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Introduction
A report on the sweatshops of the UK apparel companies operating their (or vendors) plants in Asia reported in 1998, workers in Bangladesh are forced to work 13-hour shifts, with no time off, for as little as 60 pence a day (BBC News, 13 November 1998). Almost a decade later the BBC run this report. Another report in The Guardian stated similar conditions in the UK retailers plants in Bangladesh with equally deplorable and inhuman conditions and low pay (McVeigh, 16 July 2007). The report states:
When faced with previous allegations that their suppliers are exploiting factory workers, Asda, Tesco and Primark have spoken of their commitment to labour rights. All three have signed up to a code of conduct which sets out basic rights for employees, including that they shall not regularly work more than 48 hours a week, that overtime shall be voluntary and not exceed 12 hours a week, and that a living wage should be paid. But last month, employees of factories supplying clothes to all three retailers told the Guardian that their wages were so low that, despite working up to 84-hour weeks, they struggled to provide for their families. (McVeigh, 16 July 2007)
Such a situation raises serious concern for the compliance of the voluntary code of conduct that the companies have in place. The series of accusations against UK based garment companies like Primark, Asda, Tesco, Mothercare, Marks and Spencers, etc. their continuous violation of international labour standards raises questions regarding the viability and effectiveness of the code of conduct and CSR reports they voluntarily disclose. Thus, questions arise regarding their conduct and the ethical/unethical nature of it.
Aim of research
Ethics refers to a set of rules of conduct or moral code (Abelson & Nielson, 1967, p.81). This definition points at the integral part of ethics in the inherent apparatus of the economic mechanism, to ethical business and corporate conduct, and indirectly to the way of life in the world. Therefore, ethics is an integral part of markets, or seen reversely no market can exist without ethics. However, corporate power can skew the balance of ethical corporate conduct. For this purpose, nongovernmental organizations (NGO) and social movements have attempted to take advantage of the corporate reliance on brand identity and push for clean ethical conduct.
Especially, in the apparel industry, the infamous sweatshop scandal of the 1990s led to the development of laws and regulations, and various forms of code of conduct and internal and vendor auditing system that could verify ethical conduct. Presently the company literature has been flooded with corporate codes of conduct (CoC), labour standards that have started to affect global production, and many conies hire external auditors who could monitor and assess ethical compliance in factories in the US and around the globe.
The increase in a private voluntary initiative to disclose of their ethical conduct and the code they follow in order to ensure ethical conduct in the name of corporate social responsibility (CSR). However, a pertinent question that remains is if the regulatory tools adopted by private organizations intersect with government regulations and accountability of the public. Does the code of conduct presented by the private organizations justify legal and social responsibility of organizations? Does ensuring of code of ethical conduct by private organizations ensure improved labour conditions and ensure ethical conduct?
Is it correct on part of the retailers to indulge in unethical conduct when they pledge to be ethically compliant in their CSR reports? Conversely, it is wrong on part of the retailers to promote business practices that contribute to continuous downward spiral working conditions and pay for employees working in factories of their vendors. However, most of the big garment retailers in the UK have a code of conduct written in paper, but their implementation is restricted and ambiguous. Therefore, the necessity to understand the true nature of the public disclosure of the code of conduct by organizations and CSR reports of companies in order to understand the true effectiveness of the voluntary disclosure programs?
Rationale of research
Apparel industry around the globe is highly competitive and the recurrent need to slash prices and meet ever-increasing consumer demand, keeping the product line fresh, shorten the lead-time, and maximize shareholder return has become the oxygen for the retailers in the UK and around the globe. Thus, the need for the fast-changing industry falls on the employees who are responsible for cutting, packing, and sewing the garment. Although many companies have subscribed to CSR and code of conduct regulations by regulatory institutions and conduct social compliance audit both internally and of their external vendors, they fail to implement these rules and still adhere to exploitative labour practices. The equation seems to be simple for the high streets apparel companies who provide low priced clothes at the cost of low wages.
