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SPEAKER: The following is a presentation of the ILR School and Cornell University. ILR, advancing the world of work.
MARY CATT: Today we're going to learn about Professor Kuruvilla's research. And that shows that factory auditing is not working. And we're also going to learn about what can be done to improve the situation. I'd like to remind viewers that we'd love it if you would submit your questions online to us. We'll answer as many as we can. We Have about an hour today. So please get your questions in as early as possible.
First some quick background. I'd like to have Professor Kuruvilla introduce himself a bit. But I would like to let at Cornell, he teaches industrial relations, Asian studies, and public affairs and is a visiting professor at the London School of Economics. Professor, you're also a researcher whose work informs policy and practice in Asia most particularly. Could you tell us a bit about that?
SAROSH KURUVILLA: Yeah. So for the last 20 years, I've been doing research on labor policy and human resource policy. So for example, how do countries manage to upscale their populations quickly. Or another question I've followed is, what kind of labor relations policies work and what doesn't work in order to sort of improve economic development?
So I've worked in most Asian countries, most of which have been my clients, starting with Malaysia, the Philippines, Singapore, Korea, Taiwan. And I'm currently doing similar research in China and India.
MARY CATT: And much of this is conducted in clothing factories, correct?
SAROSH KURUVILLA: No. This is about labor policy and national labor and human resource policies. The clothing factories are part of this new project, which is what we call the New Conversations Project.
MARY CATT: And how did New Conversations come about?
SAROSH KURUVILLA: Yeah, so we've been teaching about this to our students for a long time. And students keep asking the question, how come we don't see improvements in factory conditions? And that was the genesis of the project.
So basically the storyline is like this. We've had about 25 years where the international community has developed a private regulation system to monitor supply chains and working conditions and supply chains. The reason for it was that when Kathie Lee Gifford's factories in Honduras were employing child labor, the reaction at that time was that, OK, so national regulation does not work. Honduras or Bangladesh were not able to enforce regulations.
So a new model was that, OK, let's see what private regulation is going to do. And there was a feeling that the private sector can pretty much beat the public sector in how to regulate to do anything, but in particular how to regulate factory conditions.
So we had companies who were in the limelight at that time like Nike and Reebok and The Gap who worked hard to develop a private regulation system that had a couple of components to it. One component was creating a code of conduct for all their supply chain. The second component was having that code of conduct monitored or audited by either their own auditors or external auditors. At that time, it was mostly their own auditors. And then seeking to remediate, getting the factories that they contracted to improve conditions.
And this design effort, this private regulation effort, slowly became very popular. And lots of companies, particularly in garments, but then it spread to electronics, and now it has spread to a whole range of industries. This private regulation system has also created lots and lots of new organization and institutions. I mean, here's the equal system. Here's something that gives you a whole range. I'm sure you can't to read this, but it gives you a whole range of institutions that are making their living working in the private regulation space.
So there are companies that make their living through auditing, there are companies that make their living through creating platforms where manufacturers and buyers can share information. There are a large number of NGOs that monitor companies' efforts. And so it has created a huge industry and lots of employment for some people as well. And a large NGO community that works at various dimensions of this.
So after 25 years, have factory conditions improved? Well, yes, to some extent. But we still have these frequent problems, safety conditions like that Rana Plaza disaster in Bangladesh. And the research kind of shows that the improvements have peaked. And they've peaked in the subcontracted factories that are used by some of the best brands who have been in the public limelight for unsafe conditions, which means that these guys have done much more than most. And yet, they've peaked.
So the purpose of a project is to ask the question, why? After 25 years, what have we learned to what works, what doesn't work, and how can we go ahead? So that's what our project intends to do.
MARY CATT: We've already received a couple of questions and I'd like to ask one from an alum, Alex Katz. Given the issues you've identified with the approach brands and retailers have taken to correct for issues in their cut and sew operations, what recommendations do you have to brands and retailers as they increasingly begin to focus on raw material suppliers, a relatively untouched group of suppliers?
