Implementation of Apparel Industry Codes of Conduct  ( Chapter II)
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Child Labor Report 2005

II. Codes of Conduct in the U.S. Apparel Industry

F. Implementation of Apparel Industry Codes of Conduct

Fundamentally, a code of conduct relies on its credibility; the extent to which it is taken seriously by industry, unions, consumers and government. 77

Implementation is a crucial determinant of a code's credibility. This section will describe the various ways that companies attempt to ensure that their stated policy on child labor is adhered to in the facilities that produce their apparel overseas. It will begin with a general discussion of the challenges that companies face in implementing a code of conduct or policy with provisions on labor standards. Next, it will review the various elements of code implementation that are employed by the importers of garments who responded to the survey. These elements include efforts by manufacturers and retailers to streamline their supplier base, efforts to increase transparency of implementation, active inspection and monitoring programs, the use of certification of compliance or contractual language with suppliers and inspection, and research on prospective contractors. The section will conclude with a discussion of the various ways that the respondents have handled or plan to handle violations of their child labor policies.

1. Implementation Challenges

a. Organization of production

The challenges of implementing a child labor policy for a given company in the apparel industry differ greatly and depend on how production is organized. Generally, the closer the relationship between the importer and the company actually producing the items, the greater the ability to influence labor conditions, including prohibitions on child labor, in the production facilities. Conversely, the longer the chain of production, and the more levels of contractors, subcontractors and buying agents used, the more complex and challenging is the implementation. If, however, there is commitment to effective implementation, this can be accomplished under any organization of production.

To illustrate, a manufacturing company that produces most of its imports in wholly-owned facilities abroad has more control over production conditions and can more easily implement its child labor policy than can a firm whose production takes place in the facilities of hundreds or even thousands of contractors and subcontractors. Some of the manufacturers surveyed have different policies for wholly owned plants and contractors. A manufacturer or retailer with an ongoing relationship with a contractor and that accounts for a large percentage if not all of that contractor's orders can more easily ensure its child labor policy is being respected by that contractor than can a manufacturer or retailer that only uses that contractor for an occasional order.

Retailers are often - but not always - more removed from the production process than are manufacturers. However, the large retailers, because of the enormous bargaining power they wield over suppliers, also have the ability to require vendor compliance with any child labor standard they develop. In addition, retailers that directly contract out the manufacture of private-label merchandise overseas can directly influence the labor conditions in the contractors' facilities.

Often, entities all along the garment production chain - retailers, domestic-based manufacturers, buying agents and foreign manufacturers - each have their own policy regarding child labor in overseas production. For example, members of the apparel export industry of Guatemala have developed a code of conduct intended to apply to all exporters in the country.78 Apparel manufacturers' associations in Honduras and El Salvador are also developing their own codes of conduct. On the one hand, the development of many different codes - with differing standards on child labor - may be confusing and complicate implementation. On the other hand, the proliferation of codes creates growing opportunities for cooperation among the various actors along the supply chain in developing and implementing standards on child labor and other working condition issues.

b. Streamlining of supplier base

As discussed earlier, U.S. manufacturers and retailers often procure apparel products from hundreds, even thousands, of suppliers all over the world. These suppliers may also subcontract parts of the production to other manufacturers or sewing shops. The sheer numbers of contractors used - as well as the use of subcontractors - present definite challenges to companies with codes of conduct or policies banning the use of child labor in the production of the apparel they sell. Many companies that responded to the survey indicated that they expect subcontractors to comply with their policies, but often did not specify how this was to be achieved.

Some of the companies that responded to the survey have sought to tighten their control over the production process through streamlining their supplier base - limiting or even eliminating the use of subcontractors, reducing the number of contractors they use, and in some cases, establishing long-term relationships with their suppliers. While, at times, these efforts have come about as a result of the development and implementation of codes of conduct, some companies indicated that they are part of their normal business decisions and make the most sense from a quality and efficiency standpoint.

  • Two manufacturers (Kellwood and VF Corporation) specifically stated that they do not allow any subcontracting because they want to control production as much as possible.

  • Several respondents (Dillard Department Stores, Fruit of the Loom, The Gap, Liz Claiborne, Nordstrom, Phillips-Van Heusen, Salant, Sara Lee, Sears, Spiegel and Talbots) indicated that they do not permit contractors to subcontract any production without their prior approval.