In the UK the appeal industry is highly competitive with the market leaders like Marks and Spencers, Sears, The Burton Group, etc. enjoying the lions share in the market. Therefore, unethical behaviour on part of the retailers has become the code of conduct for the retailers who strive to remain competitive in an ever-demanding and ever-changing consumer market. A recent report stated that GAP the US-based apparel manufacturers has instructed its London based European fashion section to enforce a cost-cutting drive (Jamieson, 10 August 2008). Further, with the recent recession, most UK based retailers like Marks and Spencers (Potter, 3 August 2010) have taken to cost-cutting measures.
Therefore, the recent recession has made many companies indulge in cost-cutting measures that invariably put greater pressure on the initial stage of the supply chain. A study related to the ethical conduct of the UK apparel industry is imported as no substantial study has been conducted on the UK apparel industry and its ethical conduct even though many have attempted such study on US manufacturers and transnational organizations (Kolk & Tulder, 2005 ). Further, a content analysis of the CSR reports and code of conduct of the UK apparel companies would enable to analyse their compliance to international and national standards of ethical conduct and their effectiveness in implementing the same. This research will be of importance to both the corporate, public, government, and NGOs as this would provide the effectiveness of the ethical conduct of the companies.
With the effects of globalisation, outsourcing of many parts of the production chain has increased dramatically. Stakeholders are not only found in the country where the company is based but are now very frequently based abroad, mostly in the southern hemisphere. Corporations have an obligation towards their stakeholders, but what happens when the suppliers are in developing countries where the regulation, standards, habits, etc are not the same as in the western world? What is the corporations responsibility? To abide by the local regulation and standards and follow the local customs, even though theyre not ethical.
With increasing global pressure from the customers for newer fashion and better quality products, retailers put increasing pressure on manufacturers to deliver more goods at lower lead-time. Therefore, a very high degree of pressure is put on the lower level of the supply chain. Due to the high demand from the consumers, the retailers are changing their fashion every month, thus increasing pressure on them which means they are now purchasing cheap statement garments that they will only wear for a few weeks before moving on to the next trend. Therefore, high street brands are forced to source at exorbitantly low prices. In this rush towards lower and cheaper products, how can they recon ciliate their ethical imperatives? Are ethics and fashion compatible?
The high demand for low-cost fashion products evolves the need to study the companys strategies towards ethical trade, whether it is a mere response to the stakeholders or if their practices are genuine, and what is the level of ethics implemented in the industry. This paper therefore compares different reports and strategies of a range of companies in the industry. This research is also relevant to understand in business ethics in the garment industry is genuine or a mere response to the pressure groups and the stakeholders.
Research Questions
Most companies now intent to have high sourcing standards, as they know that bad practices would mean consumers rejecting the brand for another more ethical one. They therefore have a higher incentive to report about their CSR practices and make the reports available for a wider audience rather than just the internal stakeholders of the company. One of the main problems of the garment industry is that companies objective is to make higher profits by keeping the cost as low as possible. In these conditions, how do they manage to conciliate their commercial imperatives with their ethical promises? The main objective of the study is to ascertain the importance of ethical trade in their CSR reports, whether it is a core aspect of their business or not. In this effect, this paper attempts to analyse the content of the CSR reports and voluntary code of conduct disclosure of organizations in order to ascertain the following questions
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Are such voluntary disclosure of code of conduct and CSR prevalent in the UK apparel industry?
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Does the disclosure vary with the size of the company and its target market?
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What are the differences observable in the modus operandi used for ensuring these codes?
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What the areas of code of conduct that are covered in the reports and the uniformity and diversity in their content?
Literature review
Introduction
CSR has evolved as an important instrument for apparel industry across the world. The reason for the increased importance of CR policy is due to the shift of the garment industry from the manufacturers to the brands and retailers that are designed primarily to trade the goods produced by others. This process has been termed by one company as global flagship network wherein their brand as flag and controlling a global fleet of suppliers (Merk, 2009, p.600). Thus, the suppliers or vendors functioning in low-wage cost countries perform the routine processes of the supply chain. This process enables multinational companies to enter the huge labour reserves like India, China, and Bangladesh and not enter into legal contractual relation with the workers.
