A Business Case for Implementing Workplace Standards

Transcription

From Words to Action:
A Business Case
for Implementing
Workplace Standards
Experiences from Key Emerging Markets
Center for International Private Enterprise
Social Accountability International
The Center for International Private Enterprise (CIPE) strengthens democracy
around the globe through private enterprise and market-oriented reform.
CIPE is one of the four core institutes of the National Endowment for
Democracy and a non-profit affiliate of the U.S. Chamber of Commerce.
For 25 years, CIPE has worked with business leaders, policymakers, and
journalists to build the civic institutions vital to a democratic society. CIPE’s
key program areas include anti-corruption, advocacy, business associations,
corporate governance, democratic governance, access to information, the
informal sector and property rights, and women and youth.
The case studies published here were conducted by Social Accountability
International, a non-governmental, international, multi-stakeholder
organization dedicated to improving workplaces and communities, with
a vision of decent work for all. SAI convenes key stakeholders to develop
consensus-based, voluntary standards, conducts research, provides training and
technical assistance, and assists corporations in improving social compliance
in their supply chains. In 1997, SAI launched SA8000 [Social Accountability
8000] – a tool for implementing ILO and UN workplace conventions
and verifying compliance with them – which is currently used by business
and governments around the world and recognized as one of the strongest
workplace standards. SAI partners with trade unions, local NGOs, other
multi-stakeholder initiatives, business, organic, fair-trade and environmental
organizations, development charities, and anti-corruption groups to carry
out ground-level and international research, training and capacity building
programs. Its work has been supported through funding from organizations
including CIPE, the U.S. Department of State, USAID, UNIDO, the U.S.
Department of Labor, the EU, and the GTZ.
© 2009
Center for International Private Enterprise and
Editor
Anna Nadgrodkiewicz
Case Study Authors
Martin Ma
John Tepper Marlin
Eileen Kohl Kaufman
Case study editing
Aleksandr Shkolnikov
Oscar Abello
Moira Saucer
Research Assistant
Leslie Wiesman
Design and layout
Oscar Abello
Contact CIPE:
Center for International Private Enterprise (CIPE)
1155 15th Street NW, Suite 700
Washington, DC 20005
ph: (202) 721-9200 • fax: (202) 721-9250
www.cipe.org • e-mail: cipe@cipe.org
Contact SAI:
Social Accountability International (SAI)
15 West 44th Street, 6th Floor
New York, NY 10036
ph: (212) 684-1414 • fax: (212) 684-1515
www.sa-intl.org • e-mail: info@sa-intl.org
From Words to Action:
A Business Case
for Implementing
Workplace Standards
Experiences from Key Emerging Markets
Table of Contents
Foreword • 1
Introduction • 2
The Story of Ying Xie • 6
Democratic Workers’ Representation in
China as a Tool for Better Business
The Case of Tata Steel • 24
Including Contract Workers as India’s
Integral Business Stakeholders
The Experience of Topkapi Iplik • 36
Better Workplaces in Turkey through
SA8000
Acknowledgments
SAI and CIPE are extremely grateful to the companies – managers and
workers alike – profiled here for their openness and assistance; they gave
generously of their time and expertise to make this project possible.
India. SAI and CIPE are most grateful to everyone in Jamshedpur. We thank
particularly Tata Steel’s Managing Director B. Muthuraman and Vice President
of Corporate Services S. Partha Sengupta. Throughout the case research process,
the patience and interest of Senior Manager of the Business Excellence Group
Priyadarshini Sharma, were key in explaining company history, processes,
systems, and goals. We would also (but not exclusively) like to thank: Raghunath
Pandey, S. N. Ghatak, S. K. Paul and Seemi Mishra, Avneesh Gupta, Mahmood
Hassan and M. K. Singh, Dinkar Anand and Amitava Chandra, Satish Pillai and
his team, Rekha Seal, Meena Lall, Siddhartha Shah, Rajesh James, L.M. Bakshi,
Dr. K. J. Parekh and S. K. Roy Chowdhury, Mjr. K. Satyanarayan, Harbans
Singh, S. K. Singh, P. N. Singh and B. P. Rama, and the staff of Basera.
Turkey. SAI and CIPE would like to thank those listed here, as well as
many others, at Topkapi Iplik who made it possible for us to understand and
document the company’s activities and evolution; they gave generously of
time and knowledge, both on site and during extensive follow up. We thank
Mahmut Akinci, president; Seher Akinci, vice president; Seyhan Yilmaz,
sales and marketing; Nihat Koksal, human resources; Ramazan Asik, worker
representative, and other workers who spoke with us without management
present. We also thank Alice Tepper Marlin, president and CEO of Social
Accountability International; Dundar Sahin, SA8000 certification auditor;
Benan Vey, vice president of marketing and CSR for the Hey Group; Ali Nasuh
Mahruki of AKUT; Yasemin Basar of Yeşim; Vic Thorpe and Michael Murphy
of the JO-IN project; and our interpreter, Nurhayat Dalgiç of Enterkon.
China. SAI and CIPE sincerely thank all those who have contributed to this
project. The tremendous efforts made by workers and managers of Timberland,
and SAI partners such as ITGLWF, ICO, CWWN, Toys “R” Us, and Eileen
Fisher made this project a success in spite of challenges. We extend profound
thanks to: The Ying Xie Team: Three elected chairs of the worker committee
Cuiling Wang, Hui Yang, Jingwei Zhang; management representatives President
Bugang Lai and General Manager Yisheng Zhang. The Timberland Team:
Cheryl Merihugh, Gordon Peterson, and Jill Foo, Timberland Asia Compliance
Director; and P.K. Lo, Timberland China Compliance Manager. ICO Team:
Xin Deng, Jianhua Chen, Zhiai Huang, and Huinian Li. CWWN Team: Pun
Ngai, Yuxin Li, and Xiaofen Yu. SAI would also like to thank the architects of
the China program, whose vision, leadership, and guidance made it possible:
Neil Kearney and Raja Gopal of ITGLWF; Tom DeLuca of Toys “R” Us; and
Amy Hall and Eileen Fisher; and Anita Chan of Australia National University.
Foreword
Corporate social responsibility has many different
dimensions and definitions. Yet, while companies,
governments, consumers, and NGOs may disagree
on the scope and impact of corporate engagement
in societies, few will deny the fact that the private
sector plays an increasingly important role in
development. In emerging markets, the issue of
corporate social responsibility is especially relevant,
as poor governance and weak rule of law put a greater
pressure on companies to ensure that their operations
are conducted according to the highest of standards –
both international and local. The dilemmas are many:
What can you do to make sure your employees do
not pay bribes in a highly corrupt environment? How
can you guarantee that workers are treated well in an
environment where labor regulations are non-existent
or not enforced? What measures can you put into place
to ensure the ethical practices of your suppliers?
Companies around the world can no longer afford
to avoid such questions. They have to find solutions
and implement them. They have to be good citizens
in the communities in which they operate, and their
actions must keep up with their stated commitments to
be ethical and responsible. In other words, companies
must ensure that good corporate citizenship is part of
their business strategy. This publication takes a closer
look at how companies can effectively implement
high workplace standards in places where rule of law
is lacking. More importantly, it is not just a question
of good will – we show that businesses can realize
concrete benefits from ethical, responsible practices.
This series of three case studies has been prepared
by Social Accountability International (SAI) and the
Center for International Private Enterprise (CIPE).
The cases look into different aspects of improving
workplace conditions and analyze the benefits of
voluntary implementation of better workplace
standards for workers and businesses. The companies
profiled differ in maturity, scale, industry, and
geographic location; nevertheless, SAI tools have
been useful to each in carrying out their policies and
programs. Each of these companies reports on real
change and benefits, demonstrating a business case
for implementing workplace standards. The successful
results and learning in these cases can be used by
other types and sizes of businesses, as they document
the positive return on investment in implementing
workplace standards and improving workplace quality.
• The China case focuses on capacity building,
internalization, and ownership of compliance
programs by workers and managers inside a
garment factory.
• The India case, focused on a world-renowned
steel manufacturer, traces the usefulness of
SA8000 in managing contract workers and
vendor companies that supply contract labor,
even to a company with a long history of
responsible labor practices.
• The Turkey case analyzes the key drivers
for and results of SA8000 certification for
workers, managers, and customers of a textile
company.
These cases illustrate that an ethical, compliant
workplace is better for both workers and businesses.
Since workforce is a key asset of every company,
improving and maintaining high workplace standards
cannot be just an afterthought or a promotional public
relations exercise. Instead, it must be a core element
of good corporate citizenship and business strategy
of particular importance to the socially responsible
development of emerging markets. Of course, keeping
and attracting employees and customers, and being
socially accountable, are relevant for all businesses
wherever they are located and whatever their scale.
Those elements of sustainability apply across borders,
industries, to small and medium-sized entreprises and
multi-national corporations alike. The companies that
assisted with these case studies hope their experience
will be useful to others and build on the lessons
learned.
John D. Sullivan
Executive Director, CIPE
Center for International Private Enterprise | 1
Introduction
Corporate social responsibility, or corporate
citizenship, is being redefined as corporate
sustainability in today’s globalized world. This
report focuses on three examples of positive
experiences in implementing labor standards in the
workplace in China, India, and Turkey; these are
part of an expanding global community of practice
in ethical performance and risk management.
Business attains corporate sustainability when all
three bottom lines – financial, environmental, and
social – are addressed in an integrated fashion, because
stakeholder and shareholder value are inextricably
linked. Workplace standards are a crucial part of this
equation. But how does a business see its incentives
for good corporate citizenship? What is the “business
case” here? The purpose of the cases presented here is
to illustrate the ways in which companies around the
world can better achieve their goals through stronger
implementation of workplace standards.
2 | Center for International Private Enterprise
Workplace Standards and Corporate Sustainability
Improved business outcomes of ethical and
responsible behavior on the part of a company provide
the best incentive for that company to maintain good
corporate citizenship. In light of this connection, we
should recognize that corporate sustainability includes
business assets that are not only financial, but also
comprise reputation, employee commitment and
skills, customer loyalty, and community acceptance.
Both customers and employees have expectations that
play out in product and labor markets.
A company will meet these expectations more
effectively if the responsibility agenda is well integrated
with the overall corporate strategy. A business case for
doing so means that there are identified, documented,
and replicable benefits for companies that recognize
their employees’ rights and integrate policies to
support those rights with their other operating
procedures. These benefits involve more business and
a better-quality product, as success in competitive
international markets increasingly depends on price,
product quality, timely delivery, and workplace
quality.
Responsibility and accountability are all too often
perceived as burdens to business rather than necessary
ingredients for better performance. However, viewed
as corporate sustainability, they are opportunities:
to enlist stakeholders in improving and carrying out
business strategies that attract and retain customers
and employees and to manage risk, to actively engage
with problems, and invest in solutions. A variety
of voluntary international standards have been
developed to help businesses guide their policies and
performance. The three examples here are emblematic
of thousands of organizations that find accountability,
sustainability, and responsibility to lead to better
results across the board.
There is a growing global realization that all
organizations are accountable to their stakeholders –
employees, communities, shareholders, civil society,
and business partners – to function ethically and
sustainably. Risk-based approaches are combined with
approaches seeking positive change. For many
international companies, environmental sustainability
was understood early as a key responsibility and
concern; lately, responsible performance focused more
on supply chains, as international companies venture
into countries where formal legal frameworks are
either ill-defined or weakly enforced. But
accountability is not, of course, limited to foreign sites:
the framework for conducting responsible business
applies everywhere a company operates.
Local as well as multi-national businesses share
the challenges of making their operations socially
responsible and ethically sound. They also share
the challenge of how to know, and then credibly
demonstrate, that they are meeting that goal. Progress
toward corporate sustainability needs tools and
stakeholder engagement. Voluntary standards are a
useful tool for meeting environmental, social, and
ethical responsibilities of business. They can promote a
culture of compliance and the rule of law by providing
systematic ways to help improve day-to-day conduct
of business.
Voluntary Standards as a Tool for Better Business
Corporate social responsibility was first commonly
equated with philanthropy, only later developing into a
structured way to manage a variety of risks and address
the “triple bottom line.” But the realities of the global
economy call for a broader approach that encompasses
a wide range of issues vital for businesses as members
of society. Most companies start by focusing on the
impact their operations have on the environment and
the community. Yet it is equally important to address
internal issues such as governance and corruption,
supply chain ethics, stakeholder engagement, and
health and safety of workers.
Responsible and ethical business conduct has
a multiplier effect. It makes the entire business
environment of any country more transparent
and accountable – and therefore more conducive
to achieving sustained economic growth and
development. Creating such virtuous circles of
mutual reinforcement between responsible conduct of
individual companies and greater economic and social
benefits is of particular importance in developing
countries. The way businesses – both foreign and
domestic – operate in those countries is crucial to
making globalization work for everyone. These
case studies focus on one key aspect of good global
corporate citizenship: human rights at work.
A business is only as strong as its employees.
Investment in human capital has a high rate of return
not just for an economy as a whole, but also for
individual businesses, because healthier, better trained,
and more loyal staff drives quality, productivity,
innovation, and sustainability of enterprises. In
contrast, the lack of proper attention to workplace
quality issues leads to high recruitment and training
costs, lower productivity, wasted resources, and
tarnished reputation, thus depleting a key asset that
can attract and retain customers, employees, and
investors. The international product quality movement
has, in fact, expanded to include workplace quality;
experience shows that the two are closely intertwined.
Yet the question remains: What are the minimum
requirements to meet these workplace standards? How
can they be fulfilled, and how can we demonstrate they
have been fulfilled?
Most countries have labor laws and regulations
meant to ensure compliance with International Labor
Organization (ILO) and other standards for the
workplace. However, those provisions often remain on
paper due to authorities’ inability or unwillingness to
enforce them. This situation highlights the usefulness
of voluntary codes of conduct and international
reporting or performance guidelines such as the
United Nations Global Compact, the Organisation
for Economic Co-operation and Development’s AntiBribery Convention, AcountAbility’s AA1000AS,
Transparency International’s Business Principles
for Countering Bribery, the Global Reporting
Initiative, the Ethical Training Institute (ETI)’s Base
Code, InterAction’s Private Voluntary Organization
Standards, or the International Organization for
Standardization’s draft ISO 26000 guidelines for social
responsibility. This report concentrates on the use of
one tool for implementing workplace standards: Social
Accountability International (SAI)’s SA8000.
Social Accountability International and SA8000
SAI is an international non-profit organization
dedicated to promoting workers’ rights around the
world, with a vision of decent work being the norm
throughout the world. It is engaged through multistakeholder, multi-national, and multi-industry efforts
to develop and provide tools to improve the social
performance of businesses and their supply chain
facilities. SAI promotes workers rights through the
use of its SA8000 workplace standard; partnerships
with businesses, trade unions, and other NGOs; and
training and capacity-building for workers, supply
chain managers, labor inspectors, auditors, factory
managers, investors, and others. In partnerships with
SAI, various national and international organizations
work to create an enabling environment for realization
of worker rights and the Millennium Development
Goals. SAI works in alliances with other stakeholders
to make a variety of social standards more useful and
effective. It also works with business in corporate
SA8000 Standard and Components
SA8000 has nine sets of requirements covering:
Child labor
Discrimination
Discipline
Working hours
Freedom of association and the right
to collective bargaining
Forced labor
Wages
Health and safety
Management systems.
For details, visit www.sa-intl.org.
programs to build capacity and learning for responsible
supply chain management.
In 1996, SAI convened an international multistakeholder advisory board to develop and oversee
the implementation of SA8000, a voluntary standard
for workplaces based on ILO and other human rights
conventions. Published in 1997, with revisions in
2001 and 2008, the SA8000 standard and verification
system provide tools for creating, managing, and
sustaining ethical workplaces. SA8000 certification
requires auditors to find evidence of compliance,
revisit periodically to confirm continuing compliance,
and follow up with certified organizations to see that
any identified problems are addressed. An associated
organization, Social Accountability Accreditation
Services, oversees certification providers through a
structured accreditation and surveillance process of the
auditors themselves.
The rationale for creating SA8000 was to provide
a unifying framework for various workplace codes
of conduct and verification methodologies. As
companies started to develop their own codes and
audit supplier performance, numerous methods
emerged for defining and checking compliance. This
resulted in considerable confusion because there was
no easy way for consumers or wholesale customers
to know whether the goods they purchase were
manufactured in ethical workplaces. Meanwhile,
suppliers faced the hassle of multiple audits on behalf
of customers who apply different standards. SA8000
addresses these issues by being based on international
norms and designed to be auditable for certification
of compliance. Compliance with SA8000 includes
compliance with ILO conventions, local and national
law, openness to worker concerns, and a commitment
to continuous improvement.
Codes of conduct, just like laws, are not necessarily
followed. Incentives are key and the challenge is to find
a way for compliance to trump avoidance. In order
to achieve that, moral arguments are rarely enough.
Systems are needed wherein it is more rational to meet
high standards than avoid them, where the benefits
of compliance are as visible as the costs, and where
mature industrial relations and social dialogue are
an integral part of a basic business model. Therefore,
SAI partners with many types of organizations to
share workplace best practices, support enabling
environments for workers to exercise their rights, and
help build communities of ethical practice around the
world. SAI training programs address the techniques
of meeting workplace standards in over a dozen
countries annually. Today, over one million people
in 68 countries and 67 industries work in SA8000certified enterprises. Many other organizations and
businesses are working toward SA8000 and using its
tools to improve performance.
SA8000 implementation, as illustrated in the
following cases, demonstrates that effective corporate
citizenship is not just a knee-jerk reaction in response
to public pressure fueled by this or that incident.
Rather, it stems from company values and is a result of
a natural maturation process during which a company
sees that the success of its business mission depends on
a holistic worldview. In the long run, doing business
profitably is inseparable from conducting it ethically.
Eileen Kohl Kaufman
Executive Director, SAI
The Story of Ying Xie
Democratic Workers’ Representation in China as a Tool for Better Business
Martin Ma
China Program Director, Social Accountability International
Executive Summary
China’s booming economy all too often comes
at the price of insufficient consideration for workers’
safety, well-being, and representation. In the past
decade, in a large part due to the pressure from foreign
importers of Chinese goods, efforts to improve this
situation have focused on the promotion of workplace
codes of conduct. Since Chinese labor law is weakly
enforced, compliance with codes of conduct has
become an additional requirement to stay in business
for many Chinese suppliers to major Western buyers.
