Ensuring Fair Working Conditions for Third Parties

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Since Rana Plaza garment factory collapsed in Bangladesh in April, killing 1,100 workers, many retailers have taken a closer look at the working conditions in their third party suppliers’ factories. European retailers like H&M, Tesco and the Australian arms of K-Mart and Target have signed the Accord on Fire and Building Safety in Bangladesh. But for the most part, U.S. retailers have not. Why not?

One reason could be, as the New York Times reported last month; the Accord is “a legally enforceable contract, it also calls for retailers to stop doing business with any factory that refuses to make necessary safety improvements, and for workers and their unions to have a substantial voice in factory safety.” This could certainly put pressure on the retailers to promptly find replacement suppliers with trained workers in order not to disrupt production, quality and supply.

With legal liabilities and increased price pressure due to cost associated with holding up an Accord like this, is it really feasible for companies to inspect and repair all buildings in which their third party suppliers operate?

If U.S. companies chose to implement their own, independent compliance programs for their international suppliers, they’ll have to find a way to craft a policy that requires suppliers to follow mandatory safety regulations without violating either party’s code of conduct. What happens if international suppliers refuse to sign these more restrictive contracts? Many companies are concerned that it might make it difficult to compete with companies willing to engage third parties who are not following the Accord. Indeed, some local activists would argue that these higher standards might drive these jobs out of Accord countries which would result in the loss of critical jobs and hard currency for the local economies.

Partnering with overseas suppliers abroad can present surprising challenges. The suppliers may follow different standards. They may not be eager to agree to these cohesive policies prior to entering into a contract. Yet it’s essential that a supplier understand up front that if it does not adhere to policy it agrees upon, its U.S. partner has the right to terminate the relationship immediately upon learning of the breach. By getting these terms clear at the outset, companies can ensure everyone is on the same page, limiting compliance surprises.

Additionally, some would argue that companies should not stop at building safety codes and conditions. Many activists and shareholders would like to see companies police a broader range of potential worker abuses: excessive work hours, underage labor, improper compensation or sourcing conflict minerals.  Apple has taken enormous strides in providing transparency when working with third party suppliers and making meaningful improvements.

So what is the best solution when partnering abroad? There probably isn’t just one. What is critical, whether joining a larger effort or pursuing an independent regime of self-regulation, is that companies understand the conditions in their supplier factories, assess the risk, compare it to the companies risk tolerance and if they are so inclined, to put pressure on their suppliers or assist them with training and expertise to provide a safe and fair working environment for their employees. Even if a company opts against making itself legally liable for the safety of workers it doesn’t directly employ, many would argue that it still has an ethical responsibility to be aware of and discourage any mistreatment of those people.


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