SAROSH KURUVILLA: So that's a question that really moves the field forward. So much of this code of conduct, auditing, and remediation system that exists only exists for the first tier of suppliers. But we do know that there are many tiers below the first tier, stretching right back up to the cotton fields where cotton is grown. And there is no effort, no regulation, private regulation system, stretching back at all of those levels.
So Alex's question is, OK, fine, so what about the next level? So we are seeing a few companies, Patagonia for instance but others too, who are beginning to sort of say, let's understand the entire supply chain and let's see how we can map it and how we can understand it and how we can improve conditions in it. And so those are early stages.
My advice is that what we've learned from the last 25 years is that factory conditions and working conditions improve when there are really good, strong relationships, relationships of commitment, between suppliers and the buyers. And so I would say maybe one needs to build these strong relationships at the second tier level as well.
So for example, the New Conversations Project is sponsoring an experiment at the second tier level where we have convinced a number of brands and we've convinced a supplier, a fabric mill, to suspend auditing or to avoid auditing completely and build a relationship of trust and transparency where the fabric mill will put all their evaluations and working conditions out in a transparent way and all of the buyers can see that and hopefully build a system of trust which would then make auditing unnecessary. And buyers could consistently see that factory conditions are improving. So that's an experiment. We'll see how it goes. But I think that that's the next level.
There are other industries, like autos, et cetera, where automobile firms have long term relationships with parts suppliers. In the garment industry, you do see long term relationships. But those relationships are unstable. For example, another study that we did, we found that there's been these big brands buying from this one supplier for 17 years. Yet that supplier isn't guaranteed orders the next year.
So there's a lot of long term dating, but there's no commitment to the relationship. And these suppliers would be much happier if the brand give them an indication that they're willing to work and here are our orders or here's some indication that the next three or four years we'll account for so much of your production.
This is not common in the garment industry. It is common in the automobile industry. And so that's an example of the relationship with commitment. And I think when you have that relationship, it's possible to sort of tell your factory owner or your fabric mill that, look, we're going to get work together and in the long run, as long as you do well on cost and price and delivery and compliance and improvement in working conditions, we can both grow.
And I think that's the kind of relationship that needs to be built from the beginning. And it's a great opportunity because we haven't touched the second tier yet. And so we start with a relatively clean slate, so we can sort of do it differently in the second tier than what we've done in the first tier.
MARY CATT: Another question has come in from June Watson Benjamin. Dear Cornell Professor Sarosh Kuruvilla, thanks for your help. Please share any ideas, thoughts of how interested 2017 US millennials, consumers, union supporters, et cetera, may be helpful with public campaigns to reject sweatshop produced university apparel. Thanks again and all the best.
SAROSH KURUVILLA: OK. So this is a specific question about sweatshop produced university apparel. And I want to sort of turn the question back to you and sort of suggest that the students are really doing a lot of this.
And so the United Students Against Sweatshop Campaign, which has been remarkably successful thus far in pushing the boundaries. In my university, for example, I can say with reasonable assurance that nothing that's sold in the Cornell store is produced under sweatshop conditions. And I think in most of the universities that have signed up, that is also the case.
I think that the United Students Against Sweatshop Campaign has done several things that the private regulation system has not done. And one of the things is trying to steer university vendors to sourcing from designated suppliers. Suppliers who meet all of the conditions, all of the working conditions expectations that we have. In particular, the one in the Dominican Republic called Alta Gracia. So I think students have already done a lot to prevent sweatshop material coming into university stores.
I think the challenge is, how do you expand that? Although we don't have really, really good research about how millennials are different and how they are beginning to care more in choosing their purchasing more wisely, more carefully, with greater thought. And I think that we need to sort of build on that. And one of the ways brands can build on that is through increased transparency and labeling.
So for example, if somebody went into a store and they like this maybe dress or something and they looked at the label and the label said made in China in X factory, in factory number 1,256, and then being a millennial, you invariably have your phone with you. And you can sort of take a picture of that and you can directly find out on the company's website what factory 1,256 produces and what its sweatshop compliance record is.