Yet, over-reliance on social audits limits most of those
compliance programs. The missing link in efforts to
achieve quality and sustainability of such programs is
grassroots participation in workplace governance by
motivated management and informed workers.
This report presents a successful pilot project
on improving worker-manager cooperation and
introducing more responsible business practices. In this
project, Social Accountability International (SAI) and
its partners at a Ying Xie factory assisted in creation
of the first independently elected workers’ committee
in China’s garment industry. Although the project
focus was on a more democratic space for workers to
participate in shaping their work environment, SAI
realized at the outset that supportive and committed
management was vital to the sustainability and
replicability of the program. In order to obtain
management’s support, a moral argument for better
work conditions and greater empowerment of workers
would not have been sufficient. SAI had to show
that important benefits could be derived not just by
workers, but also by the company: better productivity,
greater worker loyalty, and more profitable business.
This initiative has resulted in significant
improvements in Ying Xie’s working conditions. The
majority of them were the direct result of activities
of the elected workers’ committee, a primary actor
within the program. At the same time, management
witnessed a reduction in worker turnover rates, better
productivity, and reduced operational costs.
The success of the program spurred interest
elsewhere in China. Ying Xie workers are now
helping colleagues at another factory establish
democratic representation with the full approval from
management, proving that the gains their company
made can also be achieved by others. But more
importantly, the Ying Xie case demonstrates that in
a rapidly developing Chinese economy a company
does not have to choose between being profitable
and socially responsible. In fact, these two goals are
complementary and can be mutually reinforcing as
part of broader corporate citizenship. Responsible
business conduct does not have to be a cost-increasing
burden imposed on Chinese firms by their foreign
customers; it is a good business strategy well worth
adopting not only by large multi-nationals, but also
their local suppliers.
Overview: The Rationale for the SAI
Initiative
Ying Xie Garments Ltd.1 is primarily a supplier of
outdoor wear for Timberland. Ying Xie employs 500
workers from all over the country and is considered
a typical company in China’s 20-million-worker
garment industry, in which 80 percent of firms are
small and medium-sized enterprises (SMEs). By
October 2006, SMEs accounted for 99 percent of
all registered companies nationwide, 58 percent of
Chinese GDP, and 68 percent of the total export value.
SMEs also recruit over 70 percent of China’s labor
force.
In response to growing pressures for greater social
responsibility from its foreign customers, Ying Xie
began undergoing external social audits in 1998.
However, like in most other garment factories in
China, Ying Xie’s management perceived auditing as
a nuisance at best and considered the implementation
of the codes of conduct required by clients as little
more than additional costs. SAI2 teamed up with
international and local partners on a project meant
to change this attitude and use codes of conduct
as a gateway toward more democratic worker
representation and greater cooperation between
workers and employers. This project falls within the
broader scope of SAI’s work, which includes engaging
companies, consumer groups, non-governmental
organizations, workers and trade unions, and local
governments to promote human rights for workers
around the world.
Social Accountability International and Better
Workplace Standards
SAI is best known for SA8000, a comprehensive
system for managing ethical workplace conditions.
SA8000 is an auditable certification standard based on
the workplace norms of International Labour
Organization (ILO) conventions, the Universal
Ying Xie consists of two factories, Chai Da and Ying Xie, owned
by interests from mainland China and Hong Kong, respectively.
Hereafter this two-company group is referred to as Ying Xie. It
was called Chai Da during the training period, but customers
are now asked to use the other name at the owners’ request.
2
For more information, see www.sa-intl.org.
1
Declaration of Human Rights, and the United Nations
Convention on the Rights of the Child. It covers issues
such as child and forced labor, health and safety,
freedom of association, collective bargaining,
discrimination, working hours, compensation, and
management systems. SA8000 benefits workers and
also brings concrete advantages to businesses that
implement the standard, including improved
employee recruitment, retention, productivity, and
enhanced company and brand reputation.
A common criticism of codes of conduct is that
they remain vague on crucial issues such as freedom
of association and that few workers understand
their content and intent. That is why SA8000
requires content training and the election of SA8000
representatives by workers, along with specifications
for freedom of association and the right to collective
bargaining, and substantial engagement between
workers and management. The SA8000 certification
structure also requires auditors to follow up on
problems and monitor solutions in order to conduct
effective company assessments.
In the past few years, an international consensus
has emerged on how to overcome limitations and
strengthen codes of conduct implementation.
Improving worker participation and management
engagement in better workplace governance is a core
strategy. The SAI program described in this paper is
one of the first attempts to implement such a strategy
in China, building upon SAI’s extensive experience
with SA8000 certification. It was not meant simply to
certify the Ying Xie factory for SA8000 standards, but
instead used the principles of several internationally
recognized codes of conduct as well as the Chinese
labor law to create a foundation for a set of principles
a workplace voluntarily and democratically chooses to
follow.
In April 2004, SAI began this pilot training
program to facilitate more effective communication
between managers and workers, and to demonstrate to
the management that improving working conditions
can also translate into measurably better business
outcomes. Chinese companies came to rely on
infrequent, external auditors for implementation
of codes of conduct of which workers rarely had
knowledge. In contrast, this project was one of the
first attempts to help workers play an active, informed
role in monitoring company working conditions and
engage in a constructive dialogue with management
on issues vital to business.
Table 1. SAI Training Program Profile
Funders: U.S. Department of State (principal
funder), Timberland, Eileen Fisher, Toys “R” Us
Training Team: SAI and the International Textile
Garment and Leather Workers’ Confederation,
with support from the Chinese Women Workers’
Network (CWWN, Hong Kong) and the Institute of
Contemporary Observation (ICO, China).
Participants: Entire workforce of 500 at Ying Xie
and 30 managers representing all levels.
Timing
Nine hours for each group for three initial
sessions
Eight total hours for election preparation
Forty total hours for follow-up session to elected
workers’ committee
A Business Case for Participatory Implementation of
Workplace Standards
In the past 20 years, millions of Chinese migrant
workers have left their home villages hoping to find
a job that will move them out of poverty. Garment
factories – as well as factories in other laborintensive sectors – have largely taken the plentiful
labor supply for granted. Consequently, most of
the Chinese factories today are resistant to or at best
passively implementing codes of conduct or external
social audits. The prime reason for this is an almost
universal belief among factory owners that genuine
implementation increases unit costs. Yet few have
ever calculated the benefits of treating workers better.
For instance, according to a SAI survey conducted
in November 2006 among 78 business owners and
senior managers in the garment and toy industries,
99 percent responded that worker retention had been
a problem for them. However, only 25 percent of the
managers had any idea of the actual monthly turnover
rate at their factories. This discrepancy suggests that
two-thirds of owners either did not fully realize that
worker turnover costs companies money or they did
not have a tracking system to monitor the situation.
Among the 25 percent who did know the
turnover rate, the reported monthly rate was as high
as 7 percent, suggesting that within a year they might
lose as many as 80 percent of the workforce. Even if
they could not cite a specific figure, business owners
in labor-intensive industries are increasingly coming
to realize that this high level of turnover represents a
significant drain on their operations:
“As the profit margin is decreasing and the Chinese
yuan is appreciating day by day, we have to pin
down all the figures and find all possible ways to
reduce operation costs. Regarding labor costs, the
longer a worker stays with us, the more we save.”
– Interview with Bugang Lai, business owner,
Ying Xie Garments, March 2007
This situation suggests that there is a strong
business case for improving working conditions and
profitability simultaneously, as Chinese businesses
slowly recognize the value of workers’ loyalty. In the
course of the program, SAI helped the management
at Ying Xie build a new monitoring system for
tracking the costs and benefits of improving working
conditions. The results clearly showed that the new
mechanism for democratic workers’ participation
in creating a better workplace also brought about
significant business payoffs in terms of workforce
retention, efficiency, and company reputation.
Better Workplace Standards as a Part of
Good Corporate Citizenship
The debate on social responsibility of business is
not new, but it has gained increased attention in recent
years in light of anti-globalization movements,
corporate scandals, and the continued plight of many
developing countries. Globalization has indeed
redefined the way companies operate and the role
business plays, since companies are no longer confined
in their operations (and in being exposed to external
scrutiny) by the traditional boundaries. This is
particularly true in China – the “world’s factory” –
where so much of internationally consumed goods are
produced and/or assembled.
In today’s competitive global business
environment, businesses are not solely economic
entities, since their success depends not only on their
ability to find the most efficient way of producing
goods and services, but also on their ability to address
social concerns. Contemporary businesses exist in
complex socio-economic structures where they are
subject to economic efficiency pressures of owners
and competitors and to the social responsibility
pressures of governments, civil society groups, and
consumers. Better described as corporate citizenship,3
the appropriate response to these pressures is
more than simply engaging in philanthropy or
cause marketing. In order to be successful, socially
responsible business policies have to respond to the
concerns of all stakeholders – customers, managers,
employees, the community, and society in general.
SAI’s project focused on the labor aspect of corporate
citizenship and demonstrated how good practices can
be internalized in a form of democratically elected
workers’ committees, and how they can benefit the
company by becoming part of its culture and everyday
operations.
The case for corporate citizenship is often made for
large multi-national corporations, which have been
the drivers of socially responsible business practices.
In many countries, however, SMEs constitute a
large share of economic growth – for instance, in
China’s booming textile and garment industry. A
firm’s adherence to fair, responsible, and transparent
conduct is imperative for advancing corporate
citizenship worldwide, regardless of size. The reason is
simple: multi-national companies may try to remain
transparent and responsible, but if their suppliers and
partners in developing countries choose to ignore good
corporate citizenship practices, these efforts are simply
wasted. That is why Timberland’s partnership with SAI
on the Ying Xie imitative was an important example
of a large, multi-national company successfully
helping its offshore supplier become a better corporate
citizen, fruitfully concerned with the well-being of the
workers.
3
See “The Business Case for Corporate Citizenship” at
http://www.cipe.org/publications/papers/pdf/IP0410.pdf.
Corporate citizenship can be defined in a variety
of ways; in addition to ensuring fair labor practices,
it deals with a variety of other issues such as honest
and transparent business contracts, environmental
protection, and product safety and quality. However,
good business is above all about building internal
and external structures that reward good behavior
and punish careless actions. The need for good
corporate governance stems from recognition that
businesses do not operate in a vacuum – they operate
in environments (both inside and outside of the
factory walls) that they must protect and help develop.
The case of Ying Xie factory shows how workers and
management can work together to improve a work
environment in a participatory and cooperative
manner that is highly advantageous to all parties
involved.
Background: The Local Context
The Chinese Textiles and Clothing Industry
The textiles and clothing industry is China’s
number one industrial sector in terms of employment.
In 2005, the registered workforce reached 19.6
million,4 making it China’s largest employer.5 In the
same year, total Chinese textiles and clothing exports
reached $117.5 billion, accounting for 24 percent of
the worldwide trading value, up from 10.3 percent in
2000, representing an annual growth rate of more than
20 percent between 2000 and 2005.6
This stunning growth was made possible by
strong industrial infrastructure, especially in China’s
coastal areas, as well as established trading links via
Hong Kong and Taiwan, and government subsidies
in the form of export tax rebates.7 The backbone of
this powerful industry comprises migrant workers,
who accounted for over 70 percent of the registered
2006 estimates: 20 million workforce and $147 billion exports
and 26 percent of worldwide total [Financial Times].
5
State Development and Reform Commission, People’s Republic
of China, “The 11th Five-Year Plan of the Chinese Textiles &
Garments Industry,” 2006.
6
WTO statistics; China’s 2005 textiles exports accounted for
20.2percent and clothing for 26.9percent of world trading
value.
7
The VAT rebate was lowered to 11–13 percent as of September
2005.
4
workforce by 2005, and who for the most part endure
low wages and excessive overtime under poor health
and safety conditions. The most convincing evidence
to that effect was offered by the Chinese Government.
In 2005, under the direction of the State Council,
17 ministries and 8 provincial governments initiated
a comprehensive investigation among thousands of
migrant workers nationwide. According to the final
report released in April 2006, the major attributes of
a migrant worker’s life are low wages, long hours, and
generally hazardous workplaces.
Table 2. Wages and Working Hours of
Chinese Migrant Workers
Monthly Wage
Below 300 yuan [$37.50]
300–500 [$37.50–$62.50]
500–800 [$62.50–$100]
Over 800 [>$100]
% of Workers
3.58
29.26
39.26
27.9
Daily Working Hours
Below 8 hours
8–9 hours
9–10 hours
Over 10 hours
% of Workers
13.7
40.3
23.48
22.5
Source: State Council of P.R. China, 2006
The report also revealed that only about 50 percent
of migrant workers secured legally required labor
contracts from their employers, and about 15 percent
of migrant workers did not even know what a labor
contract was. Only 47 percent were paid on time,
and just 15 percent had insurance against workplace
injuries.8 All this is happening despite the fact that
Chinese labor law is among the most stringent in
the world. However, when it was promulgated in
1994, China’s economy was still dominated by stateowned companies. Thus the law is a typical “socialist”
code promising workers – at least in theory –
comprehensive protection.9 However, there is a general
agreement, even among Chinese officials, that the law
is weakly enforced, constituting a de facto preference
Presumably even fewer migrant workers receive medical
insurance, and neither unemployment nor pension is available.
9
Interview with Mr. Xing Xinmin who served on the working
group drafting the Chinese Labor Law.
8
for companies operating in China. This practice
has contributed to the persistence of poor working
conditions among most Chinese factories, especially in
labor-intensive industries such as textiles and clothing.
The Debate on Workplace Codes of Conduct
Pressured by labor rights and consumer groups in
the West, international companies have become major
players in the push for better working conditions in
their entire supply chain. In 1991, Levi Strauss & Co.
became the first multi-national apparel company to
issue Global Sourcing and Operating Guidelines, an
ethical code of conduct for its offshore contractors,
and many other companies followed. Many trade
unions and non-governmental groups argue that such
codes cannot effectively improve working conditions if
drafted by corporations themselves. Internal company
codes of conduct, critics point out, are designed
primarily to serve the needs of corporations over those
of workers. Furthermore, because internal compliance
teams are responsible for monitoring and verifying
compliance, and because little information is shared
with the public, it is questionable whether these codes
are actually implemented.
Independent workplace codes or standards such
as the SA8000, the Ethical Training Institute’s Base
Code, and the Fair Labor Association’s Workplace
Code of Conduct tend to have more rigorous content
and monitoring processes, but are not totally immune
to criticism. A vocal and recurrent criticism of all
codes of conduct – whether internal or independent,
multi-stakeholder codes – is that workers, whom these
codes intend to empower and protect, have little or
no opportunity to participate in the verification or
implementation processes. Thus, despite the fact that
the Base Code and SA8000 call strongly for worker
representatives and freedom of association, some
critics view these monitoring and verification schemes
as being “labor rights without labor.”
In China, it is easy to see the validity of this
argument: How can anyone implement codes of
conduct that require respecting freedom of association
in a country where the rights of independent trade
unions and collective bargaining are restricted? A
representative of the American Federation of Labor
and Congress of Industrial Organizations suggested
that until political change occurs in China, workers
will not be empowered in any way and “companies
operating inside China with a code of conduct that
includes freedom of association are in fundamental
violation of their own codes.”10
Whether codes prioritize workers’ fundamental
rights and interests is central to most criticism. It
is often unclear whether external auditors have
sufficient understanding of worker rights and needs,
and whether they have the ability to gain workers’
trust in order to gather necessary information. Others
argue that because China already has a comprehensive
national labor law, the codes of conduct movement
may deflect, or even replace, efforts to enforce the
national law.
The case of Ying Xie, however, shows that
voluntary standards and codes of conduct can serve
as a useful instrument of strengthening the rule
of law and initiating change even if the general
enforcement of national laws remains weak. It also
suggests that workers appreciate two opportunities
– to learn about their rights and interests and to
practice safeguarding their rights and interests – even
in advance of government action to encourage or
allow them to do so.
Despite their limitations, voluntary codes of
conduct help create a platform where multiple parties
such as trade unions, non-governmental organizations
(NGOs), and corporations can join efforts to explore
practical solutions to challenging problems, and create
a culture of compliance and political support for
enforcement of labor laws. If used correctly, voluntarily
adopted codes of conduct such as SA8000 can be a
powerful tool, and can serve as a crucial entry point
for fundamental change in a company’s management
system.
The Status of Workers’ Representation in China
China’s trade union law prohibits workers
from forming independent unions or organizing
P. Fisherman, Statement to the United States Congressional
Executive Committee on China, 2003.
10
collective bargaining activities outside the All-China
Confederation of Trade Unions (ACFTU), long
considered a “transmission belt” of the party’s orders.
The majority of companies operating in China have
been resistant to welcoming ACFTU branches, a
move that requires them to pay 2 percent of total
payroll as a union fee. As a result, the vast majority of
Chinese companies in the private sector do not have
a union presence. The ACFTU in recent years has
accelerated its efforts to form branches in foreigninvested companies. The unionization rate has
increased from 33 percent in 2000 to about 60 percent
at the end of 2006 as a result.11 A more important and
challenging task is to make sure that in those factories
where a union structure exists workers are effectively
represented.
In general, effective worker representation is rare
in Chinese factories. However, de facto collective
bargaining does occur and is encouraged by the
Chinese Government. Per the 2000 Directive No. 9
of the Ministry of Labor, workers in workplaces
without a union may elect bargaining representatives
as long as more than half of the workforce votes. These
workers’ representatives can then engage in “collective
consultation” with employers over wages.12
International companies have also been active
in strengthening workers’ representation in China.
As early as 2001, Reebok initiated a project through
which workers in two large footwear factories
conducted independent elections for union
representatives. Though still working within the
framework of the ACFTU, this represented one of the
earliest attempts to give workers some say in choosing
their own representatives13 and the opportunity to
voice their concerns through a formal channel within
their factories.
According to Reebok, some of the difficulties
experienced in the process included inconsistent
support from management and also pressure exerted
on worker representatives, which made it difficult for
Interview with Mr. Wencai Guo, ACFTU, by the 21st Century
Economic Report, January 22, 2007.
12
Ministry of Labor and Social Security, Provisional Measures on
Collective Consultation on Wage, 2000.
13
Financial Times (London), December 12, 2002, 1.
11
them to fully perform their duties.14 The SAI program
successfully addressed similar hurdles to effective
worker representation at Ying Xie by demonstrating
the benefits of increased workplace democratization to
the management.
