Factory Monitoring -- Just Do It

Amanda Tucker has been with Nike Inc. for almost three years. She previously worked for the International Labor Organization, an agency of the United Nations. Most recently she's been working to improve Nike's internal system for monitoring the compliance of contractor factories with the company's code of conduct. According to Nike's 2001 Corporate Responsibility report, the company contracts with over 700 factories in over 50 countries around the world. To keep tabs on these factories, the company employs 55 people who work full-time on social compliance issues. IW: Based on your experience, how have you seen the factory monitoring process evolve over the last decade? Tucker: I've been in this field since 1993. My first job was working in a business organization that represents U.S. multinationals and various international organizations. At that point in time, very few companies even had a code of conduct, and there was a big discussion about whether companies should have a code of conduct. Systematic monitoring wasn't even really conceived of, although there were a few companies doing some kind of ad-hoc monitoring. Now, if you look at the field of play, at least the branded companies have codes of conduct. The level of implementation differs greatly across various brands. But it's no longer considered acceptable just to have a code of conduct. There has to be some monitoring behind it. What's happened is a whole industry has crept up: social monitoring. That industry didn't exist 10 years ago. IW: As one of the leaders in this area, what is Nike doing to overhaul and update the company's process for monitoring contractor factories? Tucker: I think we're getting more and more professional about the monitoring that we're doing. For a long time, when this first started, we were under such heavy scrutiny and heavy criticism, much of which I feel was unfairly targeted at Nike, but that's part of being a market leader. In order to have credibility to our programs we tried to find groups to do this work externally. We did it internally, but it had no public credibility because people would give the old "fox guarding the hen house" adage. When [Nike CEO] Phil Knight made his speech to the [National] Press Club in May of 1998, he gave a pledge that we would use more non-governmental organizations in our monitoring. But what we're finding, particularly as we move forward with the implementation of the Fair Labor Association monitoring, is that there just aren't a lot of groups out there that are trained to do really quality monitoring. What we've realized [at Nike] is that we need to bring a lot of that expertise on board internally. People who have health and safety expertise, people who have expertise in environment issues, people who have expertise on labor issues. IW: Doesn't that raise the same criticisms of the corporate fox guarding the labor standards henhouse? Tucker: I think that the debate has evolved significantly. For those who have been watching these issues, they realize that if a brand is able to monitor its suppliers well and takes these issues seriously, that's the most effective way to get at these problems because we have the relationship with these factories. If you look at some of the watchdog groups out there, like the Worker Rights Consortium for example, if they find something, that's one thing, but if they want to get something fixed, they have to come to the brands. We're the ones who have the leverage with the factories. So it's really in our interest to have as strong of an internal team as we can. Obviously, for the sake of credibility, that needs to be [complemented by] an external oversight system. We see that as primarily being the Fair Labor Association [FLA], which has had its share of troubles, but it's really the only organization out there that is doing monitoring on a global basis, and on a systematic basis. They accredit groups that have been accredited according to FLA protocols. But the FLA is more than just the external audit piece. They also have the right to review our records of our internal monitoring. So we're accountable to them for implementation of our internal monitoring program. IW: Why has Nike joined and endorsed the activities of the FLA? Tucker: Everyone's on a pretty steep learning curve. The FLA has some aspects to it that make it attractive to us. For one, the stakeholders at the table are more diverse than other comparable initiatives. I'm talking about the representation by non-governmental organizations, universities and labor-rights groups. That's important to us, to be part of something that's not just the industry talking to ourselves. Also, the FLA is a group that is trying to do systematic monitoring. If you compare it to the group with which I think it is most compared, the Worker Rights Consortium, they're not at all alike. The Worker Rights Consortium is basically a group that gets complaints, primary from local union groups, and they look into those complaints. I think that can be a very useful thing, but that's not the same as systematic monitoring. That's a completely different function. We want to be part of something that's looking at our global factory base and providing some oversight. Another thing that's attractive about the FLA is that there are a number of brands there -- especially on the apparel side. It's very difficult to get changes in a factory if you only represent 10% of that factory's business. Let's say, and this happens frequently, that we're in a factory and so is Eddie Bauer and so is Reebok. Together we say to the factory that we want a change to be made. It happens a lot more quickly. IW: Nike's recent Corporate Responsibility report states, "We have the highest level of confidence in monitoring that covers the issues most easily measured by a bench audit of age, wage, overtime and benefits, and the lowest level of confidence in monitoring against ongoing worker-management issues that can include verbal, physical or sexual harassment, or management practices that discourage the exercise of labor rights by individual workers or groups of workers." Please explain. Tucker: Basically, when we monitor we monitor all of the [Nike code of conduct] provisions: child labor, forced labor, harassment and abuse, non-discrimination, wages, benefits, hours of work, overtime, freedom of association, collective bargaining, all of these things. Certain things are easier to monitor than others. Wages. It's not easy because you could have someone who's falsifying their books or writing a second set of books. But essentially for a factory that's not being completely dishonest, you can do a payroll audit. We consider these 'harder' issues. They involve numbers. They involve documents you can check. But it's harder to monitor what we consider the softer issues, [such as] how people are being treated. Is there discrimination against folks who want to join a union? Issues that have to do with attitudes of people and the treatment of people are often not documented. We still have to monitor those but it's really very difficult. You have to interview workers, you have to interview management. You have to come to some subjective reasoning about what's going on in that factory. And obviously, when you're doing monitoring and you're not in that factory day in and day out, and you don't know the nuances. It's harder to get some of those things. We do our best but we recognize that as we monitor for these things, there's quite a bit of subjectivity. IW: What are some of Nike's key performance measures for measuring the activity of contractor factories? Traditionally in our industry the key performance indicators were price, quality and delivery. That was the big three. We're seeing a shift now. What we're trying to do is bring about a shift so that the indicators are price, quality, delivery and compliance. The problem is it's much easier to capture price, quality and delivery indicators than it is compliance. Price is fairly easy to look at over time. Delivery rates, that's a very statistical formulation. And quality, we have a group here called 'apparel product integrity.' They look at defect rates and track that over time so it's very obvious where a factory stands. Where does a factory stand on compliance? That's harder to measure. That's what I've been working on with the team here, looking at how we can come up with a number that we can use that can fit alongside the price, quality and delivery indicators so that we can evaluate a factory holistically. Essentially what we've been doing is writing some tools that have a grading function. You distribute points to a factory for different elements of code compliance. IW: Can you describe in a little more detail the scoring mechanism you've developed for rating your contractors? Tucker: What everyone sees, which is a public document, is our code of conduct. In addition to that, we have the "code leadership standards," which really explain how we're going to determine if the code is being met. The code is short. It has to be posted on the factory walls and people [need to be] trained on it. The leadership standard is a 60 or more page document spelling out in detail what we're looking for. The code says, "No forced labor." The code leadership standards and the [assessment] tools give a better indication of what we mean by forced labor. It's really about workers freedom of movement. We're looking at things like access of employees to medical care, food, toilets, that kind of thing. We assign points that are cross-checked through worker interviews, document reviews, observation, etc. We're working with our local teams on how to use that tool. IW: What do you think of the call by some consumer groups for a 'Sweatshop-Free' label on the products we buy? Tucker: We're not in favor of that. I personally abhor the idea. I have some strong bias against that from my time working for the UN I've seen a lot of labels being abused. It's pretty easy to fabricate a label, and the label is only as good as the monitoring that backs it up. For the consumer to recognize "that an item has been monitored and that this company takes these issues seriously, we want that to be the swoosh. That's what we want our brand logo to represent.