Ethical Standards and Working Conditions in Wal-Mart's Supply Chain

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once every year or two in some instances. It is common knowledge among the corporate socialresponsibility community that interviewing workers inside of a factory does not allow workersthe ability to truly share their concerns.ILRF’s experience has shown that monitoring is effective only when it includes the participationof local grassroots NGOs and trade unions. This develops long-term relationships with workers,allowing the monitoring process to identify deep rooted problems that often take months toexpose and remediate. Interviews of workers must also be conducted outside of the factory sothat workers can be granted anonymity and do not feel threatened by management.Advance knowledge of audits hinders the evaluation process because it gives the managementtime to prepare, coach workers, and manipulate the factory setting. Wal-Mart freely admits thatunannounced audits offer a more realistic picture of factory conditions, stating in the 2004Report that they “introduce the element of surprise into the audit procedure and reduceopportunities to…potentially manipulate the audit process,” and admitted in the 2005 Report thatthey help provide a “truer snapshot of factory conditions.” However, despite this recognition,only 26% of factory audits were unannounced in 2006. While announced audits may save timeby allowing factory management to gather the necessary paperwork ahead of time, they do so atthe expense of workers.In order to obtain an accurate depiction of working conditions, audits do not necessarily need tobe more frequent, but need to be longer and more thorough. Auditors need to be able to observefactory and working conditions over a longer period of time to truly see how factories operate.Auditors also need to work with local NGOs and trade unions in order to fully understand theoverall conditions in a given area. Freedom of Association is a particular concern formonitoring: Wal-Mart’s 2005 Report recognized the “challenge of auditing this area and believethat non-compliance with this standard may happen more frequently than our data suggests.”Auditors need to be able to build relationships with workers so that workers feelcomfortable telling them about violations. Additionally, ensuring auditors are at a factoryfor more than just a few days would mean that all audits could be unannounced, sincemanagement would have the time to gather the necessary paperwork while the auditorswere observing.Finally, the auditing system does not fully utilize its most compelling resource for maintainingethical standards: workers. Workers are the best auditors because they have the most incentiveto report violations; if they could be sure that they could do so without losing their jobs, thiswould help corrective measures be more efficient. Furthermore, if Wal-Mart was serious aboutits standards, it would recognize the imperative need to create a space for freedom of associationas a longer term solution to identifying and solving problems at the factory level.NO GOALS = NO FAILURES = NO PROGRESSOne of the main problems with Wal-Mart’s factory monitoring system is that no goals are inplace to accurately measure compliance and progress. Wal-Mart blames “a lack of clearconsensus on how ‘progress’ should be defined” as the reason for this system. In order tomeasure progress, Wal-Mart merely needs to set its own goals and then follow how well it is12
meeting those goals. By avoiding definition, Wal-Mart can define progress both as seeing anincrease in high risk violations and a decrease in high risk violations depending on the numbersthat year. If the number of Orange and Red violations increase, they call this progress because itmeans that audits are more rigorous and standards are increasing. Conversely, if the number ofOrange and Red violations decrease, then they can argue that factory owners and suppliers arelearning the system and following the standards better.Wal-Mart does just this in its 2004 Report on Standards for Suppliers. Despite the fact that thereis no discernible measure of progress, Wal-Mart claims that more factory violations are actuallya good thing. The Report portrays that Wal-Mart’s expanded monitoring program has resulted inmore frequent reports of violations, following from more awareness and vigilance rather than“deteriorating factory conditions.” The Report goes on to suggest that most of the importantcomplaints came not through their audit system but through phone calls from workers who“could not share with auditors during the employee interview process.”Without any goals in place, Wal-Mart can never fail, yet can also never succeed. Goals andtargets are important benchmarks which help a company evaluate its business strategies. Wal-Mart would never say that it was unable to define progress in its retail stores. Their Board ofDirectors, Wall Street, and the business community understand the necessity to measureperformance. Wal-Mart should consider its workers another key piece of their business planwhich deserves goal setting, benchmarks and regular evaluation.AUDITING INCENTIVESAnother problem with Wal-Mart’s auditing program is the incentive system. Wal-Mart says that“the program is structured to provide motivation for improvement and bring about positivechange at the factory level” and yet the only reward it offers for compliance is less frequentaudits. This does not encourage factories to be violation-free, but to only clean up just enough.For example, a factory that receives a Green rating might receive a two year reprieve fromaudits. There would be no checkups, and they would know approximately the time of the nextaudit. Moreover, a Green rating does not even mean that a factory has to be violation free. AGreen rating merely means that at the time of an announced audit, the factory had no violationsbeyond the “minor” classification.Additionally, there is the problem of what happens when the standards or local laws change andthe factories are in their two year reprieve from audits. How does one ensure that factories havechanged their practices to comply with the new regulations?From 2003 to 2004 there was no change in the percentage of Green factories. There was noclamor for fewer audits by modifying factory practices. From 2004 to 2005 the percentage ofGreen factories fell to a dismal 9.6%. In 2004 Wal-Mart Disapproved 1,211 factories due toinfractions which they thought resulted from changes in the rigor of their Standards. However,only 260 factories had the incentive to fix their problems and become reactivated.Audits may be a hassle but they do not prevent the company from doing business, and if they areable to fill more orders by operating at a Yellow or Orange level, there is little incentive for13
Page 1 and 2: Ethical Standards and Working Condi
Page 3 and 4: TABLE OF CONTENTSEXECUTIVE SUMMARY
Page 5 and 6: INTRODUCTIONWal-Mart is currently t
Page 7 and 8: Number ofEthicalStandards StaffHow
Page 9 and 10: available to the public. Informatio
Page 11: SECTION 2: “VIOLATIONS WILL OCCUR
Page 15 and 16: SECTION 3: “WAL-MART IS A RETAILE
Page 17 and 18: When it comes to product quality co
Page 19 and 20: (3) Wal-Mart needs to develop a rol
Page 21 and 22: and physical violence as the Philip
Page 23 and 24: CONCLUSIONWal-Mart has a commitment
Page 25 and 26: • Provide Restitution to Wal-Mart
Page 27 and 28: Who owns it: Hanesbrand Inc.What th
Page 29 and 30: Chong Won Fashion, Inc.Who owns it:
Page 31 and 32: workers voted to unionize) through
Page 33 and 34: • Minimum Wages:Standard minimum
Page 35: Guy D. Bradford, Vice PresidentCorp

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