Regional distribution (283 respondents)
Chart
1. Regional distribution of
Ying Xie workers
Jiangxi
19%
Other provinces
29%
Ying Xie Factory Profile
Ying Xie Garment Factory is located in Kaiping
City in Guangdong province. Its major products
are outdoor outfits, such as goose down jackets and
ski clothing. Over 90 percent of its products are for
export, supplying clients such as Timberland (70–80
percent of production) and Michael Kors (15 percent).
The remaining 10 percent is sold domestically in
order to keep the workers (especially core experienced
ones) busy during the low season. As in most coastal
area garment factories, over 98 percent of Ying Xie’s
500 workers are migrants from poor provinces such
as Anhui, Henan, Hubei, Jiangxi, and Sichuan. As
of November 2004, only 54 percent of workers were
females, a relatively low figure among typical garment
factories. Ying Xie also had a young team: nearly half
of the workers were younger than 25 years old. At the
same time, many of them were well-educated: more
than 86 percent had at least attended middle school.
Sichuan
16%
Henan
11%
Anhui
13%
Hubei
12%
Age Distribution (283 Respondents)
Chart 2. Age distribution of
Ying Xie workers
Above 31
21%
16-20
26%
26-30
24%
21-25
29%
Chart 3. Education
Education
level
workers
level
(283 of
respondents)
College
2%
Tech. School
5%
N.A.
8%
Elementary
6%
Ying Xie began receiving social audits in 1998.
High School
The management was not proactive and only sought
16%
to meet the minimum requirements for implementing
clients’ codes of conduct. In order to make substantial
Middle School
improvements in working conditions, the management
63%
had to overcome a significant obstacle: net profit
Chart 4. First year of employment at
margin. As in many other garment factories, the profit
Employment
margin had been steadily declining from roughly
Ying Xie commencement (283 respondents)
15 percent to about 4.8 percent in 2004. According to
Ying Xie’s general manager, net profits from 200,000
garments sold in 2004 were equivalent to the profits
2002 and
N.A.
before
from 40,000 garments in 1996.
11%
Audit reports cited major non-compliance at Ying
Xie, including some workers being paid below the legal
minimum wage and excessive overtime during peak
seasons. As a consequence of poor social performance,
Essay on freedom of association, Reebok Human Rights
Program, http://www.reebok.com/static/global/initiatives/
rights/text-only/business/essay_fa.html.
2004
47%
23%
2003
19%
14
Source: Survey of 283 respondents, November 2004
worker turnover rate became a serious issue. An SAI/
Institute of Contemporary Observation (ICO)15
survey conducted in November 2004 indicated
that about 47 percent of the workers were new to
the factory that year, suggesting an extremely high
turnover rate.16
Timberland/Ying Xie Partnership for Change
Timberland, Ying Xie’s main client, has for many
years made corporate social responsibility an integral
part of its business.17 Timberland also believes that
social auditing, though necessary, is not sufficient for
initiating effective and sustainable changes in offshore
factories. As early as 2003, the company had developed
an innovative global compliance program centered
on the themes of partnership, factory ownership, and
worker involvement. In developing such a program,
Timberland adopted an “open door” policy. It
established partnerships with NGOs such as Verite and
SAI, and global trade unions such as the International
Textile Garment and Leather Workers Federation
(ITGLWF). Subsequently, Timberland worked with
these organizations to help them gain access to its
factories, educate workers on their rights, and increase
participation. Partnering with NGOs, in principle, has
long been a well-accepted approach to ensuring the
quality and transparency of compliance programs. But
in practice, it still is a rare phenomenon.
In 2003, when SAI approached Timberland to
nominate a garment factory for the pilot training
program, its global compliance team responded
“Many apparel and footwear companies seem to
reduce human rights to a code of conduct to be
applied to suppliers and audited or assessed to
ensure compliance. A few companies engage in
human rights work beyond the factory walls in efforts
like Timberland’s to partner with non-governmental
organizations (NGOs) that focus on educating
workers….” – Theresa Fay-Bustillos,
executive director of the Levi Strauss Foundation
(Levi Strauss & Co., Voices of Challenges, 2005)
The Institute of Contemporary Observation, is one of SAI’s
three local partners in this project.
16
There was no major expansion of the workforce in 2004. In
Chinese garment factories in the coastal areas, a 7-8 percent
monthly turnover is common.
17
Timberland, Corporate Social Responsibility Report, 2005.
15
immediately. Ying Xie was recommended based on the
criteria developed by SAI – a small or medium-sized
factory that could represent the majority of Chinese
factories in the garment sector. It was seen as a model
factory that had recognized problems with working
conditions, and whose management demonstrated a
willingness to seek change.
Building on Timberland’s support, SAI invested
significant time and effort into negotiating with
Ying Xie’s senior management. The management was
open to making changes to address problems such
as high turnover rate, but the sheer intensity of the
proposed program (training the entire workforce and a
commitment of at least 12 months) made them wary.
To address these concerns, SAI developed a series of
arguments and a preliminary cost-benefit analysis of
investing in better working conditions, and promised
to keep the training dates flexible in order to minimize
potential interruption to production. Ying Xie’s
managers finally decided to sign on for a trial program
in early 2004.
SAI Program Description:
Training Methodology and Process
A Participatory Model Including
Workers and Managers
SAI designed the program after careful analysis
of the political context in China and the applicable
Chinese legal framework. The objective was to initiate
workplace change, and the challenge was setting up
the workers’ representation mechanism and facilitating
activities of the workers’ committee so that, on one
hand, worker representatives would be as independent
and proactive as possible, and on the other hand
management would remain supportive. The SAI
training served as a tool to design a durable platform
for communication and constructive dialogue between
workers and managers as a goal in and of itself. As
the first step, a group of trainers met with factory
management and workers and outlined the features
of the program. At the outset, the team attached great
importance to enlisting as much participation from
workers and managers as possible. Some key tactics
included:
Clarify the role of trainers. Since the primary goal
of the program was to jump-start a process in which
workers and managers can work together to identify
and resolve problems, the training team needed to
refrain from solving problems themselves or acting like
compliance auditors seeking quick fixes. This strategy
was crucial for workers and managers to maintain
ownership of the program. By maintaining the role
of a facilitator, the training team was able to keep a
reasonable distance from the process.
Use effective language. For a program of this nature,
trainers needed to present in-depth knowledge of
labor issues, ILO conventions, Chinese labor law, and
respect for fundamental workers’ rights. It would have
been difficult for the audience (particularly workers
who had recently arrived from the countryside and
managers who were preoccupied with production)
to fully benefit from the program if trainers simply
lectured. For this reason, SAI and its partners involved
in the design of training materials paid great attention
to identifying effective terminology and clear language
fitting the cultural and educational background of the
audience.
Present true-to-life cases. The training team
used a number of case studies to generate dynamic
discussions within training sessions. Most cases came
from Chinese factories in the Guangdong province,
where the Ying Xie factory is located. Additionally,
facilitators spent significant time asking workers
and managers to conduct a gap analysis identifying
problems at Ying Xie and comparing them to the
benchmarks of good labor conditions such as the ILO
conventions, the Chinese Labor Law, and the SA8000.
The training team taught these three benchmarks in a
comparative fashion, stressing the general agreement
among all three and then highlighting which one is
most stringent regarding a specific issue.
Role plays and group discussions. At the beginning,
the workers were reluctant to speak out in training
sessions, especially in a relatively large class of 30 or 40,
but trainers knew that interaction would be a key to
understanding workers’ genuine concerns. In order to
encourage workers to speak out and contribute ideas,
trainers organized group discussions or role plays
in each session. Those were as simple as games or as
complicated as a mock negotiation in which workers
acted as managers and managers acted as worker
representatives. Breaking the class into smaller groups
also proved effective, since workers clearly felt more
relaxed talking within a smaller circle than talking to
trainers in front of the whole class.
In planning for managers’ training sessions, SAI
discovered that it was effective to organize mock
debates among participants on subjects such as
child labor and overtime. Thus, trainers were able
to increase the level of manager participation and
offer managers opportunities to look deeper at root
causes and possible solutions to factory problems.
For example, before a series of debates was held, most
managers thought overtime was necessary in order
to meet delivery schedules. After the debates, many
realized that overtime could be brought under control
with better management practices and improved
production efficiency. At the same time, trainers found
that they could more effectively convey messages
through this method since one group of managers
(those assigned the role of arguing against overtime)
actually built the arguments.
Trainers’ Workshop
Building capacity among local workers’
organizations was an important objective of the SAI
program, which concentrated on how to promote
genuine worker representation inside factories
despite the fact that the Chinese Government does
not allow independent trade unions to exist. With
the support of ITGLWF, SAI organized a training
program for 12 staff members from its local partners
– including ICO and the Chinese Women Workers’
Network – prior to launching the program. Training
included background on the international trade union
movement, the Chinese legal context, participatory
training methodologies, and support for worker
representatives and grievance procedures. SAI and
its partners adopted a participatory model for this
training as well, and asked local partners to take part
in developing the curriculum and determining a work
plan for the upcoming worker/manager training.
A Five-Stage Program
Because the Ying Xie program was meant to go
beyond simple training and initiate real changes in
the factories, SAI and ITGLWF developed a five-stage
structure meant to guide workers and managers to be
more proactive. By the end of 2004, the training team
had conducted all five stages.
Plenary session. This session was a one-hour briefing
by the training team to the entire workforce about the
goal and arrangement of the project.
Initial sessions. Trainers conducted three initial
three-hour sessions for the entire workforce by
dividing them into small groups (40 workers in each
group). Workers and managers gained exposure to
information on the legal, ethical, and market demands
for acceptable working conditions. They were also
provided opportunities to conduct gap assessments
against the benchmark international and Chinese
workplace standards and examine case studies on
conflict resolution. Groups of 10 workers were asked
to identify the problems or discrepancies at the factory
against these benchmarks. At the end of this initial
segment of the program, workers and managers jointly
made the final decision on how to resolve problems
identified in the factory.
In-depth session. Trainers next presented to
workers and managers various options for better
communication and problem solving. Subsequently,
facilitators asked the management to decide on
setting up a permanent mechanism. When presented
with three options for a mechanism of worker
representation – forming an ACFTU branch, setting
up a working group to address health and safety
issues, or creating a workers’ committee to take care
of a whole range of issues – all 12 production groups
unanimously voted to set up a workers’ committee
through a free election. The trainers then guided the
participants to discuss the best ways to prepare for
the next step, conducting an independent election of
worker representatives.
Nomination and election. Each production group
of workers cast ballots to nominate candidates for
the workers’ committee. The candidates had time to
campaign for positions on the committee. The final
election took place two weeks after the nomination.
Follow-up training. The training team offered
follow-up training and technical assistance to the
elected worker representatives. These sessions included
guidance on drafting the list of responsibilities of
the workers’ committee, preparing an overall work
plan, soliciting worker opinions, researching any
outstanding questions, establishing better factory
communication, negotiating with management,
and reporting back to peer workers. These followup sessions were indispensable to ensure the proper
functioning of the workers’ committee. Although
forming a workers’ committee through free election
was daunting, ensuring that the committee functioned
independently and effectively was the more difficult
task.
Overcoming Challenges Encountered during the
Training Sessions
Challenges to mobilizing workers. Prior to the SAI
program, some workers at Ying Xie were exposed to a
limited number of training modules on health/safety,
HIV/AIDS prevention, and other social issues. SAI’s
program was far more intensive: first, it covered an
entire range of issues related to working conditions and
workers’ rights; second, the program was delivered to
the entire workforce of 530 (managers and workers),
instead of a selected group.
The team started the first training session in April
2004. During the initial stage of the training, workers
found themselves overwhelmed. ILO conventions,
globalization, NGOs, and consumer groups were
brand-new terms for most of them. To help them to
grasp these concepts quickly, trainers used visual aids,
brainstorming exercises, and question-and-answer
sessions.
Worker suspicion was a bigger obstacle for trainers
to overcome. At first, many thought that the trainers
were brought in and paid for by the management and
therefore that the trainers’ primary intent was to teach
workers to behave better in the eyes of management.18
In fact, the program was offered free of charge. The only cost to
the factory was workers’ time devoted to attending the sessions.
18
Participation from workers was therefore lukewarm at
best during the first training session. More experienced
workers did not even want to attend the sessions, as
they could have made more production-rate money
by staying on the factory floor. Sitting in the sessions
meant that they could earn only the minimum hourly
rate, which was much lower than per-garment rate
earnings.
The training team had foreseen these difficulties
and was prepared to address them. Each two-person
training team consisted of one college-educated trainer
and one former worker, both mainlanders. The trainer
would focus on presenting the conceptual knowledge
while the former worker would use workers’ own
language to build rapport with the participants.
Eventually, workers started to speak out about
numerous problems in the factory, from poor food
quality and low wages to noise and heat in workshops
and dormitories. As the level of trust increased, the
trainers encountered a more complicated predicament:
workers began to develop a reliance on the trainers for
solutions and wanted them to talk to managers on
their behalf.
The typical thinking of workers was that if the
trainers were not meant to solve the problems,
why would workers bother to identify them? In
response, the trainers repeatedly reiterated their role
as messengers and facilitators, rather than problemsolvers. This exchange was crucial, since the chief
purpose of the program was to help workers and
managers build mechanisms that would allow them to
address future problems in the workplace together, not
just to find quick fixes to existing problems.
Challenges to obtaining management buy-in. At
the end of the second three-hour session, workers
from different production groups identified up to a
hundred problems in the gap assessment against the
benchmarked workplace standards. Some workers
approached line supervisors and other managers
demanding immediate remediation. Managers,
surprised by the number of problems raised, began to
feel that the enlightened and mobilized workers were
likely to challenge the existing management structure.
Unlike metropolitan areas such as Shenzhen or
Dongguan, Kaiping (where the factory is located) is a
small city that does not offer a pool of migrants from
which the factory could recruit with comparable ease.
When some Ying Xie workers started to pressure the
management after the SAI session, managers began to
worry that if workers’ demands could not be met in
a timely fashion, they would slow down production
and some may even quit, leaving the factory in limbo.
Likely because of this concern, at the end of the
third training session the general manager refused
to specify a date for the nomination process, citing
a busy production schedule. The management also
mentioned that it needed time to study the potential
legal and political consequences of the proposed
workers’ committee. At this stage (June 2004), the
program was virtually suspended.
The easiest approach would have been to ask
Timberland to pressure the factory into setting up a
workers’ committee, but taking this shortcut would
have resulted in less management support for the
program, even if they opened the factory doors to
the training team. If that were the case, the goal to
facilitate dialogue between workers and managers
might not have been achieved.
With support and mediation from the Timberland
compliance team, SAI decided to take a more timeconsuming approach. The trainers spent a significant
amount of time talking with the management in order
to reduce their suspicion and asked the managers to
contribute ideas on how to improve communication
with workers. Three months later, in September 2004,
these efforts paid off and the program resumed.
Establishing the Workers’ Committee
Nomination process. In September 2004, the
training team had two additional sessions to review
what workers learned in the previous three sessions.
In October of the same year, workers selected
26 nominees. The workers developed the nomination
procedures with guidance from the trainers. Each
would vote for candidates across each of the 12
production groups instead of having a general election
across the whole factory, to ensure each production
group would have an elected worker representative,
and problems in every corner of the factory could be
addressed. Candidate profiles were posted publicly.
General election. The general election took place
on November 30, 2004. Each candidate made a brief
campaign speech, addressing 500 peer workers. Some
candidates were shy, some were surprisingly articulate,
and some were too excited to finish their speeches.
For almost all of the candidates, the election offered
a chance to address a large crowd for the first time in
their life. Few candidates made specific promises in
their campaign speeches, but many did vow to work
for the improvement of communication between
workers and management and to “improve conditions
step by step.”
Ballot procedures. Production groups received
ballots with the candidates’ names, which were then
cast into self-supplied ballot boxes. Three workers
were then randomly selected to count the ballots: one
read the names aloud, one took notes, and the third
monitored the process. After counting all ballots, the
12 winners were announced immediately, establishing
China’s first independent workers’ committee in the
garment industry.
Follow-up assistance and training. According to
a qualification list developed by the workers, the
elected representatives should be communicative
and articulate, willing to work for the interest of
their peers, responsible, and fair. Based on SAI’s
observations, the 12 elected representatives were
the opinion leaders among the workers, all of whom
were considered fair and communicative. Follow-up
Elected workers representatives
Workers tabulating votes after the election
sessions were indispensable to help strengthen their
leadership and organizational skills to support and
develop their capacity to represent workers.
Between December 2004 and September 2005,
SAI and the Institute of Contemporary Observation
(ICO), a local partner, conducted 10 monthly followup sessions, totaling 60 hours. With the trainers’
assistance, the young committee developed its
responsibility list and annual work plan, and set up
sub-committees to address specific issues. In addition,
worker representatives gained in-depth knowledge and
practical skills on how to solicit opinions from other
workers, conduct research, and build arguments prior
to talking with management, and lastly the importance
of reporting back to their peers.
One of the challenges trainers encountered at
that point was that, once drawn out, workers wanted
to see immediate change. They felt that any training
program was “useless” unless it provided an immediate
remediation to their concerns. In other words, workers
were too eager to quickly “flex their muscles”– not
fully understanding the long-term process of dialogue
and representation. Most workers had strong feelings
about quotidian issues such as food quality, bathroom
cleanliness, and the abundance of drinking water.
These are important issues for ensuring worker health
and safety, but they are not the building blocks of
worker participation and representation. SAI’s followup sessions were meant to ensure that both workers
and managers built lasting representative institutions
and processes that would help them stay committed to
long-term dialogue and cooperation.
Outcomes: A Business Case for
Independently Elected Workers’
Committees
As a result of the program that helped to bring the
workers and the managers to a new level of mutual
understanding and cooperation, Ying Xie factory has
experienced numerous positive changes benefiting
employees and the company alike. Elected independent
workers’ committees enabled better communication
with management, which helped create better working
conditions while simultaneously lowering the turnover
rate and improving productivity.
Better Communication and Joint Ownership of
Workplace Reforms
In most, if not all, Chinese garment factories, poor
communication between workers and managers is a
chronic problem. Managers often consider migrant
workers min-gong, or transient villagers, ignoring the
fact that they are instead gong-ren, workers who seek
pride in their work. For two decades, millions of mingong from poverty-stricken villages have been lining
up outside the gates of China’s coastal factories hoping
to get hired in any capacity. This allowed managers
to develop the mentality that they were doing
migrant workers a favor by merely offering them the
opportunity to make money. As a result, managers
treated workers as second or third-class citizens
and saw no need to communicate with them. Most
managers assumed that they would like nothing more
than to “make quick money and go away.”
