This afternoon I was asked by someone why I am involved in CSR and sustainability. It is a question that I seem to asked frequently, but one that I am not sure I ever answer with any measure of clarity as I have worked in a very wide range of issues related to these big topics, and my interests for each issue hit me in different spots.
But, if there is one common thread that I feel binds each of the issues I work on (see a recent list of 35 projects I am managing through my class at CEIBS), it is that of responsibility… or the lack there of.
That, regardless of the issue under the microscope, at any one time there are up to 5 different groups that share a role and responsibility, and that should one of those groups fail to assume their responsibility, or should one of those groups act in a deliberate manner to upset the balance, then they are by their very nature irresponsible and are taking on a measure of risk to their person or organization.
If this sounds a bit alien, then think back to Nike circa 1996-1997 when the entire world was given a glimpse into the realities of Indonesian labor standard. It was a classic case of a model that was unsustainable. Nike outsourced all their manufacturing to largely Asian owned/ operated contract manufacturers (still does today), but with little oversight or belief that they had any responsibility of the conditions on the ground. It was a denial of responsibility that lead to a huge PR disaster for them, and they took win huge losses as consumers walked away from them in what I would call an act of consumeristic responsibility.
Fast forward to 2006 when the international press got wind of an issue related to the dormitory conditions of the Suzhou factory that manufactured Apple’s famed iPod. It was a story that immediately became controversial as Apple and Foxconn tried to skirt the stories and admit no wrong, but ultimately Apple did send over a team of investigators to Suzhou who:
In response to the allegations, we immediately dispatched an audit team comprised of members from our human resources, legal and operations groups to carry out a thorough investigation of the conditions at the manufacturing site. The audit covered the areas of labor standards, working and living environment, compensation, overtime and worker treatment. The team interviewed over 100 randomly selected employees representing a cross-section of line workers (83%), supervisors (9%), executives (5%), and other support personnel (3%) including security guards and custodians. They visited and inspected factory floors, dormitories, dining halls, and recreation areas. The team also reviewed thousands of documents including personnel files, payroll data, time cards, and security logs. In total, the audit spanned over 1200 person-hours and covered over one million square feet of facilities.
.. and what they found was:
Our audit of on-site dormitories found no violations of our Code of Conduct. We were not satisfied, however, with the living conditions of three of the off-site leased dorms that we visited. These buildings were converted by the supplier during a period of rapid growth and have served as interim housing. Two of the dormitories, originally built as factories, now contain a large number of beds and lockers in an open space, and from our perspective, felt too impersonal. The third contained triple-bunks, which in our opinion didn’t provide reasonable personal space.
To address this interim housing situation, the supplier acquired additional land and is currently building new dormitories. These plans were in place prior to our audit, and will increase the total living space by 46% during the next four months.
It was a report, a process, and reaction that while initially grabbed some press, was in the end chalked up to just another problem that overseas brands faced when outsourcing. As the Wired article Judging Apple’s Sweatshop Charge seemed to conclude in their assessment:
The situation is too murky for a rush to judgment on Apple’s ethics here, and it may well meet minimum global standards. But for a company that has staked its image on progressive politics, Apple has set itself up as a potential lightning rod on global labor standards. Sweatshops came back to bite Nike after its customers rose up in arms; and Apple can expect a similar grilling from its upscale Volvo-driving fans in the months ahead.At this point,
It is at this point that Apple appears to have been genuinely woken up, or at least rattled, because 18 months later Apple released its first supplier Responsibility report (download here) where the findings of a complete review were released. It was a report that was opened with the passage below:
Apple is committed to ensuring the highest standards of social responsibility throughout our supply chain. The companies we do business with must provide safe working conditions, treat employees with dignity and respect, and use environmentally responsible manufacturing processes wherever Apple products are made.
For the past several years, Apple has required suppliers to commit to a comprehensive Supplier Code of Conduct as a condition of their contracts with us. We drive compliance to the Code through an aggressive monitoring program, including factory audits, corrective action plans, and verification measures.
Apple’s approach to supplier responsibility extends beyond compliance monitoring. We also provide detailed standards and ongoing training support to help suppliers continue to meet our expectations. And by making social responsibility part of the way we do business, we ensure that suppliers take our standards as seriously as we do.