  • Fruit of the Loom stated that, while it avoids contractors who engage in subcontracting, occasionally it must permit subcontracting because a contractor might not have the right type of equipment to perform a particular operation. In those cases where Fruit of the Loom allows subcontracting, it noted that before granting approval, the subcontractor is expected to agree in writing to Fruit of the Loom's code of conduct.

  • Some companies (Sara Lee and Talbots) reported that they prohibit the use of any subcontracting facility that they have not first inspected.

  • Liz Claiborne stated that it discourages subcontracting since it creates special problems with regard to the application of Liz Claiborne's code.

  • Some respondents (Phillips-Van Heusen and Nordstrom) stated that they submit subcontractors to the same audit and inspection procedures as contractors.

  • Some respondents (Fruit of the Loom, JCPenney, and Kmart) indicated that it is the responsibility of the contractor or supplier to verify or take the necessary steps to ensure that their subcontractors are in compliance with their policy.

  • Nike stated that it does not currently require its subcontractors to agree to its code of conduct, but intends to in the future.Some companies are reducing the number of suppliers they use:

  • Kmart Corporation, Liz Claiborne and Salant reported a reduction in the number of vendors they use in order to gain better control over production.

  • Levi Strauss reported that, in an effort to be more efficient and to rationalize their sourcing, they have gone from about 700 contractors before introducing their code of conduct to a current level of 450 contractors. As Levi Strauss explains, "The Company is rationalizing its supplier base, with development of business partnerships based on terms of engagement, service, financial stability, community support and long-term mutual profitability, not simply low cost, as the key objective."79

Certain respondents stated that they encourage the development of long-term, strategic alliances with vendors:

  • Kmart Corporation ('Kmart') indicated that it encourages strategic vendor alliances with established companies that produce high-quality goods and comply with all laws.

  • Oxford Industries ('Oxford') said that it generally tries to establish longer-term relationships with its contractors because such relationships usually result in higher quality, more reliable delivery dates and better value for its customers. Oxford stated, however, that it is not unusual for a contractor to be used only for one program or season because of its inability to meet expectations for quality, delivery or price.

  • VF Corporation noted that it usually uses buyer agents and plants that have already established a reputation with VF Corporation.

c. Impact of textile import restrictions

Some companies raised the issue of apparel import quotas, which limit the amount of merchandise that can be shipped into the United States, and the effects these quotas have on their choice of contractors.

  • Levi Strauss stated that quotas limit its ability to freely choose foreign contractors with whom to do business, as individual foreign producers "own" and control certain allocations of quota. According to Levi Strauss, this system results in a limited choice of apparel contractors with which it can do business. Because of this limited choice, Levi Strauss stressed the importance of establishing partnerships with contractors and their communities.

  • Nike said that it sources apparel products from numerous factories in several countries in order to avail itself of open quota. Nike indicated that because it must produce where quota is available, production is often limited to a short period of time at any one facility.

2. Transparency

An important issue regarding the implementation of corporate codes is their transparency, or the extent to which foreign contractors and subcontractors, workers, the public, nongovernmental organizations and governments are aware of their existence and meaning. Contractors, subcontractors, workers, and other interested parties who are familiar with codes can enhance their implementation and effectiveness. Transparency reinforces the message of codes and leads to more credible implementation. When transparency is lacking, interested parties cannot benefit fully from a code of conduct.

There are several concrete ways by which U.S. companies add transparency to the implementation of their codes of conduct:

  • Some U.S. corporations hold training sessions with foreign suppliers (contractors or subcontractors) to make them aware of their code of conduct and implementation expectations. Some companies require foreign suppliers to sign a statement indicating that they have received the code of conduct and understand its meaning and implementation expectations, including possible penalties for lack of implementation.

  • Some companies also train their own employees or buying agents on their code of conduct to ensure that individuals at all stages of the purchasing process are aware of its provisions.

  • A small number of U.S. corporations require that the contents of their code of conduct be posted in production facilities at a location that is accessible to workers (e.g., a lunch room or entrance to locker room). In some cases, the U.S. company translates the code into the local language.