“We are not here only for money. Sometimes we want
to talk about something.”
– Worker at Ying Xie Garments
At the same time, most workers, including those
at Ying Xie, rarely felt comfortable talking with their
supervisors, much less negotiating with them. They
were often fearful of rampant verbal and corporal
punishment on production lines. The fact that migrant
workers are not entitled to public resources or local
resident privileges further contributed to their growing
sense of inferiority and low self-esteem. Following the
SAI training program, workers at Ying Xie reported
that for the first time they had the opportunity to voice
their concerns without fear. Elected representatives
gained more confidence and skills to engage the
managers. In July 2005, eight months after forming
the committee, 68 percent of workers reported that
they felt much better about talking and reasoning with
managers, according to an SAI/ICO survey.
In Chinese factories, the relationship between a
line worker and a Lao Da (line supervisor) is usually
the most tense. Line supervisors, who are under
extreme pressure to fulfill production quotas, typically
use verbal or corporal punishment more than senior
managers. One worker representative told trainers
that in the past he kept to himself on the production
line. Being an elected worker representative offered
him the opportunity to speak out on behalf of his
peers. At the beginning, his Lao Da only sneered at the
issues he raised and at the usefulness of the workers’
committee. Yet, after the worker representative made
multiple valid recommendations, including how
to improve production efficiency, the supervisor
changed his attitude and became more receptive to the
representative’s suggestions.
“Even my Lao Da (line supervisor) changed his view
on me.”
– Elected worker representative at Ying Xie
SAI has witnessed growing program ownership
by workers and managers at Ying Xie over the three
years following the first training. In April 2007, the
company hosted another election, which allowed
inactive committee members to be replaced by more
committed workers. The election was independently
organized by the incumbent workers’ committee and
conducted in a well-organized, exemplary manner.
Managers at all levels also became more receptive to
the activities of the workers’ committee. They are now
convinced that better communication and industrial
relations help production greatly. Ying Xie’s manager
and SAI representatives jointly reported on the
project at SAI-hosted conferences elsewhere in China
(in 2005) and in North America and Scandinavia as
well. In July 2007, Ying Xie’s manager shared this
experience at an ILO workshop in Jordan.
Table 3. Functions of the Committee
In July 2005, 74 workers were randomly interviewed
and 89 percent believed that the workers’ committee
was beneficial to workers. Among them, 18 percent
said that they had already been helped one way or
another. According to the same survey, workers
appeared generally satisfied with the committee’s
work in fulfilling its major responsibilities.
% Positive
Worked for collective interest of
workers
Improved communication
Organized activities for workers
Organized training and
educational programs
Helped workers to resolve
specific problems
Positive
responses
What has the committee done
so far?
45
60.81
50
28
67.57
37.84
30
40.54
19
25.68
Source: Survey of 74 respondents, July 2005
Improved Working Conditions
The management at Ying Xie showed interest
in improving working conditions prior to the SAI
training program, under the pressures of high worker
turnover rate and the persistent labor shortage in
Guangdong province. The management team,
however, did not know what avenues were available
to relieve these pressures. One management decision
had been to invest money in planting more trees in
the factory, assuming that a greener environment
would make workers happier. Fortunately, this plan
was not implemented, as it would have been seriously
off-target. During the training sessions, trainers asked
all workers to write down the most crucial problems
they would like to see resolved. The top three were
poor food quality, a low piece-rate, and the high
temperature in workshops in summer. This firsthand information helped the management adjust
their budget in order to better suit the workers’ needs.
Instead of investing in trees and grass, the factory
invested about half a million Chinese yuan to build a
brand-new cafeteria at the end of 2004. By May 2005,
the factory had invested another 300,000 yuan in
installing a water cooling system in all the workshops.
Wages were a more complicated issue. The
management did adjust the wages of a small portion of
workers who were not making the legal minimum. But
a sizable raise for the majority of the workers remained
a tough goal to reach. Worker representatives asked
several times for a raise of the piece-rate, but their
requests were rejected. The managers argued that the
purchasing price from clients had been declining,
while they were paying workers the same piece-rate as
the previous season, leaving no room for a raise. Some
workers began to doubt the usefulness of the young
workers’ committee until a breakthrough was made in
August 2005. Worker representatives discovered that
the local newspaper published the inflation rate of the
first two quarters of 2005. They used this new
argument combined with a detailed report on the
increase of living costs in the neighborhood, to finally
convince the management to increase wages by
5 percent for 80 percent of the sewing operators. This
raise, although not significant in absolute terms,
provided an important boost in morale for the workers
and was a real step along the path of mature,
democratic industrial relations at Ying Xie.
That was the first time that I began to feel proud of
being a worker.”
– Worker representative who had been a migrant
worker for more than 10 years
Lower Worker Turnover Rate
For most garment factories in the Guangdong
province, the Chinese New Year is a time when a large
number of workers leave. In many cases, 30 percent
of workers never return to the same factory, seeking
better financial opportunities elsewhere. In contrast,
the perception of senior management at Ying Xie was
that it was the only factory in the industrial zone to
enjoy negligible workforce attrition. The committee’s
establishment convinced many workers to stay with
the factory.
The management’s suspicion that better informed
and empowered workers might leave was proved
wrong. Instead, the creation of the workers’ committee
turned out to be extremely helpful for retaining the
workforce. In March 2005, only three months after the
committee came into being, management was greatly
surprised that for the first time in Ying Xie’s history,
almost all of the workers returned to the factory after
the Chinese New Year. Many brought friends or
relatives with them to join Ying Xie.
By July 2005, Ying Xie witnessed a steady decline
in worker turnover rate and an increase in the average
job tenure among front-line workers. SAI and Ying
Xie management did not calculate the exact turnover
rate from 2003 to 2005, using job tenure instead as an
approximation. Many workers, especially those with
experience, leave the factory to find temporary work
elsewhere during the low season (even though the
management pays them at least the legal minimum
even when there is limited work available), but these
workers usually return to Ying Xie once it can offer
a sufficient amount of work because its piece-rate is
higher than its competitors.
For that reason, turnover rate does not fully reflect
the real picture of worker retention. Job tenure appears
to be a better measure. Remarkably, average tenure
doubled from 12.6 months in December 2003 to 25
months in December 2005. This is a significant success
for Ying Xie, given the clear business benefits of having
a more experienced and stable workforce.
SAI helped the management examine the
turnover rate (job tenure) and then jointly developed
a methodology measuring the cost of turnover. Initial
findings suggested that when Ying Xie loses one
experienced worker, the direct cost to the company
(i.e., recruitment fee, training cost of replacement,
reduced productivity, etc.) can be as high as 35 percent
of the worker’s annual salary. This exercise made
the management realize that improving working
conditions can reduce costs, even in the short term.
On October 28, 2004, after the final training session
before the nomination and election of the workers’
committee, trainers randomly interviewed about 30
workers about their expectations of the committee.
Only 18, or 60 percent, believed that the workers’
committee would be “somewhat useful,” while 12
either said “won’t be useful” or refused to give an
opinion. According to a more extensive survey taken
after the election on November 30, 2004 – where 283
workers were surveyed – 212, or 75 percent believed
that the workers’ committee “will help improve
working conditions.”
Higher Productivity and Better Management System
One indication of improved productivity is that
overtime has been declining steadily at Ying Xie (53.04
hours per week in 2004, 52.05 in 2005, and 51.02 in
2006), while workers’ wages increased from $125 per
Average Job Tenure
Table 4. Average
Job Tenure
30
25
25
Months
19
20
15
12.6
10
5
0
Dec-03
Dec-04
Dec-05
Source: Ying Xie worker survey
month in 2004 to $140 in 2005 and $155 in 2006.
At the same time, total pieces produced increased from
250,000 in 2004 to 320,000 in 2005 and 370,000
in 2006 while the number of employees remained
roughly constant.
Other data SAI collected also suggests that
productivity at Ying Xie improved significantly. For
example, at the end of 2003, 25 percent of products
were shipped by air, suggesting late delivery. By the end
of 2004, air shipments were reduced to 20 percent,
and starting in July 2005, not a single garment was
shipped by air. This alone saved Ying Xie about one
million Chinese yuan. Factory management attributed
this improvement to better planning and a more
stable workforce. SAI is also working with Ying Xie to
develop a new human resources tracking system that
could help management determine the factory’s true
operating costs and productivity. The system aims to
build a consolidated database to track the wages, hours
worked, job tenure, skill sets, performance, and other
relevant information for each employee.
Next Steps: Sustainability and
Replicability of the SAI Program
Although the gains for workers and managers were
important facets of the SAI program, sustainability
within Ying Xie and replicability in other Chinese
factories are equally important. This program turned
out to be a successful model of how workers and
managers can conduct dialogue in order to improve
business operations and resolve problems together. The
next step was to show that such a model can become
an integral part of a company’s business conduct and
an expression of its responsible corporate citizenship.
Sustainability
Many SAI trainers had some initial doubts about
whether the workers’ committee at Ying Xie would
be proactive and autonomous enough after the
tenure of the program. However, time has shown that
creating channels for communication and cooperation
between workers and managers – rather than just
addressing current problems – was the most valuable
long-term contribution of the program. One of the
lessons learned from the experience at Ying Xie is that
the sustainability of future, similar programs requires
maintaining a balance between workers and managers
to create a sense of joint ownership. This balance,
in turn, requires constant sensitivity and attention
on the part of trainers. It can be difficult initially to
draw out workers, but favoring workers can make
managers sensitive or even defensive if they believe
their perspective is being overlooked.
Little progress can occur if trainers do not find a
way to help managers see the program’s benefits. The
solution is to involve top management in training,
helping workers feel more at ease with the process and
encouraging middle managers (such as line supervisors)
to take it seriously. Trainers also met periodically with
managers to further discuss and clarify the intent
of the program. Ultimately, the sustainability of
initiatives promoting worker participation depends
on a well-established follow-up plan. Electing a
workers’ committee is much easier than ensuring that
it functions effectively. A platform for freedom of
association and rights to collective bargaining remains
only a theoretical concept if worker representatives do
not have the skills and capacity to exercise their rights.
Replicability
As far as reproducing Ying Xie’s experience
elsewhere, it is still too early to judge the full extent
of the program’s reach, but it has certainly generated
broad interest. Over the last two years, both SAI staff
and factory management have been sharing lessons and
experience. Timberland, the largest Ying Xie customer
and facilitator of the SAI program, also found lessons
learned were useful for other suppliers.
“Timberland is proud to have been a part of the SAI
worker committee program at Ying Xie. Our code
of conduct assessors strive to guarantee human
rights in our supply chain and a proper channel for
communication between workers and management
is an important component of this process. We
believe the worker committee program improved
relationships between the workers and management
and gave workers a real sense of ownership in
the factory. This experience has encouraged us to
implement similar programs in other factories in
our supply chain.” – Gordon Peterson, Vice President
of Corporate Social Responsibility, The Timberland
Company, July 2007
The program’s impact goes beyond Timberland’s
supply chain. After observing the program at Ying
Xie, the Prosperous Group, a sports bag manufacturer
employing 10,000 workers in four different locations,
invited the SAI team to one of its own factories. In
hopes that investing in better workplace relations
would result in similarly positive returns, the program
at Prosperous is funded entirely by the firm itself.
The Prosperous Group pilot program was launched
in April 2006 at a factory with 3,000 employees.
Given that this number was too large for trainers to
work with every worker, each of the fifty production
groups selected three or four workers to attend the full
training. Those chosen helped organize elections and
briefed their peers on what they learned. Three elected
worker representatives from Ying Xie are participating
in this process in order to reinforce the training and
inspire the participants through their own experiences.
In October 2006, an independent election chose
the workers’ committee at Prosperous, with the entire
workforce of the factory voting. In the subsequent
months, SAI continued to cooperate with the workers
from Ying Xie to deliver five follow-up training and
support sessions to 21 elected worker representatives.
This group will soon be in a position to share with
others at other workplaces. Prosperous is also
conducting periodic additional training programs for
all lower and mid-level managers and is developing
policies and procedures to sustain ethical working
conditions. As that factory improves its management
system the workers’ committees continue to
collaborate and ensure that lessons will be shared.
Looking Ahead: Toward Better Corporate
Citizenship in the Workplace
In November 2005, participants from 12 multinational companies that source in China met at a
one-day seminar convened to discuss experiences
with worker training programs in supplier factories.
They agreed that such programs represent a necessary
step toward helping factories meet ethical workplace
codes, noting that “workers are the best auditors.” This
observation echoed the results of a conference earlier
that year, hosted by SAI and the ITGLWF, which
included a workshop on worker representation for
seven major Hong Kong and China labor NGOs, all
of which supported the structure and goals of the SAI
program.
“It was 8 years ago when I first learned the term
‘corporate social responsibility.’ My feeling right
now is: improvement in working conditions can
benefit a company. In the short term, we all know
that there has been a labor shortage all over China.
If a company can learn workers’ real needs, and
continuously improve the working conditions, I think
you cannot even drive workers away. In my company,
each time we open a new production group, we can
easily fill up the positions. In the long term, the
survival of any factory in the labor intensive industry
depends on two things: one is a stabilized workforce;
the other is improved productivity. Without fair
working conditions, it’s impossible to achieve either.”
– Speech by Mr. Zhang, general manager of Ying
Xie, at a seminar hosted by the Chinese Ministry of
Commerce in Beijing, September 2006
Modern businesses must realize that their
employees are key assets. As SAI expands upon
this training model, it will continue working with
various global brands and factories seeking to invest
in better business models that include greater worker
participation. This project demonstrates one means
of making such an investment and realizing positive
returns to management, customers, and workers. The
key challenge ahead is to place such programs within
the broader context of good corporate citizenship
meant to improve business operations and further
development worldwide. The case of Ying Xie clearly
demonstrates that corporate social responsibility
is about more than philanthropy or public relations
campaigns. Instead, corporate social responsibility
can be better described as corporate citizenship that
sees both global brands and suppliers in developing
countries as key stakeholders in creating economic and
social value.
Corporate citizenship means looking beyond
short-term profits, but it does not mean undermining
the economic foundations of business. In fact, good
corporate citizenship policies can lead business
to prosperity, and a number of studies illustrate a
direct link between a company’s social record and
its financial performance.19 As the case of Ying Xie
shows, responsible businesses have a greater ability to
attract and retain quality employees, improve workers’
morale, transform worker-manager relationship from
antagonistic to cooperative, enjoy better reputation
among customers, and improve productivity through
better procedures and reduced overtime to satisfy
quotas. Even in countries such as China where the
rule of law is weak and enforcement leaves much to
be desired, local companies can voluntarily improve
their conduct and treatment of workers, and reap the
benefits of better labor relations and more profitable
operations. Good corporate citizenship makes sense
from a financial standpoint and it is a fruitful human
capital investment strategy.
See various CSR Wire reports on csrwire.com, Peter Roberts and
Grahame R. Dowling: “Corporate Reputation and Sustained Superior
Financial Performance” Strategic Management Journal 23 (2002):10771093, and performance of Dow Jones Sustainability Indexes http://
www.sustainability-index.com. See also Marjorie Kelly: “Holy Grail
Found: Absolute, positive, definitive proof CSR pays off financially,”
Business Ethics magazine, (vol. 18, no. 4, Winter 2004), summarizing
recent meta-studies demonstrating a positive correlation between
corporate social performance and financial performance.
19
The Case of Tata Steel
Including Contract Workers as India’s Integral Business Stakeholders
Eileen Kohl Kaufman
Executive Director, Social Accountability International
Executive Summary
Corporate sustainability is the 21st-century goal
for business; achieving it requires participation of
all functions within a company. Good corporate
citizenship involves not just responsibility for a
company’s managing its internal workplace standards,
but also for how those standards are reflected across
the company’s entire value chain. This case study
focuses on the experience of Tata Steel of India in
implementing the SA8000 workplace standard as a
systematic tool to improve policies and procedures
for contracted workers and the vendor companies
that supply them. Today, SA8000 concepts are
incorporated in the company’s everyday decisions
from supply chain management to workplace issues
Tata Steel is the flagship enterprise of a
98-company conglomerate. It is also one of the
largest SA8000-certified manufacturing facilities
worldwide. Consistent with its written code of
conduct and in compliance with national law, the
company also has a history of innovation in worker
benefits: decades before the implementation of the
SA8000 standard, it offered paid leave, an eight-hour
work day, medical care, and the ability to unionize.
The implementation of SA8000 allowed Tata Steel
to move a step further in responsible management
of its labor relations regarding a growing category
of employees: contract workers.
While the company has been a frontrunner in
securing proper workplace standards for its direct
employees, it discovered through the process of
SA8000 certification and audits that there were
significant areas for improvement in treatment of
contract workers. SA8000 implementation also
highlighted Tata Steel’s relationship with vendors
supplying contract work and illuminated the need for
improved contract management, vendor education,
and oversight.
Each subsequent SA8000 audit since 2004 –
certification, recertification, and surveillances – has
identified areas requiring change and the company has
built on these changes to integrate and harmonize its
policies and procedures for employees and contracted
workers. This continued effort to voluntarily improve
workplace standards makes Tata Steel – one of Asia’s
largest industrial enterprises – especially important as
an example of responsible business for other
companies.
As the structure of work arrangements around the
world changes and involves a growing use of contract
labor, many businesses face complex responsibilities
to indirect as well as direct employees. This report
shows how a company can successfully adapt to these
changes and make good workplace standards, for all
stakeholders, a business strategy that pays.
Changes in the Structure of Work:
Contract Employment
The landscape of the contemporary global labor
market is in constant transformation as companies
grow and shrink, borders blur, and supply chains
stretch through many countries. Across the globe,
business takes place in an environment of stiff
competition, and enterprises big and small find that
in order to function efficiently, they need to be able to
quickly adapt the size and composition of their labor
force. To face this challenge, many companies have
modified employment structures and increased use of
contract labor in order to gain greater flexibility.
The shift from traditional employment to shortterm work contracts is worldwide and affects workers
in many companies, especially in developing countries.
