A step in the right direction

Most of us confront a reality where we feel that we can do little to influence the behavior of corporate behemoths. Nonetheless, occasionally decent people can score small victories. Here is the story of how workers in Honduras, students in the U.S., and administrators at Cornell University and the University of Wisconsin, were able to pressure Nike into taking a little responsibility:

A pillar of the brands' efforts to elude accountability is their long-standing insistence that their self-imposed codes of conduct, which require them to ensure that their suppliers obey the law, somehow absolve them of financial responsibility when they instead allow suppliers to rob workers of legally-owed compensation. The prime example of this self-contradictory posture and its consequences is the widespread failure of contract factories to pay statutory severance benefits and the consistent failure of the brands to do anything about it.

The laws in most apparel exporting countries mandate severance payments to workers in the case of factory closures. Because low wages make saving impossible, and because social safety nets are weak, this severance is often the only thing standing between laid off workers and outright destitution. Yet it is a routine occurrence for factories to shut down without paying severance. National governments generally do little or nothing in response. Although precise data is unavailable, anecdotal evidence suggests that the scale of this theft is massive, involving millions of workers over the decade and a half since codes of conduct were first adopted. To cite just one example: a survey of the operations of a single high-profile brand, in one Southeast Asian country, identified more than $40 million illegally withheld from workers in a three year period.

The apparel brands have been united in their refusal to accept any financial liability in such circumstances and, until last month, none had ever broken ranks. That changed when Nike agreed to pay $1.54 million in cash (and nearly a half million dollars in kind) to the employees of two Honduran contract factories.

A Radically Different Outcome

The garment factories closed last year and failed to pay more than $2 million in legally mandated severance. The Honduran government took very limited action, overseeing a process of liquidation of machinery and goods left at the factories which generated barely 20% of the money owed. Following the industry script, Nike lamented the workers' mistreatment, while insisting that it had no obligation to pay a penny to fix the problem.

On its website, Nike insisted that it was "absolutely concerned for the workers in Honduras and...deeply disappointed that the two failed sub-contract factories did not pay the workers their full severance pay. However," the company explained, "it remains [our] position that factories which directly employ workers are responsible for ensuring that their employees receive their correct entitlements and as such Nike will not be paying severance to [these] workers."

The story would normally have ended there, but several dynamics combined to produce a radically different outcome:

• First, the workers demonstrated extraordinary perseverance; they refused to go quietly to their fate and instead organized, protested and kept the issue alive in Honduras for well over a year after the factories closed (see photo, right).
• Second, Nike's own voluntary code is not the only labor code that applied in this case; Nike is also bound by the labor codes of universities across the country that license their logos to Nike and other apparel brands (who then make clothes bearing the universities' names and insignias). Unlike self-imposed corporate codes, the universities' codes are contractually binding on the brands. And, also unlike corporate codes, compliance is monitored by an entity, the Worker Rights Consortium (WRC), which accepts no funding from the industry. The WRC exposed the violations in Honduras and reported them, with extensive documentation, to Nike's university partners.
• Third, student activists, led by United Students Against Sweatshops, dedicated themselves to holding Nike accountable. The students refused to accept Nike's position that it had no financial responsibility. They organized on campus to urge aggressive university action and used a range of creative tactics to pressure Nike directly.
• Finally, universities are increasingly prepared to take strong enforcement measures when warranted - a reality that was illustrated last year when nearly 100 universities terminated the licensing rights of Russell Athletic, a subsidiary of Fruit of the Loom and Berkshire Hathaway, over labor rights violations at one of Russell's overseas factories. Russell responded, to its credit, by adopting sweeping reforms. When two of Nike's university partners - the University of Wisconsin and Cornell University- announced the termination of the brand's licenses this spring, Nike had to consider the prospect of a similar snowball effect.

A Groundbreaking Agreement

At the end of June, Nike entered into negotiations with worker representatives. These discussions produced the groundbreaking agreement signed on July 21. The accord marks the first time a major apparel brand has effectively assumed financial responsibility for labor rights violations committed by its contractors. (NB: Under the accord, Nike is not officially paying severance but contributing to a "Worker Relief Fund.")

Nike has set an example that other apparel brands will feel pressure to follow. As that pressure builds, brands will no longer be able to assume that they can easily evade financial responsibility for their contractors' misdeeds. Brands may thus begin to see the advantages of ensuring that their suppliers fulfill their financial obligations - providing the brands with an incentive both to police suppliers' behavior more aggressively and to ensure that the prices they pay suppliers are adequate to make compliance feasible. Weighed against the prospect of getting socked with millions of dollars in arrears, the short-term savings generated by underpaying for goods may no longer look like such a smart play.

For these reasons, last month's breakthrough may prove to be a watershed moment in the battle to impose the rule of law on the "wild west" environment of global manufacturing supply chains.

Of course the grim reality of worldwide labor exploitation hasn't changed much. Yet it is heartening to see even a small victory accomplished through the good efforts of so many people. We must always be mindful of the need to elect people who respect human rights and the law. But, beyond voting, we can also exert some influence as consumers willing to take away our business from companies who refuse to do the right thing.