  • A small number of companies solicit input from outside groups in developing and implementing their code.

a. education/communication

Most of the respondents with child labor policies indicated that they have distributed copies of their policies to all suppliers, but few stated that they had communicated their existence to a wider audience or engaged in efforts to train those who are responsible for implementation. Many respondents stated that they did not know whether workers were aware of the existence of their codes. The following is an overview of the respondents who indicated that they had actively engaged in communicating their policies to contractors, plant managers, employees, and workers:

  • Fruit of the Loom, The Gap, Spiegel, and Warnaco indicated that they go over their codes of conduct with facility managers to ensure these individuals understand them.

  • Liz Claiborne stated that its Chairman periodically meets with key suppliers to emphasize the company's expectations with respect to workers' rights.

  • Kellwood reported that it periodically brings foreign contractors to the U.S. to receive training, including on Kellwood's code.

  • Levi Strauss also conducts educational seminars for groups of contractors.

A few respondents indicated that they have special programs to inform their own managers and/or other employees about their code or policy.

  • Federated Department Stores, Levi Strauss, Nike and Oxford all stated that they train their employees on compliance requirements.

  • Federated Department Stores ('Federated') has its corporate counsel, corporate quality control and overseas offices' managerial staff conduct training.

  • Oxford, which places responsibility on its own employees to ensure compliance with its policy, reported that its managers receive training in compliance with applicable labor laws, and that its corporate human resources department and attorneys answer questions and interpret the laws.

  • Levi Strauss said that it continuously educates its employees - including merchandisers, contract managers, general managers in the sourcing countries, and other personnel at every level of the organization - on its code.

A few respondents have special training for buyers or internal auditing staff:

  • Wal-Mart buyers are required to attend special internal educational seminars on how to work more closely with manufacturers to ensure their compliance.

  • Levi Strauss conducts annual global training programs for its Terms of Engagement audit managers. In June 1996, for example, Levi Strauss conducted a five-day training program in the Dominican Republic for Terms of Engagement auditors and sourcing managers from around the world.

  • Liz Claiborne reported that it has intensified training for sourcing/manufacturing personnel in spotting labor abuses

  • Phillips-Van Heusen is providing training to employees who are on its auditing teams. The company also indicated that it issues regular communications and newsletters to its off-shore offices, quality and sourcing personnel on developments and issues concerning workers' rights, including child labor.

Only a very few respondents indicated that they have tried to ensure that production workers in overseas facilities know about their code or policy by specifically requiring that copies of such a statement be posted. Only three companies stated that they unconditionally require contractors to post their code:

  • The Gap requires that its code, which has been translated into 39 languages, be posted in each contractor facility.

  • Liz Claiborne, which has translated its Standards of Engagement into more than ten different languages, requires all contractors to post the Standards in the local language in common areas, such as cafeterias or locker rooms, of every facility where Liz Claiborne products are made.

  • Phillips-Van Heusen stated that it insists that every facility post its "PVH Shared Commitment" poster, which contains guidelines and standards on worker's rights. The poster is printed in English and Spanish, and is sent to Asia with instructions for it to be translated into local languages.

  • Nike and Sara Lee stated that their codes are posted at some facilities:

  • Nike indicated that its code is posted in all its footwear contractors' factories in two or three languages, but this is not necessarily the case for its apparel contractors. Nike stated that its footwear contractors produce exclusively for Nike, while its apparel contractors often produce for many other companies. Nike often uses any one apparel contractor for only a short period of time.

  • Sara Lee indicated that it posts notices of employees' rights at its wholly owned facilities in English and the host language.

Some companies include information on the posting of who to contact in the case of problems or questions regarding implementation of the code:

  • Liz Claiborne's Standards direct individuals who have a problem or complaint to get in touch with Liz Claiborne country managers.

  • The Gap indicated that at the bottom of its poster, it provides the phone number of a buying agent or sourcing-compliance personnel.

  • Sara Lee's posters in its wholly owned facilities include information on whom to see with complaints.