But the percentages are also growing everywhere;
the U.S. Bureau of Labor Statistics estimated a near
doubling of this percentage between 2001 and 2005,
to 8 percent of the work force. How does this trend
align with the undisputed fact that loyal employees are
a company’s greatest asset? How are workers affected
by changes in the structure of work and the growing
prevalence of contract employment? Is there a way to
promote good business along with fair treatment of
contract labor? The experience of Tata Steel illustrates
that ensuring adequate workplace conditions,
practices, and policies to protect contract workers is
not a charitable gesture – it is good business.
In mature economies, direct employees have
been a mainstay of the workforce, closely protected
by national laws that regulate hiring, firing and
benefits. These policies provide stability with an
implicit promise that hard work will be rewarded
with opportunities for advancement and continued
job security. Yet the number of people who can expect
this type of employment is declining as employers
turn to contract workers who are hired to perform
specific tasks for a finite period of time. Contract work
provides flexibility for employers, who regard it as a
way to expand or reduce their workforce as needed.
In turn, workers who have contract status may value
flexibility in hours and location.
Contract workers typically work for themselves
or for an agency which hires them out on a as-needed
basis to another company. Certain types of jobs,
although on site, are commonly done by contractors,
who work a few hours per day at several different
employers – for example, office cleaning workers.
Some specialized work is traditionally contracted, with
construction being a prime example. The contract
labor force has over time become diversified into many
categories:
independent contractors, freelancers,
on-call workers, contract firm workers, fixed-term
employee, private agency employees, temporary
agency workers, or seasonal workers.
Sometimes it is difficult to define what
distinguishes an employee from an independent
contractor. For instance, contract workers of
one company are often full time employees of its
supplier as is the case for many call centers, garment
manufacturers, or construction supervisors. The
U.S. Fair Labor Standards Act definition relies on an
‘economic reality test:’ a contractor is not economically
dependent upon the business, with five determining
factors being used, the degree of control exerted by
employer over worker, the worker’s opportunity for
profit or loss, the worker’s investment in the business,
the permanence of the working relationship and the
degree of skill required to perform the work. These
distinctions are not always clean-cut and the issue of
misclassification of workers is a concern for companies
employing contract labor.
Another way to think of contract workers is
simply as suppliers. A supplier is generally defined as
“a business entity [that] provides the company with
goods and/or services integral to, and utilized in/
for, the production of the company’s goods and/or
services.”1 Therefore, contract workers are a special
case of suppliers over whom the client enterprises
have responsibility and control in their workplace,
but without writing a direct paycheck. For instance,
international brand manufacturers of products ranging
from garments to toys to industrial components
commonly contract the production of their goods to
suppliers, often in a foreign country.
1
SA8000, 2008.
International Regulations and Voluntary Workplace Standards
Various international and domestic legal and voluntary frameworks seek to protect workers made vulnerable
by evolving employment practices throughout the world. The chart below summarizes selected international
standards that deal with various workplace issues. Although a number of countries have labor legislation specific
to contracting (among them India, Ireland, and South Africa), as the chart shows, few international standards
specifically address contract workers and their effectiveness often remains unclear.
Select International Workforce Regulations: An Overview
Standards & Laws
Responsible Entity
Purpose & Areas Addressed
Private
Employment
Agencies
Convention of
1997 [C181] and
Recommendation
[R188]
International Labor
Organization
Updates the 1949 Fee-Charging Employment Agencies Convention.
Seeks to clarify the obligations of private employment agencies to their
employees. Ratification, however, has been slow, with only 20 states
signed on as of 2007.
The Home Work
Convention of
1996 [C177] and
Recommendation
[R184]
International Labor
Organization
Addresses the work done in the home with workers being particularly
vulnerable and often invisible to regulators and regulations. Contains
specific initiatives to address home workers in some supply chains.
Employment
Relationship
Recommendation
of 2006 [R198]
International Labor
Organization
Seeks to simplify convoluted relationships between employers and
employees by encouraging states to formulate laws protecting workers
in an employment relationship, to determine the existence of an
employment relationship, and to have appropriate mechanisms defining
the employment relationship within the labor market.
1999 European
Commission
Council Directive
99/70/EC
European
Commission
Establishes a framework agreement on fixed-term work concluded by
ETUC, UNICE and CEEP.* Establishes minimum requirements relating to
fixed-term work in order to ensure equal treatment of workers and to
prevent abuse arising from the use of successive employment contracts.
Calls on member states to lay down penalties for infringements of
these requirements. Stipulates special clauses to limit administrative
burdens, which could ensue for SMEs from the application of these new
standards.
Apart from the aforementioned international standards, a number of voluntary, multi-stakeholder, and singleindustry initiatives that address supply chain issues directly deal with the supplier/contractor concerns. Among
these are the Ethical Trading Initiative (ETI) Base Code, the Fair Labor Association (FLA) Work Place Code of Conduct,
the Multi-Fiber Agreement (MFA) Forum Collaborative Framework, the Joint Initiative on Corporate Accountability
and Workers Rights (JO-IN) Common Code, the Electronics Industry Code of Conduct (EICC), the Toy Industry Code
of Conduct – International Council of Toy Industries (ICTI) CARE Process, and the Social Accountability International
(SAI) SA8000 Standard.
*European Trade Union Confederation (ETUC), Union of Industrial and Employers’ Confederations of Europe (UNICE), the European
Centre of Enterprises with Public Participation (CEEP).
The global expansion in the use of contract workers
raises human rights issues and workplace standards
concerns. As compared to direct employees, contract
workers often experience discrimination, receive less
compensation, and have less job security. Companies
striving to survive in today’s competitive markets are
too often tempted to seek cost-cutting measures by
treating their contract workers in an inferior way. The
challenge is to demonstrate to business leaders around
the world that adhering to internationally accepted
workplace standards for direct and contract workers
alike is worth the investment.
Conducting a Socially Responsible
Business: The Case of Tata Steel
India’s Contract Labor [Regulation and Abolition]
Act of 1970 is the key national regulation on workplace
practices and applies to every establishment or
contractor with over 20 employees. The law addresses
a limited range of procedural issues, especially the
manner of paying wages, but does not have substantive
requirements on working conditions for contract
workers. It also defines, as do U.S. regulations, the
conditions under which contracted workers are
entitled to the benefits offered permanent employees.
Like many other developing markets, the structure
of India’s labor laws, which are generally protective of
workers and worker tenure, are often weakly enforced.
Within this context, Tata Steel, one of India’s largest
businesses, decided to undertake voluntary action to
manage and ensure proper workplace conditions for
its suppliers and contractors. The company used the
SA8000 standard and SA8000 certification as tools to
accomplish that goal.
3 percent of India’s GNP. With the acquisition of
Anglo-Dutch Corus, the company is not only the
largest private sector steel company in India, but will
also have the sixth-largest output in the world with
28 million tons produced annually. Revenues for
Tata Steel alone in 2007 were around $5 billion. As
the company’s significance in the Indian economy is
growing, so can its influence in demonstrating business
benefits of voluntary compliance with international
workplace standards.
The Tata Group has long been known for its
responsible business practices, a tradition traced back
to the company’s early ideals articulated by its founder,
J. N. Tata back in 1895, in a broad statement showing
that ‘stakeholder’ is not a term or concept of recent
vintage: “In a free enterprise, the community is not
just another stakeholder in business but is in fact the
very purpose of its existence. We do not claim to be
more unselfish, more generous and more philanthropic
than others. But we think we started on sound and
straightforward business principles, considering the
interests of the stakeholders, our own, and health and
welfare of our employees – the sure foundation of our
prosperity.”
“The company was founded with the philosophy that
the prime purpose of all enterprises is to improve the
quality of life of the society and it has done so in the
last 100 years.” – Managing Director B. Muthuraman
at Centenary Celebrations, January 2008
Tata Steel is the 101-year-old flagship company
of the Tata Group, which as a whole represents about
Today, the Tata Code of Conduct, revised in the
1990s, is quite comprehensive and includes clauses
guaranteeing equal, dignified treatment of employees
and maintaining a work environment free from all
forms of harassment.2
Like many companies, Tata Steel is dealing with
changes in the global business environment and their
effects on its business. It serves as an exemplary model
of a company that has sought to manage changes in
the structure of work and an evolving workplace
environment.
The Tata Steel facility in Jamshedpur, India has
a history of innovation in successfully managing
Tata Steel’s main gate
2
http://www.tatainteractive.com/pdf/TIS_TCOC.pdf .
relations with workers and the community. In early
2005, it was the first integrated steel company in
the world to receive SA8000 certification (by Det
Norske Veritas, a Social Accountability Accreditation
Services-accredited certification body). Since SA8000
certification, diverse departments of the company
have modified and initiated policies and procedures,
based on needs identified in the SA8000 audit
and management processes, to bring supplier and
contractor performance more in line with the Tata
principles. The company, which has made vigorous
efforts to ensure an ethical workplace, found the
structured approach of SA8000 certification useful for
identifying needed improvements and driving their
implementation.
As a part of the certification process, Tata Steel
created the 19-member SA8000 Management
Review Committee, which oversees all aspects of
SA8000 implementation. As specified in 2005, the
committee is responsible for “continual improvements
in working conditions, employee empowerment and
positive supply chain interventions, in keeping with
the company’s legacy of corporate citizenship.” The
committee oversees SA8000 implementation and
it is led by the two SA8000 representatives, the vice
president for corporate services and the president of
the Tata Steel Workers Union.
“We are one of the largest certified manufacturing
facilities worldwide. SA8000 concepts are
incorporated in our everyday decisions from
supply chain management to workplace issues.
Tata Steel has led by example throughout its
history and it is heartening to share with other
corporations and industries to create a wider impact
in labor standards.” - Partha Sengupta, Tata Steel
vice president of corporate services and SA8000
management representative
During committee meetings, members review
supply chain performance and follow up on vendor
requirements to meet SA8000 standards. Certification
audits review the committee’s performance and its
meeting agendas for effectiveness, and issues raised at
audit have prompted procedural changes.
Contract Workers at Tata Steel
In 2008, there were 12,511 permanent steel
works employees, 8,195 non-construction contracted
workers, and 16,000 construction workers at
Jamshedpur. Permanent employment is much lower
than it was 20 years ago, highlighting the rising
importance of contract labor.
Construction workers constitute the largest
group of contract workers at Tata Steel; two large
subcontracting companies employ most of these. An
SA8000 audit found that these subcontractors were
not fully compliant with government regulations and
Tata Steel’s SA8000 policies. These findings prompted
significant changes in Tata’s oversight of contract labor
suppliers’ practices as well as its own.
In response to the audit, the company developed
action plans to address noncompliance. Changes
related to contract work management were
subsequently made in a number of departments,
including procurement, contractor management,
training, and health and safety.
The number of contracted construction workers
varies depending on projects. The current construction
project at Tata Steel involves the expansion of the
steel mill, where contract construction personnel and
permanent employees work on the same premises.
SA8000 audit reports identified non-compliance
with respect to the requirements for these and other
categories of suppliers, showing that both large and
small contractors required added supervision, training,
and monitoring to comply fully with national contract
labor law and with SA8000. At the same time, few
issues were found regarding permanent employees.
This discrepancy illustrates that even with its
longstanding dedication to forging strong workermanagement relationships, Tata Steel needed new
or enhanced procedures to address the issues raised
by an influx of contract workers. The company has
already made progress and defined new procedures
since it undertook certification and opportunities
for improvement continue to be identified in the
recertification and surveillance audits. The challenge is
Tata Steel: A History of Socially
Responsible Business
Tata Steel’s commitment to corporate social
responsibility, sustainability, and community
responsibility is a long-standing and essential element
of the Tata Group’s identity. The company instituted
policies such as an eight-hour work day (1912), leave
with pay (1920), and pension scheme (1983) decades
ahead of local industrial practices and national
legislation. Labor relations have been managed with
success and the unionized facility has never had a
strike. The mill’s environmental performance is at a
high level as well.
Services provided by Tata Steel to the community are
extensive, given that Jamshedpur was India’s first
planned industrial city and the Tata plant located there
was the first such integrated facility in the country. In
1979, Tata Steel Rural Development Society (TSRDS)
was established to assist in irrigation, agriculture,
safe drinking water, basic healthcare service,
forest protection, youth and women’s development
programs and so on. Currently, Jamshedpur Utilities
and Services Company Limited, affiliated with Tata
Steel, is responsible for the sustainable development
and management of the city, its infrastructure, and
municipal services. Tata also remains committed
to improving its workers’ quality of life beyond
the workplace by providing recreation areas, sport
facilities, learning opportunities, and entertainment.
The company’s corporate sustainability protocol*
further addresses key stakeholder concerns through
the formulation of policies that provide organizational
direction on the issues such as guidelines for alcohol
and drug use, control of HIV/AIDS, human resources,
corporate social responsibility, environmental as well
as occupational health and safety hazards, and social
accountability.
Tata Steel has received numerous awards related to
corporate responsibility. Between April 2006 and
March 2007 these were: Best Governed Company
Award (Asian Centre for Corporate Governance), Asia’s
Most Admired Knowledge Enterprises Award (fourth
time), and the Confederation of Indian Industry CII-ITC
Sustainability Award. In November 2008, it became the
first integrated steel company in the world, outside of
Japan, to be awarded the Deming Application Prize for
excellence in total quality management.
* www.unglobalcompact.org/data/ungc_cops_
resources/0E897886-6C51-4676-9814-AB8E6ED5A6F7/COP.
doc.
to move beyond making only the easiest changes, and
to comply fully with the SA8000 requirements in the
spirit of the Tata Steel Business Excellence Model.
The SA8000 management committee guides these
efforts and ensures that all parts of the company use
SA8000 as a tool for sustainability. Tata Steel’s Senior
Manager for Business Excellence, Priyadarshini
Sharma, sees it as a pervasive program: “SA8000
complements the structured process improvement
approach in Tata Steel. It has strengthened due
diligence throughout the supply chain with
deployment of tools such as the audit protocol
especially developed by procurement in the course of
implementation.”
As described in the following section, pairing
SA8000 with follow-up on audit findings spurred
changes in Tata Steel’s contract worker practices
regarding training, pay practices, food provision, health
and safety, procurement, and contract management.
Two departments were particularly instrumental
in bringing about those changes: the Procurement
Division, responsible for contracting and creating a
model for contracts governance, and the Contractor
Cell staff, which oversees Tata’s construction and other
contracts for SA8000 compliance.
Procurement Division
In light of SA8000 findings, the procurement
staff took key steps that included meetings with
new vendors to familiarize them with the company’s
workplace standards, development of a framework
for auditing vendors, and training staff on using that
framework.
Apart from the two companies that supply the bulk
of the company’s contract workers (i.e. construction
workers), two hundred vendor companies supply Tata
Steel with about 8,000 non-construction contract
workers. The top 93 vendors account for 70 percent
of these employees. The largest job categories are
electrical and mechanical maintenance, cleaning,
transport, IT, and building repair and renovation.
Familiarization meetings for vendors are an
integral part of the procurement process for these
workers. During these meetings with prospective
contractors, Tata management explains the role of
SA8000 as a system for investing in human resources
Tata Steel’s SA8000 Vendor
Compliance Timeline
The Procurement Division documented the SA8000assisted compliance process that started in 2004.
The following outlines the corrective and preventive
actions taken in response to the incidents of noncompliance or opportunities for improvement
identified by certification audit teams over the years.
In 2004-2005:
• Conducted awareness training for vendors
• Obtained written commitment from vendors for
SA8000 adherence
In 2005:
• Made vendor commitment to SA8000 clauses
mandatory
• Blocked vendors that did not make a commitment
from further business
• Modified the Registration and Vendor Assessment
Form for Service Providers to Tata Steel to include
SA8000 clauses*
• Implemented process for auditing vendors, using
an audit protocol developed with assistance of
certification auditors
• Completed first 10 SA8000 supplier audits
In 2006-2007:
• Engaged external professional body for auditing
vendors per the audit protocol
• Completed 30 external audits
• Designed a penalty framework based on the key
findings of the external audits
In 2007-2008
• Implemented penalty framework
• Established comprehensive supplier audit plan
with timelines
• Completed 53 external audits [totaling 93] by
April 2008
• Completed 75 additional external audits in 2008
• Instituted regular meetings in small groups of
vendors to improve their focus on SA8000
* The added section is called “Check list for system review
for SA8000 – suppliers/contractor/sub-contractors”
and requires: target dates for actions for sections not in
compliance, wages in compliance with the state minimum
wage act, and minimum worker’s age of 18. It also includes
most of the management systems requirements of SA8000.
and managing business risk. In doing so, Tata presents
the value proposition of SA8000 compliance to its
subcontractors, demonstrating the tangible business
value of maintaining good workplace practices for
contract workers.
A number of changes have also occurred in systems
for supplier qualification and oversight. Vendor
qualification applications as well as vendor training
and audits have been enhanced to encompass SA8000
requirements.
Audits provide Tata Steel with needed information
to monitor compliance and the company shares
audit findings among vendors. The Procurement
Department’s goal with suppliers is to have them
benefit by receiving information they lacked,
allowing them to correct their shortcomings due to
a previous lack of knowledge and thus avoid fines or
disqualification.
The department sees this process as a transfer
of learning to the vendors on the benefits of better
workplace standards for the contract employees they
manage. For instance, Tata’s vendors were initially
resistant to health checks for workers, seeing them as
an extra burden. Their attitude changed when they saw
that the exams helped ensure that workers are assigned
to a job that they can perform successfully and safely.
Cited frequently is the utility of a vision and color
blindness test for potential drivers.
Contractor Cell
The largest number of changes to improve SA8000
compliance among Tata’s contract workers has taken
place in the department that oversees construction
contractors, the Contractor Cell. Several processes
and workplace areas were changed as a result of issues
identified during the implementation and subsequent
audits.
Canteen. Audits consistently raised concerns that
food services were not fairly and adequately provided
to contracted workers. The latest SA8000 surveillance
audit (2008) reports successful implementation of
improvements in this area, including construction of
several contractor canteens, mobile food provision
at sites too far from the canteens, and improved food
quality. Specific upgrades of sanitary and drinking
water facilities and canteen hygiene also occurred in
response to these issues being flagged at certification
and surveillance audits. Workers interviewed in the
course of this study reported their satisfaction with
food services and the canteen’s condition.