.. but, it was a report whose contents were shocking as more than half of their suppliers were not in compliance. There were material issues that were across the board (as the graphic below shows) with overtime, wages deductions, age limits, and so on, and regardless of whether or not these could be explained away or were “problems of the past”, the fact is that Apple should have at this very moment stopped dead in their tracks, realized that they were sitting on a problem, and made changes. Changes in their partner relationships, changes in the way they monitor and measure relationships, and changes in their attitude about who is ultimately responsible for labor abuse (and other issues of corporate responsibility) within one’s supply chain. Outsourced or not.
Sadly though, their own internal document did not provide the “come to Jesus” that it should have and last summer, again at a Foxconn site, a 25 year old employee committed suicide after he was interrogated by Foxconn employees over the theft of a prototype iPhone. an event that I covered in my article Apple’s China Supply Chain Issues Require IMMEDIATE Attention and Action, and believe to this day that Apple should have taken the following actions:
- Contact Nike to learn lessons of how to develop an IN-HOUSE program that manages and monitors the factory conditions
- Get boots on the ground. Pay the money for a team of people who will make inspections and be given the power to make corrections
- Invite in third parties to not only verify what Apple has found and done, but to give public credibility to the process in place
- Do the right thing and begin making better decisions about who their suppliers are, and what is expected. If the profit from an iPhone is 50USD, spend the extra buck now to do the right thing. It is not an expense, it is an investment
- Make materials improvements, or make materials adjustments. Give suppliers a chance to change, but do not wait long. Begin developing parallel supply lines and force suppliers to comply through the threat of lost business (partial or whole).
- Open Up
Once again, this event would not serve as a learning lesson for Apple either (they largely skirted their responsibility of this once again), and 7000 employees of another Suzhou based supplier Wintek went on strike in May of 2009 over poor working conditions, and another 2000 employees again went on strike this week over working conditions and pay. As the China Daily article Workers protest over pay, toxic chemicals highlights:
He said at least four workers had died from overexposure to hexane, a toxic chemical workers had been asked to use for cleaning touch panels manufactured at United Win (China) Technology Ltd Co. The company is a subsidiary of Taiwan-based Wintek Corporation, one of the world’s leading producers of small mobile phone panels and touch panels. [...] Media previously cited local authorities as saying workers had been provoked by rumors that the company planned to cancel a year-end bonus, which company executives later dismissed and promised to distribute before the Chinese Spring Festival that is less than a month away.
But Zhu said it was not just about the money. “What we feel angry about is the company authorities’ apathy to our workers’ health,” he said.
Unconfirmed deaths aside, the fact that employees are being exposed to these chemicals at all should have been something that Apple’s inspectors should have picked up on. Unless of course the team of inspectors were outside to Apple’s process, and really had no idea what they should have been looking for. Plausible? But, if it was Apple’s team, then they should have been looking for this type of issue, and had they found a chemical exposure issue, they should have taken action right away to make sure that employees had the equipment (suits, ventilation, etc) to protect themselves from exposure.
It just begs the question. Does Apple feel any real sense of responsibility for the conditions of their supply chain, and why is it that a firm that is trying to crack the China market so willing to risk so much?
Is it that Apple is ignorant of the fact that these problems exist? Is it that they believe the brand is impermeable? Or are they just scared of standing up their suppliers?
It is a horrible miscalculation in my opinion, and when speaking to a friend this evening who is in the audit business about the situation we were stuck on why a company with Apple’s size and cash position wouldn’t spend the 2-3 million USD it would take to fix this problem.
For me,it is a sign that Apple’s model is broken. That regardless of how well they are selling now, or what the next gadget will be, that they will at some point experience the loss that Nike did in the late 90s, or larger. That while there seems to be little recognition of Apple’s supply chain issues in the U.S, and no sustained pushback in China, Apple is playing with fire.
It has clearly set up a supply chain that allows suppliers to structure their operations in a manner that exploits the living conditions of employees.
A structure that, getting back to my first point, will become an issue of economic sustainability for Apple.