As Merk points out these corporations have disassociated themselves from strategic control over labour-intensive production and large workforces, despite maintaining operational control over production processes through the processes of conceptualisation, design, quality control, etc. (Merk, 2009, pp.600-01) Therefore, literature evidently demonstrates that there has been a rise of the voluntary code of conduct for the apparel industry in the 1990s and it mainly aimed to regulate comply to the international regulations of the. The increase in the number of voluntary compliance codes has been observed in the apparel industry globally. With increased pressure from multiple stakeholders, companies started reporting their various activities regarding their CSR practices and about different activities in their supply chain. This literature review will deal with two main segments i.e. ethics in the garment industry, especially in the UK and the researches on voluntary disclosure in form of CSR or CoC.
Definition and Types of Code of Conduct
International code of conduct comprises of a set of rules and guidelines related to the society that details the behaviour of the corporate and helps them to enhance their corporate responsibility. Therefore the definition of code of conduct is International responsibility codes encompass guidelines, recommendations or rules issued by entities within society (adopting body or actor) with the intent to affect the behaviour of (international) business entities (target) within society in order to enhance corporate responsibility. (Kolk & Tulder, 2005, p.3)
According to this definition, the body that adopts the code can be anybody that works within the societal sphere. In case of corporate code of conduct, the companies are free to design their own code of conduct, adhering to the basic tenets of the internationally established code. Further, the codes that are formulated by companies are meant to influence other societal entities like the regulators, customers, suppliers, vendors, contractors, etc. therefore, as pointed out by Kolk & Tulder codes may serve other purposes than social responsibility as such is relevant when analyzing their properties and substance (2005, p.3).
Many NGOs and interest groups use codes of conduct as a tool to enhance corporate social responsibility in for-profit companies. Corporate today often use this tool as an opportunity for new market development, reducing risk, and/or increasing control over business partners. These codes allow companies to develop self-regulating norms to establish the competitive advantage for themselves. Therefore, these code of conduct voluntarily developed are used to develop mandatory regulations.
Stakeholder theory
The stakeholder theory is a key concept of CSR reporting. In the past, companies were only responsible towards their shareholders, the latter were engaging their capitals in the business, and therefore had to expect dividends. Managers were working on behalf of the shareholders, and their main role was to maximise the profit of the company. With time, the financial bottom line as main purpose of the company changed towards a notion of triple bottom line, where the social and environmental sides were as important as the economical aspect. (Murray, 2008) Businesses had to empower the stakeholders in order for them to understand what ethical constructs should be included. Therefore, businesses have a responsibility not only towards their shareholders, but also towards their employees, their suppliers, NGOs, the government and the community where they operate. Freeman introduced the notion of stakeholder theory (Freeman, 1984) and puts the stakeholders at the centre of a companys management strategies: managers must act in the interests of the stakeholders of their organisation. There is today a pressure from customers and society to invest in the community and the environment.
The main objective of CSR is to build trust in the stakeholder network, and to create a value in partnership with the key stakeholders. (Enquist & Johnson, 2006) Companies are given a licence to operate (Donaldson, 2001) which means they will require the approval of the stakeholders to run their business in an effective way. In the traditional way, a company gains its licence to operate by abiding by the rules and obligations, but the concept has been extended to the demand of social actors, and it now goes beyond the legal obligations of the company towards social and environmental obligations. Public values have changed, and now include actions towards working with the community for the well being and the advancement of the society. As Zinkin points out, a multinational can re-building its licence to operate by basing its business on mutual agreement, and having an interactive relationship with the different actors they have to deal with. (Zinkin, 2004)
Also, if companies dont act ethically, they risk losing their licence to operate and be seen as practising an egotistical business. They will then be seen by the stakeholders as enemies, when they want to be seen as partners. Consumers in the western world feel more and more responsible towards the people who produce the products theyre buying , and expect the company not only to provide them with products, but to make sure that these products are sourced in an ethical way. They dont want western companies to take advantage of poorer nations. CSR can be seen as a response to the excess of globalisation (Murray, 2008), and a way for other populations to benefit from globalisation and the wealth it can bring. As Zadek (Zadek, 1998)points out, the consuming public is an important stakeholder group whose ethical views may encourage companies to rethink their approach to business.
