the program - as well as to prisons, where free labor by prisoners further depresses wage levels for garment workers.

The Stanford-WRC assessment is clearly designed to be a constructive report, making recommendations to improve BFC's effectiveness within its existing framework such as taking more steps toward openness by issuing public inspection reports on individual named factories, seeking more input from and responding to the concerns of garment workers and expanding the BFC's role in remediation and follow-up of identified violations.  It is clear from interviews with BFC leaders that the tripartite governance structure of BFC as well as its status as an inter-governmental entity rather than a national governing authority put BFC in the awkward position of having to deal diplomatically with the Government of Cambodia and manufacturers and thus hampering its effectiveness as a rights ombudsman for trade unions and workers.  In discussing a proposed BFC hotline for workers to call, the Stanford-WRC authors note that BFC has no triage mechanism for dealing with or referring work-related complaints that inevitably make it onto BFC desks.  One step obvious to many readers would be for BFC to refer such complaints to the Cambodian Labor Ministry.  It is surprising that not once is the Cambodian Labor Ministry mentioned in the worker rights enforcement process involving BFC, or in the Stanford-WRC report.  While it may be that the weakness of Cambodian labor authorities may have been a factor in why BFC was created, it appears as though the presence of BFC is doing little to strengthen the Cambodian Labor Ministry or the viability of independent Cambodian trade unions.  This calls into question the overall sustainability of the BFC program for Cambodia, as BFC seems to be operating as the functional equivalent of a national labor authority or trade union without having the jurisdictional powers a national labor authority would have or the representational capacity a trade union would have since BFC is a tripartite intergovernmental entity that receives funding directly from the companies it is monitoring.

The AFL-CIO's report Responsibility Outsourced: Social Audits, Workplace Certification and Twenty Years of Failure to Protect Worker Rights assesses the effectiveness of unilateral Corporate Social Responsibility policies and multi-stakeholder initiatives (MSIs), especially the Fair Labor Association (FLA) and Social Accountability (SAI), both of which have been in existence a little over 15 years.  Between company CSR policies and MSIs, a global manufacturing monitoring industry worth over $80 billion has come into existence over the past two decades.  The effectiveness of this industry has been called into question these last couple of years due to a couple of high profile failures such as the 2012 incident when over 300 workers were killed in a fire at the Ali Enterprises factory in Karachi, Pakistan - which had received a top-level certification from SAI - and the deaths of 119 workers who were killed in fires at the Tazreen Fashions and Smart Garment Export factories in 2012 and 2013.  In addition to raising questions about the overall effectiveness of the monitoring industry, the AFL-CIO notes that often factory inspection reports produced under company CSR programs are not shared with workers or government authorities, so they cannot act on safety and other violations.

One of the most interesting insights in the AFL-CIO's report is the fact that CSR and MSI monitoring mechanisms suffer from the same flaw as companies' management of their global supply chains - essentially, much of the in-country monitoring by MSIs like the FLA and SAI is assigned to a series of sub-contracting companies that in turn outsource the work to other sub-subcontractors, with the resultant risk of loss of quality of products and outcomes in audit reports and certifications - as well as damage to the reputation of the company or MSI and up to the possibility of potential acts of corruption by sub-subcontractors.  For example, in the case of Ali Enterprises, the ultimate monitoring sub-subcontractor did not actually physically inspect or visit the factory in Pakistan before awarding a top level certification to the factory.  The Tazreen Fashions and Smart Garment Export factories had also been subject to CSR auditing inspections.

As did the Stanford-WRC report on BFC, the AFL-CIO report notes that CSR programs and MSIs like FLA and SAI tend to pay less attention to trade union rights in their questionnaires and factory audits, making it difficult for workers and their representatives to develop independent trade unions capable of addressing workplace and pay issues directly with their employers.  The AFL-CIO argues that this dynamic, along with the proliferation of CSR programs, MSIs and various for-profit and not-for-profit monitors is leading toward unsustainable labor-management relations within countries.  Local trade unions are not being allowed the room to grow and develop to maturity and labor authorities are being sidelined and functionally replaced by private and often foreign monitors ultimately beholden to manufacturers and buyers.  This may be why the AFL-CIO hailed as a victory the recent action plan agreed to by the Government of Guatemala as part of settling the recent CAFTA-DR labor petition.  The action plan, discussed elsewhere in this blog, calls for improvement of the capacity of Guatemalan legislative, executive and judicial branches to pass protective labor laws, conduct workplace inspections, levy meaningful fines for noncompliance and enforce administrative and judicial orders.

My research has shown that multi-national enterprises can take action against suppliers that do not comply with standards set in Corporate Codes of Conduct with dispatch and a certain amount of leverage within the purchasing process that inter-governmental bodies cannot muster.  Unfortunately, sometimes this results in completely pulling out of a potentially dicey manufacturing situation, resulting in job losses rather than workplace improvements.  Disney recently pulled out of Bangladesh in light of the recent factory building collapse. Iron-clad contractual provisions with suppliers could be part of a solution to the problem raised in the Stanford-WRC report of certified factories subcontracting work to sweatshops that aren't part of the BFC monitoring agreement.  Multi-stakeholder initiatives perform a number of important functional roles, such as providing a forum in which companies and suppliers can interact and exchange information with worker advocates and can create a set of standards for conduct and model good corporate citizen behaviors.  As discussed by the AFL-CIO in its report, however, only a small percentage of companies effectively use their leverage in ways that lead to real change for workers such as improvement of wages and recognition of independent worker organizations, since there is an inherent tension between pressure from companies' pricing departments and the lofty goals of CSR departments.  In addition, there is wide variety among MSIs ranging from those like the Ethical Trading Initiative (ETI) which have international trade union representation to those such as the SAI and FLA which appear to have difficulties obtaining or retaining worker representatives due to overall institutional viewpoints and culture.  The range includes entities that could be described as MSIs such as WRAP that have no worker or NGO representation at all.

The AFL-CIO recommends guaranteeing stronger protection of fundamental rights to association and collective bargaining with employers as well as governmental labor institution building.  The AFL-CIO points to Global Framework Agreements (GFAs) - also referred to as International Framework Agreements (IFAs) - as an alternative to unilateral Corporate Codes of Conduct.  GFAs, which originated in the European context, are agreements negotiated between multi-national enterprises and global union federations allowing for social dialogue throughout the MNE's global value chain.  The AFL-CIO points to two recent GFAs negotiated in the Americas (Banco do Brasil and Ford Motor Company) as examples.  The report refers to these as the first two GFAs involving companies based in the Americas, but in fact the first GFA in the Americas was between Chiquita Banana, the International Union of Food Workers (IUF) and the Central American regional banana workers union COLSIBA in 2001 and has been in effect for over a decade.

The AFL-CIO concludes that a number of actors will have to play important institutional roles to ensure better equity and humane working conditions in global supply chains.  These include governments, trade unions, employers, consumers, NGOs, investors and MSIs.  Already the International Labor Organization is in the process of implementing an action plan to address the institutional failures that led to the deaths of over 650 people last week. As discussed in the Stanford-WRC and AFL-CIO reports, however, there is much, much more that needs to be done.