Pay days. Systems for ensuring the payment of
monthly wages to contract workers have been
streamlined and systematized. Tata Steel staff verify
payments by the vendors to their contract workers on
payment day each month. A staff member verifies that
payment reports are filled out, cross checks the
employees’ attendance ticket to ensure that the amount
agrees with the days and overtime worked, spot checks
pay envelope contents for correct amounts, and
randomly asks workers about their understanding of
wage calculation and deductions.3 This supervision of
payments is required by the 1970 contract labor law,
but its implementation at Tata Steel has been
significantly upgraded and tightened since the initial
SA8000 certification audit identified the need to
do so.
Grievance mechanisms. The SA8000 audit revealed
grievance mechanisms for contract workers as
inadequate and poorly defined. In order to improve
this situation, Tata steel provided more information
about the accessibility for contract workers to the
company’s Ethics Counselor. In September 2006, it
instituted an open door policy at the Contractor Cell
for complaints about pay, and required contractors
to document and report on complaints received.
As discussed below, special provisions were made
for one common grievance about calculation of
final settlement payments upon termination of
employment. Also, contract workers now formally
receive information about grievance procedures, based
on an audit finding that half of them were unaware of
the systems in place, such as the Ethics Counselor.
Final settlement payments. A 2005 SA8000
surveillance audit discovered the need for added
controls in final settlement dues. Now, in cases of
dispute, final settlement dues – pay owed by the past
employer – are paid in the presence of a Contractor
Cell staff member who co-signs the receipt as having
witnessed that the payment was made and that the
amount was correct. This payment also includes the
3
There are statutory deductions for the Provident Fund and
Employee State Insurance.
“Tata Steel’s Certification of SA8000 as the first
integrated steel company in the world not only
reinforced the implementation of statutory provisions
with respect to contract laborers, but also embarked
on a number of activities such as imparting skill
enhancement training with a view to raise their
employability or inculcating a sense of confidence by
providing an effective grievance mechanism. This may
set an example for other companies to emulate in the
fast changing global industrial scenario.”
– Contractor Cell
annual bonus of 8.33 percent and any amounts owed
for overtime, unused leave time, attendance, or the
Provident Fund.
Gate passes. Gate passes have been corrected for
accuracy to indicate when personnel are allowed
on site. Admission requires both a general pass and
a separate pass indicating that each worker’s safety
training is current.
Overtime. Audits revealed the need to implement
new procedures to ensure conformity with SA8000
standards prohibiting excessive overtime after
discovering that one canteen contract employee
was working seven days a week and a construction
contractor was missing documentation on his
overtime.
“Reaching-Out.” This is the key ongoing workplace
improvement program at Tata Steel that consists
of auditing on-site contractor practices and offices.
The three-part audit incorporates “reach-out,”
safety observation, and establishment audits. All
three are now regularly taking place. If the “reachout” inspection identifies missing documents or
discovers inadequate processes, the Contractor Cell
representative issues a letter citing non-conformances.
These frequently concern document retention,
personal protective equipment (PPE) and other
requirements. As mandated by SA8000, corrective
actions need to be defined within 15 days. Barring
grounds admission to the violating contractor
company is Tata Steel’s most cited sanction.
In February 2008, for example, there were eight
two-hour “reach-out” inspection visits. Each visit is a
three-part audit addressing discrete areas:
workers who do not see any reason to truly apply
themselves to the entrusted tasks.
Contracted construction workers’ training and
awareness program for women
• “Reaching-out” verifies that workers have
employment and employer-sponsored insurance
cards, that monthly wages are paid properly and
in the correct location, and that the contractor
maintains proper records.
• The Safety Observation checks to see if the
employer is providing personal protective
equipment and that the equipment meets specs.
• The Establishment Audit checks to see if the
documents and records required at the site office
are in fact available.
Improved Health, Training, and Safety of
Contract Workers
In the course of implementing the SA8000
standard, Tata Steel realized that extending proper
employee services and on-the-job protection to its
contract workers is not only an essential element
of living up to the company’s own ethical standards,
but also an integral part of improving its business
operations. Well-trained and healthy workers
provided with safe working conditions can perform
with higher productivity, which translates into a real
benefit to business. What is more, even though they
are not permanent employees, contract workers who
are treated according to the same standards develop
respect and loyalty for the company to which they
are contracted. Consequently, they are more likely to
be more effective workers than ill-treated temporary
Health. Tata Steel was a pioneer in healthcare
provisions for employees and their families, with
many policies long predating national law. In
2006, a system to ensure contract worker health
checks was introduced, and in response to the 2007
SA8000 certification audit, additional policies
were introduced to better provide contract workers
with health checks. All categories of workers now
receive occupational health checks, contract workers
undergo vision screening, hearing tests, and blood
typing, and screening is to be offered to their families
as well. As noted before, the company tests for color
blindness and, if indicated by the health check, a
color-blind person can then be assigned a job where
their condition will not be a handicap. To date, 35,000
contract workers have been checked. Starting in 2007,
two-day sessions promoting the health of working
women have also taken place, educating 600 contract
workers as of mid-2008. Some of the contractors’ firms
pay some session costs; others are entirely covered by
Tata Steel.
Training. Probably the most extensive and
important changes in the management of contract
workers are in the training category. The training
program informs employees about their rights at
work in response to audit findings that indicated
knowledge gaps. Sessions cover legal rights, worker
safety, health awareness, and others. For many of
the contract construction workers, working for Tata
Steel is their first formal employment. This lack of
formal work experience puts a premium on the need
for and usefulness of the training programs. SA8000
requirements led to the addition of several kinds of
contract worker training at Tata Steel.
Safety training. Improving workplace safety in
particular requires the participation of all worker
categories. In order for a workplace to be safe, all
workers need to wear their protective equipment,
but they also need to recognize and alert others to
dangerous or unsafe situations. SA8000 auditors
found that contracted workers lacked knowledge
of the safety problem reporting system, so training
was added in 2005. The Rotary Club Labour Training
Centre, located on the company’s grounds, delivers
the training paid for by contractors. Tata anticipates
expanding this program in cooperation with Rotary to
other sites in India and perhaps internationally. Upon
completion of a three day-safety course, workers are
issued a training card, valid for one year, which must
be shown for admission to the company premises.
An annual half-day refresher course is required to
renew gate passes, which includes topics such as
social accountability requirements and safe behavior.
The center plans to add services such as provision of
eyeglasses, if needed, and to add technical training for
contractor workers in driving, welding, and electrical
skills.
Going Forward: Lessons Learned from
Tata Steel’s Experience
The Rotary Club Labour Training Centre, a joint venture
of Rotary International and Tata Steel
has been expanded to include this topic. Tata further
promotes worker awareness of safety and rights at work
at monthly meetings in the Jamshedpur town stadium,
at induction trainings, and via materials handed out to
workers describing their benefits and rights.
Specialized training. Contract workers who drive
trucks within the Tata Steel compound as well as those
who drive for the company outside of its premises
received special safe driving sessions. Other specialized
and advanced safety training courses take place after
work at the company’s training center. They are meant
for supervisory personnel of construction contractors.
One course, for example, covers safety in rigging;
1,200 people are expected to attend in 2008. The
center also provides community training programs
such as a six-month residential program that prepares
youth from tribal areas outside Jamshedpur for
competitive school exams.
Safety training partnership with Rotary
International. In February 2003, Tata Steel, its
contractors, and Rotary International established a
safety training partnership, to which SA8000 training
Although construction workers on site make up
the majority of the participants in Tata’s programs for
improving workplace conditions for contract workers,
the company’s experience also applies to vendors and
longer-term contract workers. After 2010, the current
construction site of a new steel mill will be complete
and most construction work will cease. The policies
and procedures that Tata instituted for choosing and
managing any future contract work will remain in
place and can be used at other sites as well as with new
vendors.
Contract construction workers’ canteen
The importance of contract work for Tata Steel
and other large companies has been growing over
the years. In fact, during the current construction
period, the company has comparable numbers of
contract personnel and steel production workers.
Contract workers have become one of the company’s
key internal stakeholders and must be treated as
such in order to ensure effective business operation.
Fulfilling an employer’s responsibility for all its
workers, including contracted ones, is a major issue
for every business in today’s global economy. Even
Tata Steel, a company that strives to always be aware
of and responsive to its stakeholders, discovered that
meeting specific SA8000 clauses and responding to
non-conformances identified in audits can be a useful
lesson on how to improve its existing programs and
procedures.
The final lesson concerns the need for continuous
improvement. At Tata Steel, contract workers could
be involved in additional activities and benefits
available to direct employees, such as community
initiatives or recognition programs that help
workers stay engaged and motivated. This means
that extending various aspects of good workplace
standards to contract workers – and, in turn, tapping
the benefits to business brought by this inclusion –
requires continued attention and cooperation among
the company’s departments and between the company
and its vendors. The SA8000 Management Review
Committee in particular seeks to build an ethical
supply chain based on binding regulation, company
values, and SA8000 standards. By using the building
blocks of specific programs and solutions developed
in the process of attaining SA8000 compliance, Tata
Steel can continue to improve its internal stakeholder
relations and be an example of good corporate
citizenship to others.
Conclusion
Contracting constitutes a growing category of
employees and has been gaining economic significance
around the world with the expansion of global value
chains, and the inadequacies in treatment of contract
workers require specific attention in developing
countries, such as India, where they are in the greatest
demand – and remain the most vulnerable.
The SA8000 certification system has been a
useful tool for identifying needed improvements in
management systems and service delivery in fulfilling
Tata Steel’s responsibilities to its contract workers.
At the same time, the company’s management
recognized that improving working conditions for
contract workers is a two-way street: it is not just
another addition to the cost of labor, but rather an
investment in workers’ productivity, and also higher
job satisfaction. All those interviewed at the company
during the course of this study report that the
certification structure and the SA8000 management
systems have added value to their work. Better
workplace standards prescribed by SA8000 are well
worth adopting voluntarily not just as a matter of
ethical business conduct, but above all as an integral
element of good business strategy.
Tata Steel has long been India’s frontrunner in good
corporate citizenship, making the concerns of workers
and the community an integral part of its business
operations. Given its history, size, and reputation,
Tata Steel has significant potential to demonstrate the
beneficial influence of adopting SA8000 in India and
beyond. Improvements to its vendor management
system, as well as contract workers’ safety, health, and
training prompted by implementation of SA8000,
offer examples and guidance for other companies
seeking effective approaches to meeting workplace
standards. In addition, Tata’s suppliers of contract
work – thanks to the company’s greater involvement in
overseeing their operations – have understood that that
worker training and health are valuable investments,
and may share their experiences with other contracting
companies.
The Experience of Topkapi Iplik
Better Workplaces in Turkey through SA8000
John Tepper Marlin
Principal at CSRNYC
and Adjunct Professor of Business Ethics at New York University‘s Stern School of Business
Executive Summary
Proper workplace standards are widely enshrined
in labor laws worldwide. However, the reality in
many developing countries is that a large gap remains
between the laws and their implementation. Operating
in the environments of weak rule of law and great
competitive pressures, businesses often perceive such
laws as costly and time-consuming, and question
whether their investment in improved workplace
conditions will reap a return, especially if their
competitors do not comply. As long as compliance
with mandatory standards translates into a competitive
disadvantage, individual businesses will be slow to take
action.
Stricter laws, under these conditions, are not the
solution. The challenge is to move the standards from
paper to workplace. This will happen if businesses
see palpable benefits from workplace improvements.
If they do, they will implement them voluntarily.
SAI SA8000 system is a tool created precisely for this
– to facilitate and encourage the implementation of
international labor standards.
This study reviews the implementation of SA8000
by Topkapi Iplik, a large Turkish yarn manufacturer.
It focuses on how and why the company voluntarily
sought compliance with the SA8000 standard and why
adherence to this standard turned out to be a sound
business strategy.
Topkapi Iplik’s management decided to pursue
better labor conditions through the SA8000
certification for long-term benefits, not short-term
gain. While management initially felt that the changes
required to meet standards would have an adverse
effect on operating costs, these fears disappeared when
audits found no such effects and instead revealed
tangible benefits.
The success of SA8000 implementation changed
the company’s outlook on workplace standards,
moving it toward more mature industrial relations
and better corporate citizenship. Topkapi Iplik now
regards these standards as integral to its business and to
presenting a brand identity that appeals to consumers
who prefer to purchase products from companies
that demonstrate a commitment to worker rights,
health, and safety. The factory was the first SA8000certified facility in Turkey and the management has
assisted other companies in exploring the potential for
certification.
Topkapi Iplik already has preferred access to some
European and U.S. garment manufacturers and brands
because it is certified with SA8000. If and when
Turkey becomes part of the European Union, the
company will have preferred access to an even greater
market for consumers seeking organic cotton yarn
and certified workplace standards. The major question
relates to the overall competitiveness of Turkish
manufactures in a very cost-sensitive industry and
global environment. This study shows that compliance
with SA8000 is a sound business practice for ensuring
access to upscale western markets and that workplace
standards can bring measurable business success and
societal improvement to factories in less industrialized
countries.
Background: Turkey’s Economy and
Labor Conditions
The Challenge of Promoting Workplace Standards
Ataturk’s secular state has had the continued
support of Turkish citizens in part because they have
seen the economic benefits it has brought. Turkey
has witnessed economic growth averaging close to
7 percent per year into 2007, yet global competitive
forces and the global recession in late 2008 have put
strains on the country’s economy and may complicate
or delay the adoption of better workplace standards.
In order to boost international competitiveness, Prime
Minister Recep Tayyip Erdoğan has set the country
on the path of aggressive privatization of public assets.
Many see privatization as detrimental to workers’ job
security, though this security is already threatened by
the fact that labor costs of surrounding countries are as
low as one-fifth of Turkish wages.
The government also complicates matters by taxing
employment heavily, which leads to a large informal
sector. According to the Turkey Statistics Institute, out
of the 21.4 million people employed within Turkey,
46 percent are unregistered informal workers. Both
Turkish exporters and the government are eager for
membership in the European Union. Belonging to
the EU presents a great potential to expand trade, but
requires that member countries promote good working
conditions. The key challenge for Turkish companies is
to demonstrate a commitment to workplace standards
consistent with EU expectations while controlling
labor costs and maintaining enterprise profitability.
Apparel: Backbone of the Turkish Economy
At the center of Turkey’s economic growth is the
textiles and apparel industry, which accounts for
$24 billion of 2007 exports, 20 percent of all exports,1
and an estimated 36 percent2 of Turkey’s industrial
employment.
The industry is challenged by the country’s high
rate of inflation, especially as it affects combined labor
www.rbwf.org/2008/rio/Yorukoglu.ppt.
2
http://www.turkishembassy.org/index.php?option=com_conte
nt&task=view&id=228&Itemid=278.
1
costs and taxes. The Joint Initiative on Corporate
Accountability and Workers Rights (JO-IN)3, a group
of international non-governmental organizations
examining workplace conditions in Turkey, calculated
that apparel workers cost employers directly 594
YTL (New Turkish Lira) per month in 2005; yet
after payroll taxes, workers received just 350 YTL.4
Employers say they pay another 100 YTL a month
for lunch and travel allowances. Labor costs are rising
rapidly – the Turkish minimum wage rose more than
50 percent from 2001 to 2005. However, inflation was
8.5 percent in 2007 and Turkey’s trade unions argue
that the minimum wage is still far below what they
believe to be an appropriate living wage.
Turkey’s apparel sector is vulnerable to growing
labor costs because of intense cost competition from
countries at an earlier stage of development. Export
growth slowed to 7.5 percent in 2008 from 12.3
percent the year before, indicating a large impact on
the economy since apparel is such a large percentage of
total GDP. The high level of foreign direct investment
– expected to reach about $25 billion for the year –
means that the Turkish lira may strengthen further and
make exports more expensive to buyers. Meanwhile,
the volatility of the lira5 increases the risks of trade
with Turkish suppliers.
Turkey is challenged to grow its textile exports
without suppressing wages or compromising on labor
conditions. Recognizing that EU-based customers
may be willing to pay a premium for products that are
certified to have been manufactured under superior
workplace conditions, SA8000 may provide Turkey’s
apparel industry a needed competitive edge.
Current Labor Conditions
Labor conditions in the Turkish apparel industry
vary greatly among facilities. Small and mediumsized factories face heightened job insecurity in a
competitive international market. Workers must often
cope with the twin hardships of unsteady employment
and extended working hours. Although Turkish labor
www.jo-in.org.
1 YTL = .61 USD (Accessed on January 29, 2009 at xe.com).
5
http://www.tititudorancea.com/z/euro_to_try_exchange_
rates_new_turkish_lira.htm.
3
4
legislation defines the legal work day at 7.5 hours and
the work week at 45, hours ebb and flow considerably
during periods of heavy production and light demand.
Businesses often take advantage of government
stipulations regarding flexible work weeks, and
protections only apply to registered workers. While
unregistered operations and the employment of
unregistered workers are illegal, enforcement and
inspections are virtually non-existent because the
Labor Ministry is understaffed.
Another pressing issue regarding labor conditions
in Turkey are the limitations placed on the ability
of workers to unionize and collectively bargain.
According to a 2004 JO-IN report, out of 9 million
workers with labor contracts, only 1.3 million were
in collective contracts. While Turkish law permits
workers to unionize, they must be currently employed
and registered to be able to participate or establish a
union.6 Registration occurs at a government office
and takes time. Additionally, a labor union can only
negotiate a collective bargaining agreement if it
represents at least 10 percent of the workers employed
by the industry sector and has registered more than
50 percent of the workers employed by a facility.
These conditions restrict collective bargaining to an
extremely small number of associations.
The Muslim Dimension of a Just Workplace
In addition to secular laws, Islamic Law, Shari’a,
governs business in Turkey and other Muslim
countries.7 Modern interpretations of the Quran
argue that a business operated in accord with Islamic
belief pays special attention to certain warnings by
the Prophet Muhammad against exploitation, and
attempts to establish a just society within the business.
For example, the Quran says: “O ye who believe! Do not
squander one another’s wealth in vanities, but let there
be amongst you traffic and trade by mutual good will.”
(Quran, 4:29)8
A representative from the Pakistan Ministry of
Commerce at Social Accountability International
Trade Unions Code no. 2821.
7
Called Sharia in Arabic and Shariat in Farsi, Hindi, Turkish,
and Uzbek.
8
Accessed from http://makkah.wordpress.com/positive-quotes/.
6
(SAI)’s 10th Anniversary Conference, for instance,
argued that SA8000 could be viewed as implementing
Islamic law and beliefs. For an observant Muslim
business executive, certification with SA8000 has the
added value of serving as a secular verification of the
faith-based justice of a company’s workplace.