Businesses have a responsibility to all their stakeholders, and therefore, need to make sure all stakeholders are treated in a way that is approved by all and will benefit all. This is the reason why garment retailers need to assure that good working conditions are provided in the factories where they source their products from, and that poor nations are not being taken advantage of. As Jones (Jones, 1995) pointed out, ethical principles can bring a significant competitive advantage to a company provided that the principles are shared with the stakeholders.
Legitimacy theory
From a CSR point of view, a company can only exist if its core values are aligned with the core values of the society in which it operates (Murray, 2008) Therefore, corporations have to present their business as legitimate to the society (Deegan, 2000) In this context, companies have an obligation to disclose on their ethical and responsible actions. Companies want to get the implicite approval of the society on their actions and behaviour (Murray, 2008) and the only way they can get the aporoval is by disclosing the information about the corporations. Most large garment company now disclose their CSR practices and ethical trade initiatives either on their annual report, or on a separate CSR report, as we will see further in our research. The more attention a sector would get, such as the garment industry got in the 90s , the more information the companies will be willing to disclose. (Toms, 2000)
Ethics in the garment industry
Various studies have studied the content communication and compliance of the companies for CR (Stigzelius & Mark-Herbert, 2009). As there has been a shift of the apparel industry from the hands of the manufacturers to the brands and retailers, companies have developed chain of production houses under their banner in different parts of the globe. The routine works of the supply chain were outsourced to the vendors (or plants) in countries where labour is cheaper as in India or Bangladesh. As has been mentioned by Merk more routine tasks of production are now being performed by suppliers operating in low-wage countries (2009, p.600).
Therefore, it must be noted that in case of apparel industry, this means that manufacturers must internalise the risks the branded companies and retailers seek to externalize (Merk, 2009, p.601). In other words, tasks like recruiting can be outsourced in order to gain cost advantage, whereas not loosing onto the vital part of the marketing of the product. Therefore, this new mode of doing business has helped many companies to grow in size, but they had to divulge a lot of information, which earlier was considered to be confidential in order to retain a transparent supply chain.
The stress on ethics in trade was a phenomenon that emerged in the 1990s and referred to superior labour standards for workers in the supply chain in developing countries (Kolk & Tulder, 2005 ). However, many scholars believe that environmental consciousness of the corporate should be included in CSR of the companies. The first aim of the companies is to comply with the national and international codes of ethical conduct (Zadek, 2004). Zadek points out how companies opt for civil living wherein they transgress to become more socially responsible. Therefore, the corporations decide to trade in an ethical manner, the action of the companies becomes more affirmative, they have to help protect the people theyre doing business with, and provide assistance to improve their conditions. In the garment industry, the retailers dont normally own the factories from which they source their products, so the working conditions in place in the factory shouldnt be of their responsibility, but rather of the local government and the factories management. However, since the high mediatisation over sweatshops and child labour in the 1990s, a lot of pressure was put on the multinational companies to react on these problems.
The beginning of the ethical concern for corporations started with the extreme exploitation of the athletic footwear industry in the early 1990s that ignited the anti sweatshop movement began that aimed to safeguard the labours and working conditions in outsourced plants in underdeveloped or developing countries (Merk, 2009). Apparel companies like Gap and H&M became the targets of such campaigns. Merk points out that there were Numerous reports, scandals and campaigns have revealed repeated violations of the International Labour Organisation (ILO) core conventions (2009, p.604).