That's the kind of transparency that we need that connects the millennial customer to the brand and the factory. And that way if there is more transparency, then the millennial customer can drive more change through purchasing decisions. And I think that it would be great to see some kind of labeling system that includes this.
MARY CATT: Another Cornellian, Andy Selick, apologies if I mispronounced that, this question is, how do you sell the importance of raising minimum standards in the supply change to large MNCs that are primarily concerned with the bottom line and cutting costs in the supply chain?
SAROSH KURUVILLA: So I think there is no simple business argument for paying minimum wages. I mean, this is something that there are laws about minimum wages you just have to follow. And companies make decisions based on a number of different criteria. One of the criteria is profitability. Another criteria is compliance. And yet another criteria is corporate social responsibility. Companies are articulating that they are responsible citizens too, global citizens.
And so across these three criteria, you've got to make trade offs. And you have to sort of say, well, such and such supplier is good on price, is good on delivery, is good on quality. Is that supply also good on basic minimum working conditions? And the problem in this industry has been that this whole idea of working conditions in global supply chains has not been really well-integrated into the sourcing model. Which means that it hasn't been a criteria that has been just as important as quality, just as important as cost. And it needs to be, because responsible sourcing is a key element of why, of how to improve conditions.
For example, we know that irresponsible sourcing is one of the reasons why working conditions are so bad. It's one of the reasons why there's so much overtime in factories. If a brand at the last minute says we want to change our order, the only way that the supply is going to be able to make that happen is through additional overtime. And the brand has to be, in principle, willing to pay what it takes so that basic minimum, basic working conditions, and basic standards are followed. So I think that it's not just a business case argument.
When I look at the evidence before me as a result of all the studies we have done on auditing, sort of saying, hey, just wait a minute. Companies are supposed to be responsible, right? And so that moral compass that also guides some of their efforts, when I look at it in terms of factories, I'm not seeing it all the time. I've seen it in some companies, in some third world factories, but not in all factories. So it basically means that that idea is not playing as central a stage, I mean, or taking as center stage as cost, price, delivery, quality, and so on and so forth. And it should.
MARY CATT: OK, thank you. Just had another question from a person graduated from ILR in the Mylar Program whose name is Daria Stiegman. Following up on Alex's question she asks, will the trend towards sustainability and sustainability reporting and increasingly stock exchanges requiring this move to more second and third tier progress?
SAROSH KURUVILLA: Will they move towards?
MARY CATT: Mm-hmm.
SAROSH KURUVILLA: Well, OK, so when I started my career at Cornell about 25 years ago, I put all my retirement income into mutual funds that were at that time focused on better practices, better conditions, sustainable outcomes. In those 25, 26 years, that industry has grown dramatically. And one hopes that with the growth of that industry and with the growth of reporting, we would see better outcomes.
If I'm sounding a little skeptical about this, I am a little skeptical, because these companies, investment companies or whoever that makes investment decisions, are going to make decisions based on a series of reports about how certain brands and companies are doing. And so the devil is in the details of how those reports are collected, how they are presented, how they are analyzed, before a final recommendation is made. I think the devil is in those kinds of details. It's the same as the problems we found in auditing.
I mean, so theoretically the private regulation system of code of conduct, auditing, and improvement in the supply chains, theoretically there's nothing wrong with that. But practically over the last 20 years, auditing has become, at least our research suggests, it has become a fairly simple routine activity. It's often outsourced to third parties. There are lots of different kinds of incentives facing auditing and auditing companies when it's outsourced. I mean, if I was an auditing company, I'd like to make sure that I get the contract in order to audit your firm all the time and that's a disincentive because I might not focus on certain things.
In addition, the auditing system is-- I mean, the auditors typically audit at a factory for a day and a half, maybe two days. There's very little you can uncover about fundamental labor conditions, like whether there's sexual harassment, whether there's discrimination, whether the factory owner is anti-union. You can't do that in a day. And so the problem is there's no problem with the design of the system, but there's lots and lots of problems in the implementation of the system.