Finally, a few companies have made an effort to communicate information on their codes of conduct and monitoring programs to the general public, including their shareholders:

  • Levi Strauss and The Gap have sections on their codes of conduct in their annual reports to shareholders.

b. Transparency of Implementation Process

Many consumer and other non-governmental organizations have stressed the need for transparency in the process of implementing codes of conduct. Some groups have called on companies to make public the findings of their factory investigations, which are discussed in the monitoring section below.80

Some companies have actively solicited input from international organizations, NGOs, government agencies and academics in developing and implementing their codes of conduct:

  • Levi Strauss stated that it solicited a wide range of ideas from such groups in developing its Terms of Engagement and Country Guidelines and continues to do so in their implementation. Levi Strauss' questionnaire response said: "By working with various parties, we have improved our ability to verify facts, craft new solutions, and strengthen implementation of our standards." The company also stated that when evaluating a prospective business partner for potential adherence to its code, it relies on advice from outside organizations and community leaders, as well as interviews with workers both on-site and away from the contractor's facilities.

  • Liz Claiborne and The Gap have worked with U.S.-based and local NGOs to develop ways to increase transparency in the implementation of their codes, mainly through NGO monitoring, which is discussed below. Liz Claiborne also indicated that it has consulted with NGOs during its investigation of alleged violations of its code.

  • Sears indicated that in Bangladesh, at the suggestion of an NGO, it has sent a letter to a local garment workers' union directing them to notify Sears if any problems arise regarding its policy.

3. Monitoring

Monitoring is critical to the success of a code of conduct: it gives the code credibility in the eyes of consumers and other interested parties. Yet, most of the policies we have examined do not contain detailed provisions for monitoring and implementation, and many companies do not have a formal monitoring system in place.

a. Monitoring of Codes of Conduct in the Apparel Industry

The companies surveyed indicated that they utilize a variety of means to monitor that their codes of conduct or policies on child labor are respected by their suppliers. Figure II-4 illustrates the structure of monitoring relationships in the apparel industry.

Few companies have a formal system for monitoring compliance with their codes of conduct. Monitoring is usually part of a larger process that includes issues such as quality control and delivery coordination. For this reason, it is not always clear to what extent site visits focus on the code implementation. A few companies check employment records and other documents relating to the workforce during their site visits, but very few companies indicated that they interview workers as part of monitoring.

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Some companies monitor their codes more actively than do others. Active monitoring may consist of site visits and inspections by company staff, buyer agents or other parties, to verify that suppliers are actually implementing the importing company's policy on child labor. Companies also may use contractual monitoring, whereby they rely on the guarantees made by suppliers, usually through contractual agreements or certification, that they are respecting a company's policy and not using any child labor in production. This may be seen as "self-certification" by contractors or suppliers. Most of the companies that responded to the survey utilize a combination of active and contractual monitoring. Some companies, however, rely exclusively on contractual provisions without any significant active monitoring.

i. Models of Active Monitoring

There are four active monitoring models that are being used by U.S. corporations with respect to their codes of conduct: (i) internal audits by company personnel (who may or may not be trained in monitoring compliance with labor standards), (ii) external monitoring conducted by buying agents or suppliers, (iii) outside audits conducted by independent firms hired by the company, and (iv) NGO monitoring, conducted by human rights, consumer and/or labor groups. These models may be used in various combinations. (Table II-4 shows the type(s) of monitoring used by the companies that indicated they have a system of active monitoring.)

Internal Monitoring: A number of companies have developed internal monitoring systems to implement their codes of conduct. These systems use local or regional company personnel or employees from U.S. corporate offices to monitor labor practices. Internal monitoring may be used by companies that are reluctant to grant access to their facilities, procedures and business practices to outside monitors.81 It is most common among large companies that are vertically integrated, i.e., those in which the corporation owns or directly controls all steps of the production process.82 Internal monitoring is less common for companies, particularly retailers, that do not own or control the factories that make the products they sell. Some retailers internally monitor only those plants producing private-label merchandise which they import directly. U.S. retailers and manufacturers who use hundreds or thousands of foreign contractors may find it a logistical or financial hardship to monitor all of the facilities from which they source.

External Monitoring: Some U.S. companies rely on their buying agents to monitor compliance with their corporate code. This procedure avoids the financial and logistical burden of performing monitoring functions, but also removes the U.S. corporation from the direct line of control in implementing its policy.