By some interpretations, Shari’a may conflict
with secular values of corporate citizenship and
International Labour Organization conventions.9
But exemplary companies such as Topkapi Iplik
demonstrate how Shari’a may provide motivation
to seek SA8000 certification. Topkapi is not the only
Turkish facility to report positive outcomes from
SA8000 certification. Two other firms were early
leaders in introducing SA8000 certification into
Turkey, Alarko-Carrier, a worldwide manufacturer and
distributor of heating and cooling technologies, and
Yeşim, the country’s largest apparel exporter.
Alarko-Carrier and Yeşim:
Two Other SA8000 Pioneers in Turkey
The Case of Alarko-Carrier
Since its establishment in 1954 Alarko Sanayi ve
Ticaret A.Ş. has been operating in the fields of heating,
cooling, air conditioning, water purification, and
pressurization. In 1998, the company established
an equal partnership with Carrier, a world leader
in its field, and the company’s name was changed
to Alarko Carrier Industry and Trade Co. Inc. The
company originally implemented SA8000 and
initiated the certification process because it wanted to
harmonize the company’s labor policies with industry
best practices and to formalize its corporate social
responsibility culture in an integrated management
system. The initial assessment was carried out in
December 2004 and the certificate was awarded in
April 2005. The company reports that the initial effort
of implementing SA8000 was not great because it was
able to build on existing management systems under
three other international standards – ISO 9001, ISO
9
This may be seen in the recent religious-secular crisis in Istanbul
universities, where secularists wish to continue to forbid
headscarves as a sign of liberation from religious influence,
whereas observant Muslim women believe they are excluded
from attendance by this prohibition.
14001, and OSHAS 18001. (This also shows the
importance of the management system element of the
SA8000 standard.)
At the same time, implementing this new standard
brought significant benefits. The plant director for
Alarko, Murat Copur, lists the following gains from
implementing SA8000:
• With certification, the company now understands
the full range of issues regarding its quality,
environmental, health and safety, and social
responsibilities.
• By involving employees, subcontractors, and
technical services professionals, SA8000 made
Alarko a company they want to work for.
• The certification process resulted in improved
customer service.
The Case of Yeşim Tekstil
Yeşim is Turkey’s largest textile/apparel employer.
Founded in 1983, it employs about 5,000 people in
a 240,000 square-meter facility. It is a fully integrated
textile facility, performing all production processes
from knitting, dying, printing, and finishing to labtesting finished products. The company has a daily
capacity of 250,000 pieces of in-home textiles and
clothing. Yeşim’s customers include Gap Inc., Nike,
Inc., Tchibo GmbH, Esprit International, Hugo Boss,
Lands End, Zara International, Burberry, and Eddie
Bauer.
“‘Never forget that the employees working for
you are people and treating them properly is your
responsibility.’ This advice, given to Sükrü Sankaya,
one of our founders, by his father when he entered
the business world, is the foundation of our ‘people
first’ principle.” - Yeşim Tekstil, Turkey, 2006 report
The plant was certified with SA8000 in 2005 by
Intertek Testing Services. In 2006, JO-IN engaged
European and U.S. brands and six of their Turkish
suppliers in a trial project to test ways to improve
working conditions through codes of conduct. The
project assessed compliance to the JO-IN Common
Code at the factories of these six suppliers. Like the
other suppliers, Yeşim was assessed by the JO-IN
team in early 2007 and was found almost entirely in
compliance with the JO-IN Code – markedly better
than the other garment factories participating in the
project. Yeşim was the only participant certified with
SA8000. Yeşim recognized the fundamental right of
freedom of association: it had a trade union. It was also
paying a living wage, was not double-booking orders,
had the strong support of the chief executive officer for
improving workplace conditions, and had no reported
worker rights violations. Still, implementing SA8000
added benefits for both workers and management.
The company had initial concerns about potential
costs related to certification, such as possible delays in
business operations and slower delivery if certification
prevented extensive overtime; loss of flexibility to meet
customer needs without becoming non-compliant;
costs related to the monitoring system to control
overtime; or problems associated with the need to
shift extra work to subcontractors and costs related
to monitoring their practices. These initial concerns
evaporated as Yeşim achieved expected benefits; and
ultimately, there were no delays or problems related to
curbing overtime.
Benefits of SA8000 to workers. Yeşim’s employees
reported numerous improvements as a result of the
company’s certification. Long-term workers, for
instance, emphasized the value of decreased overtime
(or no overtime), greater attention to health and
safety, augmented training, enhanced communication,
and access to management about concerns. Workers
noted that their opinions are now sought more than
before and the management much more frequently
asks workers for suggestions on how to improve the
production process.
Benefits for management. The company’s
management has found it highly advantageous to
have a third-party-driven social compliance plan and
a systematic approach to responsible and sustainable
business practices relating to subcontractors. SA8000
certification also provides a credible reference for
customers concerned with workplace issues, proper
recognition of Yeşim’s achievement, and new orders.
Therefore, SA8000 became an integral part of the
company’s management system and a helpful business
tool.
“Our performance [prior to SA8000 certification]
was badly affected by overtime. This was especially
stressful from female workers’ point of view. We
used to face problems in our private lives because
of staying at work longer than planned.” – Apparel
cutting room worker, 12 years at the company
Advantages of introducing SA8000. The company
cites SA8000 implementation for increased
awareness of workplace issues at the managerial and
worker level. Vocational training facilitation and
effective compliance with environmental health and
safety standards are also significant achievements.
Certification improved the company’s grievance and
management systems through better coordination
with trade union representatives in periodic meetings
as well as monitoring, internal audits, and a corrective
action request system. The company cites three
measurable achievements: a 37 percent decrease in
lost time from accidents and sickness, from 652 to
414 days (a gain of 238 work days), and nearly 100
percent compliance with overtime limit requirements
(in 2006, only 4 out of 2,500 employees exceeded the
yearly limit of 270 hours; in 2007, only one employee
exceeded the annual limit).
Topkapi Iplik Case: The Benefits of
SA8000
Topkapi Iplik is a large yarn factory located on the
European side of Istanbul, in Hadımköy. The factory,
founded in 1972, is the sole operating site of Topkapı
İplik (Topkapi Yarn).10 Topkapi’s factory occupies
85,000 square meters on its 250,000-square-meter
site. The company employs 506 people and has been
on a path of modernization and growth. Estimated
2007 sales in dollars were $37.1 million, with the
great majority of sales being for export. Yeşim and
the German firm Otto Versand are Topkapi’s chief
buyers. The company’s commitment to a high-quality
10
Full name: Topkapi Iplik Sanayi ve Ticaret A.Ş.
workplace dates back to its founding in 1972 by Rahmi
Akinci, a man deeply committed to Islamic principles.
He wanted his personal values and aspirations reflected
in the workplace – and he recruited a business partner
who shared his values. Today, the company remains a
strong family operation, with the partner’s son married
to the founder’s daughter.
Why Topkapi Decided to Seek SA8000 Certification
Because Topkapi Iplik sells to international
buyers, it sought validation according to international
standards. The company has become a national pioneer
in certification, previously earning certification to
the Oeko-Tex 100 environmental standard,11 the
International Organization for Standardization (ISO)
ISO 9001 Quality Assurance standard, the ISO
14001 Environment Management standard, and the
Occupational Health and Safety Advisory Services
(OHSAS) OHSAS 18001 occupational health and
safety standard. It was natural for such a company to be
interested in meeting a global standard for workplace
quality, and SA8000 fit the bill. The company plans
soon to seek the Forest Stewardship Council (FSC)
certificate for sourcing its yarn, especially organic fiber
and fiber from the kapok tree.
A major buyer of Topkapi’s products, Otto
Versand, initially suggested in 2002 that the company
consider adopting SA8000 as a tool for implementing
international labor standards. The idea fit with
the values of the owner and managers. Since the
recommendation came from Otto, Topkapi used
Otto’s subsidiary, Systain, to become familiar with
SA8000 and to develop measures of performance.
Otto Versand is widely recognized as a corporate social
responsibility (CSR) leader in Germany, especially in
the area of environmentally friendly product design
and manufacturing, and in consumer education.
(The company was a founding SAI Advisory Board
member and a signatory member of the SAI corporate
program.)
Topkapi’s decision to pursue SA8000 came later
in 2002, after it earned certification for the ISO 9001
This is an international testing and certification system for
textiles limiting the use and ecological impact of certain
chemicals; used by 65 textile manufactures in 80 countries.
11
management system, which is similar in structure
to SA8000’s ninth element. The company began its
pursuit of SA8000 certification with a forward-looking
perspective, believing that “in the future, this standard
will be an obligation for suppliers, because consumer
consciousness is increasing, and brands and store
chains targeting the middle and high-income groups
would increasingly demand the SA8000 standard.”12
This may be especially true given the profile of Topkapi
customers, because a substantial proportion of Topkapi
sales consists of organic fibers going to retailers whose
customers demand not only high-quality products,
but also assurances on the high quality of workplace
standards. Turkey is one of the largest suppliers of
organic cotton and Topkapi is a leader in spinning
organic cotton yarn.
Certification was the next logical step that allowed
the company to institutionalize a commitment to treat
workers justly and to further Topkapi’s business interest
in being acceptable to European buyers. By earning
certification, Topkapi strategically moved its products
out of the “commodity” category, where there is no
customer loyalty and cost is the only consideration,
into the “premium” category where customers pay
attention to the brand and are willing to pay more for
higher production and labor standards. Consequently,
Topkapi viewed the SA8000 certification as providing
better access to the EU markets either directly, if and
when Turkey is admitted to the EU, or indirectly
by selling yarn or basic fabric to Eastern European
companies. EU consumers and retailers are helping to
create demand for organic and sweatshop-free yarn. In
particular, the Business Social Compliance Initiative
of more than 200 European retailers is insisting that
manufacturers supplying to brands they sell move
toward meeting SA8000 standards.
Topkapi’s Road to Certification:
Challenges and Opportunities
Given that Topkapi had already previously
introduced other international standards that included
management systems, it was easy for the company
to embark on the SA8000 initiative. In preparation
for the certification audit, Topkapi worked with
12
Topkapi Profiler.
Systain Consulting GmbH to develop the required
management systems. The company selected as its
certification body the Los Angeles-based Cal Safety
Compliance Corporation (CSCC, now a division of
Specialized Technology Services), which is accredited
by Social Accountability Accreditation Services.
Certification with SA8000 requires compliance
with all elements of the standard, some of which are
already legal requirements. For example, Turkish law
governs direct compensation of workers, and by being
in compliance with the law, Topkapi was also therefore
in compliance with the standard. Other elements were
not a matter of law, making compliance in some cases
more difficult. Here are two examples:
• Overtime. Topkapi, along with many other
factories in less industrialized countries, found it
challenging to convince workers that restricting
overtime hours was in their interest. Some workers
want to work as many hours as possible despite
the fact that they may be more prone to accidents
and be less productive. It required considerable
education to show employees that overtime creates
problems for both management and workers.
• Cost. The additional expense of some SA8000
requirements was initially a financial burden for
the company, but it has been subsequently linked
to enhanced productivity. Both productivity and
product value were improved by newer, modern
equipment that required more skilled workers
and better educated managers than before. These
changes, in turn, created a recruiting and training
challenge. However, the outcome was a decreased
need for workers per unit of output and was
therefore a boost in labor productivity.
In complying with SA8000, the company
discovered the need for many other changes, such
as amending election procedures for a workers’
representative, who had to be elected not only by
union members, but also by non-members, training
workers in the new approach to elections, and
consulting a worker committee whose members are
encouraged to provide suggestions and ask questions.
Some smaller changes were required concerning
Chart 1. Lower Insurance Costs Due to
Chart - Benefit: Increased Agency Insurance
Commissions
(Equivalent
to Reduced Premiums)
Greater
Premium
Discounts
30.5
after SA8000 certification. This increase is a substantial
benefit to Topkapi because it applies not only to the
company’s casualty insurance but also to insurance
written by Topkapi for goods in transit.
% Agency Rebate
30
29.5
29
28.5
28
27.5
27
26.5
26
2002
2003
2004
2005
2006
2007
Source: Topkapi Iplik Records
safety and health. For instance, some fire-extinguisher
points did not work and had to be activated, and the
extinguishers were put on a monthly quality checklist.
Topkapi was certified with SA8000 in 2003 by
Intertek. It was the first facility in Turkey and the
first yarn–spinning facility in Europe to earn SA8000
certification. It passed a recertification audit in 2007.
Cost of SA8000 Certification
Certification to the SA8000 standard entails
two categories of costs. The first category is out-ofpocket costs to compensate auditors and consultants
and the cost of capital and investments necessary
for compliance. The second category is for training
costs, wage enhancements, and other outlays for the
company’s human and physical capital. In the case
of Topkapi Iplik, audit costs totaled an estimated
30,072 YTL (or $18,369).13 Indirect costs are
estimated at 56,101 YTL (or $34,272).14
Investing in the certification process brought longterm returns, according to Topkapi Iplik management.
SA8000 has provided substantial benefits that
significantly offset some certification costs. Direct
benefits include a commission that takes the form of
a reduction in insurance premiums that Topkapi owes
to its insurer, Commercial Union Insurance Company
(CUIC). CUIC increased the discount it offered on its
insurance premiums from 27.5 percent to 30 percent
13
14
Costs paid to CSCC, Topkapi’s certification body.
Costs paid before and after certification for trainings, physical improvements,
purchasing of personal protective equipment, etc.
Topkapi’s production and sales figures show that
although sales to Western Europe have been declining,
Topkapi Iplik’s overall sales are increasing. The shift
occurs because Eastern Europe has already joined the
European Union and has better access than Turkish
manufacturers to European markets. So Topkapi
sells yarn and unfinished fabrics to Eastern European
manufacturers who then sell finished garments to
buyers in Western Europe.
Another factor increasing overall sales is greater
customer loyalty, thanks to certifications like SA8000.
Being certified increases the likelihood that socially
conscious buyers will stay with the brands they trust,
because their manufacturers can show certification
back to the source of their inputs. For example,
Topkapi’s certification as a yarn supplier is a benefit
for Yeşim, a textile producer and a substantial Topkapi
customer. Yeşim is also SA8000-certified and this
gives Topkapi an edge in bidding for orders from
Yeşim or any other company wishing to maintain
the integrity of its supply chain. Topkapi customers
also include EU retailers that carry special consumer
label environmental and social goods, such as Coop
Switzerland and Marks & Spencer.
Lastly, one more aspect of SA8000’s contribution
to Topkapi’s evolving business model is the movement
of the company into the fair trade market. It has long
been interested in organic yarn and unfinished fabric
markets. The opening of another mill dedicated to that
kind of production greatly enhances the quality of the
organic fabric that Topkapi can sell.
Topkapi Iplik: Detailed Analysis of
SA80000 Benefits
The discussion of benefits is organized according
to the nine elements of SA8000. These elements
are not equally weighted at Topkapi Iplik; SA8000
caused greater changes in some areas than in others, as
reflected in the following analysis.
1. No Child Labor
SA8000 follows UN practice in defining a child as
someone under the age of 14. Defined as such, child
labor has not been a problem at Topkapi. However,
there is an issue in Turkey with compensation of
workers in another age-defined category, that of
apprentices. Under Turkish law, apprentices – i.e.,
workers in training – are not considered employees,
and employers do not have to pay the same rates
and taxes required for their regular employees. An
apprentice typically spends four days working in a
factory and one day at school. Apprentice salaries must
be at least one-third of minimum wage and their social
security taxes are paid by the government. However,
there is no upper age limit to join the apprenticeship
program. Some factories seek to cut costs by hiring
apprentices who are 40 years old.
The SA8000 Guidance Document
highlights the need for certification
auditors to watch for abuses in the
apprentice program. If there were a
fraudulent apprenticeship at Topkapi,
it would likely be discovered during an
audit.
2. No Forced Labor
SA8000 standards and some pre-dating certification.
Most occurred during the preparation for certification
with SA8000 as well as other standards used in the
company. Topkapi Ipik’s health and safety initiatives,
described below, produced tangible benefits for
workers and at the same time reduced long-run costs.
Greater use of Personnel Protection Equipment
(PPE). Protective equipment such as dust masks and
earplugs were always available, but were optional.
Prior to certification, it was considered the worker’s
choice to use PPE. Now, the company has taken more
responsibility for its employees and those who resist
using PPE must attend training on the importance
of using PPE and the correct way to use it. This new
emphasis on safety helps Topkapi retain a healthier
and more productive workforce.
At SA8000 surveillance audits,
auditors noted five employees not using
earplugs and more not using masks.
Management issued warnings and
advised employees that they could be
dismissed for not using PPE. One worker
commented, “Training for workers
includes older workers’ explaining about
their loss of hearing.” Another added,
“Our company pays more attention to
our health than we do.”
Topkapi Iplik did not employ forced
labor prior to certification, so no changes Textile worker at Topkapi
Free workplace doctor. Similarly,
were needed in hiring procedures to Iplik
benefits to both the employees and the
comply with SA8000. Forced labor is
company can be derived from better
rare in the textile sector because it has a high capitalhealthcare for workers. One day per week, employees
to-worker ratio. In a factory of this kind the important
can see the company doctor free of charge. This was
thing is to keep the machinery functioning properly.
true before implementation of SA8000. Now, in
Skills are sought and can be paid for adequately.
addition, a worker will be transported any day of the
Therefore the factory managers do not need migrant
week to the medical center (1 km away) if needed.
workers or contract workers (other than security staff)
Thanks to that improvement, workers can be taken to
to work at lower wages. The key benefit for Topkapi
the doctor if they become ill on days when the doctor
derived from certification in this area was third-party
is not at the factory, and medicine is free for workers
verification of the company’s ethical employment
and their families.
practice.
Better-quality meals for employees. Topkapi provides
3. Health and Safety
meals in accordance with Turkish health regulations.
The company already offered lunch before SA8000,
Topkapi Iplik made many improvements in
but workers said the food and facilities were lacking.
this category, some recent as a result of prodding by
Now, the company provides four-course meals (soup,
Better shuttle buses. Before SA8000 certification,
the management already employed a bus contractor
to bring employees to the factory. Since adoption of
SA8000, contractors have used new and better-quality
shuttle buses, greatly improving employees’ comfort
on the way to work.
Better-trained security guards. The company
stopped hiring and training its own guards and now
uses an outside firm that provides additional training
about human rights, especially gender rights. One
worker commented, “I feel safer with the new security
personnel.”