And so translate that into the reporting that these investment companies are going to rely on. Again, it's how that information is collected? How carefully is it done? Does it accurately reflect conditions in the factory? Is there improvement? So it's in the implementation and data collection stage that's going to be important. And if those reports are credible, then the investment decisions that go along with it might actually work to improve conditions.
MARY CATT: And I know Cornell's New Conversations Project, of which you're the epidemic lead, has some plans to elevate this discussion. You're planning a springtime conference. And is there anything else you can talk about right now that you're doing that will help make change?
SAROSH KURUVILLA: Yeah, so what we've done is we've decided that the way to sort of drive change is to work with significant people in the industry. And so we've assembled a board, a multi-stakeholder board, of brands, of foundations, NGOs, academics, unions. And we're using this group to test ideas. We're also relying on big companies to increasingly share information.
Because one of the problems that has dogged movement here that has sort of stultified movement is that companies have often been unwilling to share their research, share their data so that researchers can look at it. I mean, one of the best examples was that Nike shared their data with Rick Locke and Rick Locke, who is now the provost of Brown University, has come up with a really, really good set of findings. And that's the only one that's really available.
So we need more companies to share data and we're beginning to sort of find companies who are willing to do that. So we will have new data. We will do the research. We will present it to a multi-stakeholder board. The board will endorse those positions or publicize them via a series of conferences, position papers, and so on. And in that way, bring in new findings to the conversation.
The board is also sponsoring experiments like the experiment I talked about where buyers and second tier suppliers are building trustful relationships. We're considering a series of experiments in other fields and other areas. And so that's another way. Through experimentation we can learn lessons that could help the industry.
We've also assembled a really good group of researchers from MIT and Virginia who are well respected. This is the best group of researchers around in this, I think. And so we're all really excited because we seem to be doing this at the right time. There's a slightly different sense of openness in this industry.
There are millennials who are interested. We have lots of interest from students. My class size-- I teach a class on this-- has grown. There seems to be some interest.
The companies are becoming a little more open. I think big auditing firms are more willing to share their data. So we seem to be at that tipping point where a lot of ducks are lined up in a row that will permit people like the Cornell project to actually drive change. But we need to do the research to do that.
MARY CATT: Another question. What potential do you think the UN PGN business and human rights has to fill the governance gap that exists in holding MNCs accountable for human rights impacts in their supply chains?
SAROSH KURUVILLA: Oh yeah, that's a great question. And when the Ruggie principles got enacted and we had President Obama actually sponsor the country progress, how to monitor the progress of countries, of the US, on the Ruggie principles. And I was really hopeful then that that would drive lots of companies to actually adopt the Ruggie principles and all of the procedures accompanying those principles.
Hasn't quite happened. We don't see any updates to that website. And in fact, I think there's been a report from Oxfam that has sort of been a little critical about the pace at which companies are actually adopting the Ruggie principles. It's hard to get evidence.
But there are two laws that kind of are related. One is the modern slavery act in the UK and the other one is a California supply chain transparency law. They're not like the Ruggie principles. They are much weaker and they sort of focus on only one labor standard. But if you look at compliance with those laws, I can't say that the compliance is great. We only had one year or two years of the British Modern Slavery Act. And companies are reporting things in accordance with the law, but the compliance is not as great as I had expected.
So with the Ruggie principles, which is business and human rights, I think more and more companies are.
ILR School professor Sarosh Kuruvilla is witness to what goes on inside Asia's clothing factories – where the pants and shirts that clothe the world are produced in unsafe conditions by workers often cheated of their meager wages. Kuruvilla will share the data he has gathered in factory visits that show just how little progress has been made since the 2013 Rana Plaza tragedy. More than 1,100 died in the factory complex due to poor conditions many blame on oversights by corporations, industry watchdogs and others.
Three years after Rana, learn what hasn’t changed and what could change, given a new level of corporate and other social responsibility, from a leading authority on international labor relations. Viewers are invited to submit their questions during the webcast.