Outside Audits: The central reason for monitoring the implementation of a corporate code of conduct is generating credibility. Corporations that conduct internal monitoring or depend on monitoring by buying agents or contractors are sometimes seen as having a vested interest in not finding anything wrong in their production systems.


Monitoring Strategies for Compliance with International Child Labor Policies

( Based on Responses to Department of Labor Questionnaire )

InternalA ExternalB Outside Auditorc NGOd Not Specifiede
Ames Department Stores         .
Burlington Coat Factory         .
County Seat Stores, Inc.*          
Dayton Hudson Corporation         .
Dillard Department Stores   .      
Dollar General Corporation   .      
The Dress Barn, Inc.   .      
Family dollar Stores         .
Federated Department Stores .1        
Fruit of the Loom .        
The Gap . .   .  
Hartmarx Corporation .        
Home Shopping Network, Inc.         .
JC Penney Company . .      
Jones Apparel Group . .      
Kellwood Company . . .    
Kmart Corporation .        
Kohl's Corporation**          
Land's End, Inc. . .      
Levi Strauss & Co. .        
The Limited . .      
Liz Claiborne .     .2  
The Marmaxx Group**          
May Department Stores*          
Mercantile Stores Company . .      
Montgomery Ward Holding Company         .
Neiman Marcus Group*          
Nike, Inc. .   .    
Nordstrom .1 .      
Oxford Industries .        
Phillips-VanHeusen . .      
Price/costco     .    
Ross Stores, Inc.         .
Russell Corporation .        
Salant Corporation .        
Sara Lee Corporation . .      
Sears Roebuck & Company .        
Shopko Stores**          
Spiegel, Inc. . .      
Stage Stores, Inc.   .      
The Talbots, Inc. . .      
Tultex Corporation .        
Venture Stores   .      
VF Corporation . .      
Waban Inc.         .
Wal-Mart Stores .1   .    
Warnaco Group .        
Woolworth Corporation . .

*No response received

**Designated as business confidential therefore information reportable.

aInternal Monitoring: Companies use existing personnel or bring in employees who work for the company in other locations to monitor labor practices, on a regular basis.

bExternal Monitoring: Companies rely on buying agents to monitor labor practices.

cOutside Audits: Companies use independent accounting, auditing, testing or consulting firms to monitor - among other things - labor practices.

dNGO Monitoring: Companies use local or international non-governmental organizations to monitor labor practices.

e Not specified: Companies either do not have a policy or did not specify how the implementation of their policy is monitored.

1Company does internal monitoring in situations where it contracts directly with a manufacturer for production of private-label goods.

2Company reported that it is developing an independent monitoring capability to be executed in concert with local NGOs and other organizations.

The outside monitoring of another company's corporate code of conduct is a relatively new endeavor. Accounting and auditing firms have a long tradition of making field visits and reviewing financial records of client corporations. Based on this expertise, some U.S. accounting and auditing firms have expanded their functions to include monitoring of compliance with corporate codes of conduct. Representatives of these companies say that their expertise in examining payroll records, for instance, gives them a comparative advantage in checking for compliance with child labor and other provisions of codes of conduct. Other types of companies offering their services include firms engaged in compliance with safety and health regulations, investigative consulting firms, and specialized companies that have been created for this very purpose. However, since all such auditing and consulting firms are normally hired - and paid for - by the U.S. importer or the vendor being monitored, their total independence is subject to challenge.

NGO Monitoring: Critics of internal, external and outside auditing point to the fact that company representatives, buyer agents or outside auditors may not be in the best position to ascertain that a contractor has violated a company's code. Aside from the charge that these auditors may have a vested interest in not finding violations, some have noted that corporate representatives and auditing firms may not speak the local language, and workers or plant managers may not feel entirely comfortable discussing their work situation with them. To ease these problems, some companies are developing monitoring systems where they use local and international NGOs, or religious or human rights groups to conduct or assist in monitoring. Some companies may adopt such monitoring in response to negative publicity or with the hope of preventing crises from arising. This is a very new practice, however, and has only been tested in a few cases. Furthermore, there are certain issues - including financial ones - that need to be resolved for this approach to be sustainable.

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This report was developed and provided by the U.S. Labor Department

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