More emergency lighting. Prior to SA8000,
emergency lighting was non-existent in some locations
and haphazard in others. After SA8000, all areas
had emergency lighting. A recent audit found that
emergency lighting for a secondary access door in the
knitting section was missing, and it was subsequently
added. The company now regularly checks to ensure
such lighting is available in all locations, and the
company’s management system expanded to include
attention to emergency lighting in its periodic control
table. This expansion is one reason insurance costs for
Topkapi were reduced following SA8000 certification.
Adequate fire hoses and warning signs. Fire hoses
have always been available on the factory floor, but in
the past some were missing. They are now available
at each of the factory’s 100 hose connection points,
and are regularly inspected. Also, pre-SA8000, some
warning signs on factory machines regarding safe use
were missing. All machines now bear appropriate
warning signs.
One major benefit of improved health and
safety measures has been a lower accident rate. Since
SA8000 implementation, Topkapi Iplik’s accidents
declined consistently, showing none in 2005 and
Chart - Benefit: Lower Accident Rates
at Topkapi Iplik
Chart 2. Lower Accident Rates
12
10
8
6
4
none
salad, entrée, and dessert), prepared by a skilled chef.
Workers also report that the company is now more
responsive to meal needs. One worker said: “The night
shift wanted breakfast and got it. Workers asked for a
second [purification] treatment for water and got it.
They asked for better social facilities and got them.”
Number of Incidents
2
0
2003
2004
2005
2006
2007
about one-fifth of the pre-certification level in 2007.
The company also closed down two old mills between
March 2006 and December 2007 and has been
upgrading equipment plant-wide. This helps further
reduce the accident rate, since newer equipment comes
with more safeguards for workers. These improvements
in workplace safety benefit both workers and owners
by reducing lost days and insurance costs.
4. Freedom of Association and the Right to
Collective Bargaining
Ensuring freedom of association and the right to
collective bargaining promotes a more cooperative
workplace, which benefits both workers and
management. Topkapi’s workers unionized in 1980.
Its union is affiliated with Teksif, the largest textile
workers union in Turkey, and with the International
Textile, Leather and Garment Workers’ Federation
(ITGLWF). Union members constitute two-thirds
of Topkapi Iplik’s workforce. The SA8000 worker
representative needs to be chosen in coordination with
a trade union if it is present; the process described
below was agreed for this site.
Prior to certification, the worker representative
was elected only by union members. As required
by SA8000, management reported that in 2007 all
workers were eligible to vote. First, union members
elected a representative. Then non-union workers put
up their own candidate.
Those who do not join share the same rights under
the union contract, including voting for a worker
representative. A worker comments, verifying the
Percentage of Workers Electing
ChartChart
3. More
Workers Voting for
- Benefit: More Workers Vote for
Representatives Rep
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
2002
2004
2006
situation: “At Topkapi Iplik, the company is 60 to 70
percent unionized, compared with 40 to 80 percent
in other places. Union members pay dues of 18 to 22
Turkish lira per month [dues are key to trade union
independence and member service provision]. New
recruits are unlikely to join the union at first, but from
the beginning they have the right under SA8000 to
vote for the worker representative, who is elected first
from a slate of union members and then faces a nonmember candidate in new election[s] at which the
non-members vote.”
Turkish law requires that workers who want to join
the union must register with a local government office.
This law is burdensome, as explained by a worker: “In
2002, it cost me 100 lira, a week’s pay, to register. I
had to pay a notary’s fee, 7 lira. Then I had bus fares to
pay to collect health reports (malaria) and a criminal
record check. I had to take time off and pay to register,
as well as taking time off to join the union.” Now,
under SA8000 standards, management helps workers
to register and hires a notary to facilitate registration
of workers as union members. A worker said, “They
brought a notary to the factory when enough people
were interested, and workers paid nothing.” This
complies with the intent of the SA8000 and ensures
that all workers – union and non-union – benefit
from collective bargaining and freedom of association.
Topkapi union members paid only 20 lira to register
in 2006.
5. Discrimination
At Topkapi Iplik, management strongly supports
the SA8000 non-discrimination principles, which
address not only personal characteristics, but also
trade union affiliation. From the founding of the firm,
employees have had rights and opportunities regardless
of gender, language, color, and other personal
characteristics. According to management, the firm’s
founder observed Shari’a principles requiring a just
workplace and forbidding discrimination.
6. Discipline and Grievances
Because all workers have a right to vote for the
worker representative, the elected person represents
all employees, not just union members. This change
has been positive, says Topkapi management, as the
representative can now handle grievances from any
worker. In an interview, the elected representative
observed, “The former chief workers’ representative
retired in 2005. During the election, Topkapi had
an observer from Teksif. I was encouraged by coworkers to run; 340 union members voted and I won.
I then ran in the SA8000 election against a non-union
candidate and I again won.” He says he meets with
Teksif once or twice a month, and handles one or two
worker complaints per month, sometimes meeting
a worker at Topkapi and at other times at the Teksif
office.”
Workers say that a major improvement with
SA8000 is that workers are “trained rather than
fired.” When in personal trouble, they are often
assisted by their co-workers. A story reported by both
management and a worker concerned a worker who
had a child that had to be taken to the hospital. The
worker expected he would have to quit to care for the
ill child. Instead, he was able to take time off because
co-workers covered for him. He had no interruption
in pay and was able to return to his job when the child
recovered. This is evidence that absenteeism at Topkapi
is not arbitrarily punished.
Employees generally share their concerns with
department managers, who inform top management
and try to resolve problems. Should there be a grievance,
in 2002, it could only be taken to two places: the
education director and the union representative. By
2007, a grievance could be lodged not only with the
education director and the union, but also with the
worker representative, via suggestion boxes in the
canteen and the dressing room. Mahmut Akinci,
co-owner of the company, also makes time himself
in the factory to listen to workers’ concerns.
The worker representative, who has been at
Topkapi for 18 years, says there is “more dialogue”
now between management and labor than there had
been before certification. Now, managers “try to win
workers, not lose them.” If workers make mistakes,
they are sent out for training. One employee said, “If
there is a complaint about a worker, they check it out
before taking any action. That is different.” Giving
more consideration to the employees has improved
the workplace atmosphere at Topkapi and enhanced
worker-retention rates.
7. Working Hours
Less overtime. The Turkish Government has not
properly enforced the law limiting overtime.15 At
Topkapi, before SA8000, people routinely worked
50 to 60 hours per week, i.e., 5 to 15 hours overtime
(the work week at Topkapi consists of 45 hours). This
translated into 20 to 60 hours per month, an average
overtime of 10 to 15 hours per month per worker.
Sometimes, workers were asked to put in so many
hours they did not have any opportunity to take their
annual leave.
After SA8000 certification, employees worked
overtime only with consent as required by SA8000
standards. In the past, management could require
overtime at will. Now, the employee/labor
representative must review and approve any situation
that requires overtime. Consequently, the number
of overtime hours has declined consistently. Average
hours of overtime per worker per month declined from
12.5 hours to about 3 hours per worker per month.
15
Turkish law stipulates that for workers whose contract week is 45 hours, total
overtime work must not be more than 270 hours per year. For workers whose
contract workweek is less than 45 hours, overtime hours are paid at 1.25 the
normal hourly wage for up to 45 hours of work. (JO-IN Briefing Paper 3,
Overtime and Excessive Overtime)
Accurate overtime records. According to
management, the company’s 2007 recertification
audit found problems with overtime records at a
new mill that opened in 2006 with new workers and
managers. An employee’s time record did not match
company records and it appeared that the new mill
workers and management had not been fully trained.
The management addressed the problem by training
the mill’s management and workers in SA8000
requirements and record-keeping.
One reason for Topkapi Iplik’s reduction in
overtimes is that it added a new daily shift, going from
three to four shifts per day. This move provided more
time off for shift workers and resulted in less need for
overtime. Although some workers quit because they
wanted to work more hours, more said the change was
good for their home life and for maintaining attention
on the job. One worker reports, “Annual leave is now
well regulated, with the entire shift taking leave at the
same time of the year.” A small number of workers
who want to earn more now go to other firms to
moonlight.
Improved quality of supervision. The training and
quality of supervisory staff has greatly improved at
Topkapi Iplik. Before SA8000, the company had two
engineers, professionals with college-level training.
The remaining supervisors were less educated, creating
problems with their supervisory practices. Now, the
company has 15 engineers, all of whom are properly
educated. Management reports higher personnel costs
but says these staff members promote a more efficient
and worker-friendly administration.
Chart - Benefit: Average Hours Overtime per
Chart
4. Average
Overtime
Declining
Worker per
month Declines
Average Worker Overtime Per
Worker Per Month
12
10
8
6
4
2
0
2003
2004
2005
2006
2007
Workers agree: “Definitely there are more
engineers – for example, the quality control supervisor,
maintenance supervisor, training supervisor,
production supervisor. At Mill 3, there is a really good
shift supervisor, always accessible. One can take an
issue to the production chief or higher up.” Employees
say that workplace communication and productivity
have improved because the supervisory staff is more
highly educated.
day free from work each week. By moving from three
to four shifts, the shift workers now have two full days
off after every six days.
8. Compensation
Wages and benefits better explained. Improvements
in wages and additional social rights have been
implemented for all employees by the Teksif contract.
SA8000 certification had no impact on these
developments, but it has proven useful in explaining
to workers their rights. Management reports that
Teksif has asked Topkapi Iplik for documentation on
SA8000 training on workers’ rights to provide to other
Turkish companies.
Decline in absenteeism. Before certification,
monthly data from 2003 show that factory
absenteeism averaged about 90 worker-days per
month. With SA8000, the number fell at the end of
2003 to 60 worker-days per month and in 2004 to
54 worker-days per month. In 2005
and 2006, however, absenteeism crept
up again, possibly as a result of more
workers choosing to stay home when ill.
In this situation, higher absenteeism can
be interpreted positively. Workers with
communicable diseases who are free of
pressure to come to work are less likely to
transmit their illness to their fellow coworkers, leading to even more absences.
Employees who are healthy are also more
likely to be productive than those with
health issues, and greater availability of Women are an important
medical care at work has certainly made part of Topkapi Iplik’s
workforce
a difference.
Another factor contributing to the decline in
worker-days lost per month was the increase in worker
schedule flexibility. With the move to four shifts
instead of three, employees gained more flexibility
with their schedule to take care of personal matters
without having to take time off from work. Since
December 2005, worker absenteeism has become
increasingly unpredictable. This change could mean
that having four shifts has given workers so much
flexibility that they are now able to take extra time
off for major events such as weddings in the summer
months or Ramadan and Bayram in the fall and
winter.
Easier leave. According to management, leave can
now be taken more easily. Regular-shift employees
work 5.5 days per week, so they have at least one full
Greater non-cash compensation.
Since the introduction of SA8000,
compensation of Topkapi workers has
improved. The increases have largely been
in non-cash benefits. Such remuneration
is in addition to the minimum wage,
required benefits, and union-negotiated
increases. Examples include upgrades in
medical care and increases in bonus food
parcels to 10 kilos, four times a year.
A worker said such benefits cannot
be taken for granted in Turkey. For
example: “In some places, they do not
pay social security until workers are
there one to two years.” In the garment sector, many
companies never pay such benefits. On compensation,
workers had differing views. The worker representative
said SA8000 did not improve cash compensation and
argued that an extra 100 YTL per month would avert
the need for some workers to take second jobs. Other
workers were satisfied with compensation: “I own my
house, have two kids, [and my] wife doesn’t work. I
don’t work overtime - I don’t need any more money,”
one worker said.
Minimum wage enforced. Turkey has a national
minimum wage and Topkapi pays workers in
accordance with the law. The union contract dictates
additions to this wage as workers earn seniority. The
SA8000 basic needs wage, which includes benefits,
is above the entry levels of the union contract.
The minimum wage is enforced, but the 2007
recertification auditor found that 153 employees
received an average of 2.2 percent less than the basic
needs wage. Management said that the problem
was a five-month delay in securing agreement from
the union about the labor contract and that no
wage increases were paid during this time. Workers
indicated they understood that employees are hired
at minimum wage, then receive an increase at the end
of a three-month probationary period, followed by a
5 percent raise every six months up to the basic needs
level.
9. Management Systems
SA8000 takes a management systems approach
to identifying and addressing any lack of compliance
with the standards. This approach emphasizes the
need for training in awareness and implementation
of SA8000 at both supervisory and worker levels.
Both management and workers confirmed that every
corrective action discovered by the auditor triggers
a review of the related management system, and it is
brought to the attention of the management system
committee for system-wide correction. The aim is
to prevent the recurrence of problems and ensure
that procedures are in place to address new problems
systematically. The SA8000 management system
standard also addresses the need for supplier and
subcontractor information, communication with
stakeholders, and complaint response.
Before introduction of the SA8000 standard,
suppliers were monitored only for product quality and
price, but SA8000 requires that certified companies
ensure supplier compliance with basic standards.
About 4 percent of Topkapi’s suppliers – i.e., five
companies that are overseas – are not monitored.
Instead, Topkapi sends self-assessment forms. For
all of the other suppliers, the company checks on
compliance with labor standards. This process
prompted the company to warn and then terminate
one supplier over a worker-safety issue.
Contractors are also suppliers. At the time of the
initial SA8000 audit, Topkapi hired and trained its
own security guards. When the company shifted to an
outside security contractor, it did not train or monitor
personnel being supplied for compliance with SA8000
standards. This has changed. The contractor started
training in August 2007, and Topkapi will add its own
training to that provided by the security company.
Key Findings: Benefits for Topkapi and
Other Certified Companies
SA8000 certification provides a competitive
advantage. The Topkapi case study explored the
business environment in Turkey and the rationale for
a company to invest in SA8000. The data show that
Turkey faces considerable challenges to improving its
position as a competitive exporter to Western markets,
notably intense cost pressures from lower-wage
neighbors and high payroll taxes. At the same time,
the country is at a significant disadvantage because
it has not yet been admitted to the European Union.
Despite these conditions, Turkish companies have
special opportunities to supply products with organic,
fair trade, and SA8000 certifications. Of particular
importance to Topkapi is that manufacturers are
seeking suppliers who can provide yarn and unfinished
fabrics to meet the growing consumer demand for
products made from certified materials.
The adoption of SA8000, in combination with
other certifications, ensures a unique market niche.
As a leader in the production of certified organic
and Fair Trade yarns and unfinished fabrics, Topkapi
Iplik strives to create and maintain a market niche
with special access to upscale European consumers.
Adopting SA8000 has put the company closer to
achieving that strategic goal. SA8000 is part of a larger
package of certifications that Topkapi acquired and is
now able to use in forming business partnerships with
textile companies whose clients demand the use of
certified materials and the implementation of certified
workplace practices.
Despite a highly competitive market, sales have
grown and Topkapi’s certifications have provided some
market and pricing power in what would otherwise
be a commodity market. Topkapi is not simply selling
cotton yarn: it is selling certified cotton yarn – certified
environmentally and socially. Topkapi management
believes that the market value of the certifications will
continue to grow over time.
While providing tangible benefits from a business
standpoint, the certifications align with the company’s
philosophy. Topkapi owners saw SA8000 as part of a
greater ongoing effort to design a workplace that is fair,
nondiscriminatory, and considerate to its employees.
The pursuit of certification in a Muslim-owned factory
shows that SA8000 is perceived as consistent with
Islamic principle of a just workplace. Certifications
are being sought in other countries with lower wages,
such as Egypt. Because this approach is both good
for business and desirable for employers in Muslim
countries, the SA8000 standard has the potential for
broad appeal and usefulness in the region.
Topkapi management reported improvements
in other workplaces certified by SA8000 along
with tangible benefits to the company’s bottom
line. Accident rates fell. Overtime dropped sharply.
Absenteeism fell initially, but increased again as
employees found that an extra shift made it easier to
take time off. Improved productivity accompanied
these changes. The Topkapi case study is unique in
that the company also reported improved insurance
rates, which by themselves appear to pay for the outof-pocket costs of certification to SA8000.
The benefits of the various certifications are
interrelated, complex, and may require worker
education. Changing the status quo in a workplace
may not always be easy, especially if workers do not
fully understand the benefits of their factory becoming
certified. For instance, some workers in the Topkapi
factory – as well as in other studied facilities – tend
to want to work as many hours as possible because
longer hours bring additional income. They need
to be educated about the possibility of earning the
same amount or more with fewer hours of work, and
the dangers at work and to workers’ personal lives
from excessive working hours. At Topkapi, only a
minority of workers still want to work as many hours
as possible.
Conclusion
The SA8000 standard was created more than
10 years ago and has proven beneficial to companies
around the world that invest in compliance.
Measurable outcomes include lowered employee
turnover, decreased accident rates, and a decline in
product defects. In addition, a number of case studies
reveal that workers’ feelings about the workplace have
improved. The cost of being certified to the SA8000
standard is recognized as a good investment in product
differentiation and worker satisfaction.
Most of these benefits have been realized in
Topkapi Iplik and other Turkish companies mentioned
in this study. SA8000 and other certifications have
enabled Topkapi to occupy a market niche as a socially
responsible supplier. This provides access to consumers
(especially in Europe) who seek products that are
organic, produced under fair trade conditions and
are SA8000-certified. Topkapi reports growing sales,
and management believes the benefits of compliance
with good workplace standards will grow over time.
The success of early SA8000 certifications in Turkey
suggests that the standards are aligned with Islamic
principles of a just workplace and have great potential
to be adopted in other countries with large Muslim
populations.
Most broadly, this case study validates the power
of voluntary standards to support the rule of law.
In Turkey, as in many other developing countries,
labor laws such as those regarding overtime are
rarely enforced and it takes a company-by-company
approach to show both managers and workers the
benefits of compliance with and above what is specified
by the law. Every success story with documented
benefits for the bottom line creates more demand for
the implementation of international labor standards,
while at the same time furthering the goal of better
workplaces around the world.
1155 15th Street NW, Suite 700
Washington, DC 20005
ph: (202) 721-9200 • fax: (202) 721-9250
www.cipe.org • e-mail: cipe@cipe.org
15 West 44th Street, 6th Floor
New York, NY 10036
ph: (212) 684-1414 • fax: (212) 684-1515
www.sa-intl.org • e-mail: info@sa-intl.org

A Business Case for Implementing Workplace Standards

Transcription

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