By Colleen A. Conry, Jane D. Goldstein, Natalie Logan and Alicia Suarez
On April 24, 2013, 1,127 people were killed when Rana Plaza, a garment manufacturing complex in Savar, Bangladesh, collapsed. This tragedy highlights the working conditions that may exist in Bangladesh and other countries. It also draws attention to the challenges faced by U.S. companies that want to conduct their business in an ethical and socially responsible way, particularly when operating through third-party suppliers in foreign countries.
Through the acts of suppliers and other third-party agents, U.S. companies may inadvertently participate in abusive labor practices. While U.S. companies grapple with the decision of how, if at all, to move forward in Bangladesh, this article proposes best practices that companies can utilize both internally and with regard to their dealings with third parties.
Best practices for preventing abusive labor practices
While corporate social responsibility (CSR) programs should address many issues and risks, this article focuses on health and safety, including human and labor rights. The following best practices are a starting point and not an exhaustive list. Companies should consult their advisors in order to tailor policies appropriately to meet their objectives.
Risk Assessments and Benchmarking:
At the outset of constructing a CSR program, companies should understand the landscape in which they operate. This may include the following:
- Conducting risk-assessments to determine which geographies and stages of production present the highest risk;
- Gaining an understanding of stakeholder and consumer demands; and
- Assessing the adequacy of existing policies and procedures by benchmarking each against publicly available industry standards and guidelines, as well as peer policies and procedures.
Tone at the Top
CSR programs should be initiated and supported from the top with input from all departments and ranks. This requires active support, both written and verbal, from the company’s executives and board of directors.
Policies and Procedures
A company should document both its internal CSR policies and procedures and its CSR policies and procedures as they apply to suppliers and other third parties. A company may choose to establish its internal CSR policy within its existing Code of Conduct or through an independent CSR policy.
Companies can also choose to forego internal policymaking and join organizations that set out specific standards by which members must abide, such as the Fair Labor Association. Companies should also establish a policy that specifically applies to its third-party agents, such as an independent Supplier Code of Conduct.
A comprehensive CSR policy requires, among other things, attention to human and labor rights and anti-corruption practices.
Human and Labor Rights: A CSR policy should cover, at a minimum:
- Prohibition of child and forced labor;
- Working hours and conditions;
- Health and safety;
- Freedom of association and the right to collective bargaining (or the establishment of parallel means of association and bargaining where laws prohibit association and collective bargaining, as in China); and
Anti-Corruption: A company’s anti-corruption policy should prohibit the offering, promising, or giving of bribes or anything of value, directly or through third parties, to foreign government officials in order to improperly obtain or retain a business advantage. The policy should also address risk areas, including: gifts, meals, entertainment and travel, internships and employment, political and charitable contributions, interactions with third parties, training, accuracy of books and records, and reporting of misconduct.
Suppliers: Foreign suppliers and their respective agents can present a particularly high risk to U.S. companies. Accordingly, companies should take steps to mitigate those risks, such as:
- Due diligence: Companies should establish risk-based due diligence procedures to assist in the review of potential suppliers and other third-party agents. Companies should require third parties to complete the questionnaires and other steps required by the due diligence procedures before engaging or paying the third parties.
- Supplier codes of conduct: As noted above, companies should establish independent Supplier Codes of Conduct and provide these policies to all suppliers before engaging them. Further, companies should require suppliers to certify initially and annually that they understand and will abide by the policy. Companies should explicitly state the consequences for failing to adhere to the policy.
- Addressing sub-suppliers: Companies should look beyond their direct suppliers to their suppliers’ underlying agents. An example of a sub-supplier would be the party that manufactures and supplies materials, such as fabric or buttons, to the ultimate clothing manufacturer engaged by a U.S. company. Companies may choose to encourage their suppliers to implement their own CSR programs that sub-suppliers must abide by, or require their suppliers to notify them of any sub-suppliers that will be engaged to participate in the production of their end-products. In addition, U.S. companies may choose to work together to seek legal or regulatory redress of sustainability issues in countries in which they operate.
Audits and Monitoring
Policies and procedures must be appropriate, effective and enforced. Companies should periodically audit and monitor their employees’ and suppliers’ compliance with these policies and procedures. Supplier audits should include interviews of management and workers, review of the supplier’s records, and facility tours. Many companies engage third-party auditors to assist with these efforts to maintain the integrity of the process. In furtherance of these efforts, companies should also work to establish open lines of communication with suppliers and encourage and reward supplier transparency in order to encourage compliance.
In the wake of the Rana Plaza tragedy, U.S. companies will be expected to focus on accountability in their sourcing operations. Implementing robust policies and procedures and ensuring internal compliance, as well as compliance by suppliers and other third-party agents, with ethical and socially responsible standards, particularly with regard to health and safety, are key to this effort.
Colleen A. Conry and Jane D. Goldstein are partners, and Natalie Logan and Alicia Suarez are associates, at Ropes & Gray LLP. Conry and Suarez practice in the firm’s Washington, D.C., office, while Goldstein and Logan practice in its Boston office.