The main issues that were pointed out in the anti sweatshop campaigns were that of substandard labour conditions . This movement made the companies to comply with various national and international regulations and adopt codes of conduct. The main ethical issues found in the foreign supply chain in the garment industry are mainly labour and human rights issues such as child labour, prison, slave labour, the minimum wages as often the minimum wages in developing countries is below a pound per day. Merk states, Today, in industries like textiles, clothing and footwear, hundreds of ethical codes have been adopted and corporate social responsibility has turned into a routine management function. (2009, p.605) The apparel companies, presently, have adopted the routine
Neve (2009) studied the garment factories of Tiruppur based on field research. His findings focused on the ethical nature of the corporate governance of the in the South Indian garment factories. His research suggests, The most popular form of private standard initiatives in the Tiruppur garment industry is the company codes of conduct, (Neve, 2009, p.65). The nature of the code of conduct has changed a lot over the years. Neves study demonstrates that in Tilruppur there is a certified standard for maintaining social and ethical health of the factories.
Tiruppur exporters can obtain certification for their garment factories by putting the required social management systems in place and having their units audited by an independent auditing company. Unlike the case of company codes, compliance with certified standards is checked through a third-party auditing process, which is said to enhance the standards credibility and hence, the value of certification itself. In Tiruppur, a branch of the Swiss international certification company Société Générale de Surveillance (SGS) was opened in 1996. Though initially they only undertook product testing and inspection, since 2000 they are also carrying out social audits, and they are now one of Tiruppurs leading accredited auditors for SA 8000, WRAP and other certifications such as Environmental Management Systems (EMS). (Neve, 2009, p.65)
Egels-Zandén & Hyllman studied the transnational corporations (TNCs) and NGOs that were struggling for the clean clothes campaign in Sweden (2006). The paper studied the relationship between NGOs, TNCs, and union. Their study revealed that
& co-ordination relationships between unions and NGOs, particularly high-commitment co-ordination relationships, are likely to result in a broadening of the definition of TNC responsibility, while conflictual relationships, both high and low commitment, result in a narrowing of the definition of TNC responsibility. (Egels-Zandén & Hyllman, 2006, p.314)
The study therefore stressed on increased coordination between the three parties in order to increase ethical conduct and enforce corporate social responsibility.
Other researchers point out that compliance to ethical conduct has become the lifeline for entering a global market network (Nadvi, 2008). Therefore, the research article points out the relationship between the international compliance norms and the corporate governance. The article points out that at convergence on standards, especially on social, labour, and environmental aspects of process standards, which involved complex networks of diverse public and private, local and global actors. (Nadvi, 2008, p.16) Research also suggests that compliance with code of conduct is linked to changes in the working of the organization. In this context, it is important to understand that there has been a rise in the voluntary code of conduct by organizations that have strived to maintain a high degree of ethical conduct for the organizations. Given this increase in the code of conduct for the organizations, it is important to understand the researches that have been conducted in case of content of code of conducts and CSR reports.
CSR reporting
CSR reporting has become a well-developed trend with corporate. Research shows that sustainability reporting in terms of environment, social and economic status has increased considerably in many countries (Kolk, 2004). Studies have demonstrated that the companies belonging to the more polluting sectors have been most active in this regard. (Kolk, 2004, p.53) They can be instrumental/economical reasons as bad or non-ethical practices might alter their reputation, and provoke boycott from the consumers this is the main reason why companies in the clothing and retail industry would report on their social performance. The other reasons are political, to integrate demand from the stakeholders and ethical reasons as a response to external pressure.
Simon Zadek is a key author when it comes to CSR reporting. He pointed the following reasons why the companies measure and disclose their social and ethical performance (Zadek, 2004)
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to understand what they are trying to achieve and how best to measure performance against their aims;
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to know what they are doing;
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to understand the implications of what they are doing;
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to understand in what ways if any they can explain their actions to increasingly sceptical and aggressive stakeholders.
