Global Policy Forum

By Conrad MacKerron*

On Wednesday, Gap Inc. released its second corporate responsibility report, continuing a focus on working conditions in its supplier factories. Such public reports help verify that companies are enforcing codes of conduct. Last year's report received worldwide attention as among the first to publish data from audits of working conditions in supplier factories. Now consumers can easily find the number of factories in China that Gap has rated as excellent, how many need urgent attention and/or were terminated for repeated code violations. The report won awards and was widely praised, even by the company's long-standing critics.

Gap's new report provides more hard data about its supply-chain compliance performance. In response to comments that it lacked an independent assessment of its social-auditing program, this year's report features critical assessments of its monitoring program by respected social compliance firms.

Such frank reporting should be the rule, not the exception. Environmental and employee data on domestic company operations has long been widely available for social researchers. But companies have balked at releasing information on how well their suppliers are complying with codes to ensure that workers are properly paid and treated. Most frustrating is the deafening silence among Gap's direct competitors. Where is the rest of the apparel industry, as well as the toy and electronics industries?

Nearly 10 years ago, Kathie Lee Gifford's Wal-Mart apparel line was linked to child labor in Honduras, providing an enduring symbol of lack of corporate accountability in the fast-spreading global supply chain. Since that time, fewer than five companies have issued public reports with adequate disclosure of supplier compliance with supply-chain codes of conduct. The result? We still don't know if workers who make products for Target or JC Penney are treated better than those who labor for Macy's or Sears.

Nike and Gap provide prime examples for why companies should care. The reputation and stock price of both companies suffered as a result of lengthy activist campaigns and revelations of poor working conditions in supplier factories. Yet a recent study by the nonpartisan Investor Responsibility Research Center found that only 12 percent of S&P 500 companies have formal codes requiring suppliers to address labor issues. Worse, only 4 percent of those address core issues considered fundamental rights by the International Labor Organization.

Why have other companies not acted to protect their reputation and their contract workers? Sarah Severn, an executive at Nike, which released a fairly thorough supplier report in April, told a public forum that other companies were not under enough pressure to do so. She appeared to confirm that a perfect storm of grassroots activist pressure, shareholder activism and media controversy were indeed the most effective ways to get companies to take responsibility for their supply chain.

A key concept promoted in both Gap and Nike reports is development of a balanced scorecard in assessing factory performance. This places social compliance front and center with traditional supply-chain performance indicators such as cost, quality and on-time delivery. This is an important element in making a strong business case for social compliance to the rest of the business community, which seeks hard performance targets. We will watch to see if Gap and Nike follow through.

The electronics industry has received more attention following a report 18 months ago by the Catholic Agency for Overseas Development. In interviews with electronics workers in Mexico, Thailand and China, the report noted allegations of unsafe factories, compulsory overtime, wages below the legal minimum and degrading treatment. Suddenly, the electronics sector "got religion," and codes that had languished for years are increasingly being enforced.

The task of developing all of this data at hundreds of thousands of manufacturing sites is indeed daunting. There is little chance of federal legislation or a U.N. resolution requiring such disclosure. In the short term, credible, verifiable self-reporting by companies is the only realistic option. We depend upon companies to provide us with accurate financial data on their global commerce; why can't they emulate it with code-compliance data on supplier factories?

Surprise: Wal-Mart, the corporate bad guy du jour -- object of numerous investigations and allegations on workers' issues -- last month quietly released a supplier-compliance report on its Web site. It's a rough piece of work, but it's a start. The company says more than 100 factories were terminated in 2004 because of child-labor violations. Another 1,200 facilities were disapproved due to repeated violations. That's more than we have heard from Target, Sears and their budget-minded competitors.

Some companies fear that if they file reports, they will become targets for activists. But controversy comes with the territory in the age of globalization. Companies need to get on with developing credible public reporting on their supply chains or risk being swept up in a controversy they could have prevented.

About the Author: Conrad MacKerron, director of the Corporate Social Responsibility Program at the As You Sow Foundation in San Francisco (www.asyousow.org), represents shareholders who have pushed Nike, Gap and other companies to develop supplier reports.