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to understand whether there are practical options for improving their social performance in ways that will not harm their business performance, and may in many cases improve it.
As CSR reporting is still voluntary, and not an obligation by law, it can be named in many different ways: Social audit, social responsibility reporting, social audits, ethical audit, etc. (Crane & Matten, 2008). The content of the social report will also defer depending on the type of company, size, type of business. Garment retailers would emphasize on their ethical practices in regards to their supply chain in developed countries. In this industry, they will also make this document available publicly to their stakeholders, whereas in other industries, the report would remain internal. (Zadek, 1998)
CR reporting
Corporate responsibility (CR) has become increasingly important for apparel and sports good industry. As it has been mentioned, CR assumes greater importance for companies that have a labour intensive production process, sell branded consumer products, and the ones that sell high end products by manufacturing them at a cost effective supply chain, as human rights are usually violated (Stigzelius & Mark-Herbert, 2009). One such example of a company that streamlined its CR policy is Nike. As Zadek points out:
In the 1990s, protesters railed against sweatshop conditions at its overseas suppliers made Nike the global poster child for corporate ethical fecklessness&. Nikes model to market high-end consumer products manufactures in cost efficient supply chains is no different from that of thousands of other companies&. And the lessons it has learned will help other companies traverse this same ground. (Zadek, 2004, p.1)
In the garment industry, over the last decade, an increasing number of multinational clothing companies have accepted their responsibility to uphold human rights in all the operations in their supply chain. Increasingly attempts have been made to improve the working conditions at the factories have been mentioned in the company CoC and acceptance of global standards in enforcing the national labour laws (Stigzelius & Mark-Herbert, 2009). Therefore, monitoring global suppliers and vendors in relation to national and international laws and internal CoC has become mandatory throughout the global apparel industry in order to enhance and preserve consumer confidence. Various studies have been conducted related to the CR practices of companies and their supply chains. Ethical conduct in the supply chain has assumed paramount importance for both the corporate and consumers and therefore, it requires further understanding of the situations.
The literature review shows that code of conduct ad ethical understanding of the corporate is a concept that evolved three decades earlier. To be sure, this phenomenon has brought forth many areas of the ethical behaviour of the company. Further, corporate conduct was enforced through soft laws by private enforcers in order to make the operations of the transnational corporations more transparent. The researches related to the ethics in apparel industry abundantly discuss the nature of the ethical conduct and the content of the codes. Further, they also indentify plethora of difference between the codes, standards, and norms followed by corporate. Difference in the way code of conduct and ethical conduct is handled is evident from previous content analysis research of the code of conduct. However, there is no research that had seen the similarity or differences in the practical implementation and reporting of the practice through a content analysis of the CSR reports or annual reports of the companies. As voluntary disclosure of the ethical practices has become an unsaid norm in the manufacturing industry.
Methodology
Content of CoC
The main issue areas that are dealt with in the code of conducts of UK apparel companies are environmental concern, labour condition and relation, disclosure of information, competition, taxation, policy regarding bribery and corruption, participation in research and development, consumer right protection, and other miscellaneous issues. Using these issues as the major areas on the basis of which the code of conducts and the CSR reports contents are analysed.
The trend of implementing and disclosing voluntary code of conduct was first attempted in the 1970s when international organizational like International Labour Organization (ILO) and Organisation for Economic Co-operation and Development (OECD) designed a code of conduct. Simultaneously, governments of both developed and developing countries and social interest groups stressed on the presence of corporate code of conduct in order to ensure ethical performing of transnational companies that were making steady inroads into different countries. However, there was little consensus that had been reached in this respect. Therefore, evolved voluntary code of conduct. For instance, when a company voluntarily adopted the ILO code, the trade unions used the code as an instrument to harass the company. This limited the adoption of such pro-labour code.
The scenario changed in the 1980s, the code of conduct for corporate was biased towards corporate ethics. The prevalence of the debate on code of conduct was based in the US. As pointed out by Kolk & Tulder (2005),
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