Ethical Problems Remain at Wal-Mart

Posted by on Oct 4, 2007 in updates | No Comments

Think that Wal-Mart’s ethical problems have been solved with compact fluorescent and concentrated laundry detergent? Not by a long shot.

Wal-Mart’s ethical sourcing – Green does not mean ethical [Ethical Corporation]

Despite what Wal-Mart says are some marked improvements at its supplier factories, the retailer’s recent ethical sourcing report is being met with scepticism.

In its 2006 Ethical Sourcing report, Wal-Mart reveals the results of more than 16,000 audits of supplier factories and announces enhancements to its sourcing programme, including expanded environmental criteria. But the report, which touts a 23% reduction in high-risk factory violations as a result of supplier training, is getting a lukewarm reception, at best, from workers’ rights advocates and Wal-Mart watchdogs.

Wal-Mart reports that in 2006 it conducted more factory audits than any other company in the world – at nearly 8,900 supplier factories producing goods on its behalf. The total number of audits is 15% higher than in 2005 and unannounced audits rose to 26% last year from 20% in 2005.

The giant retailer says it has expanded environmental elements in its factory audits to include waste identification, waste handling and discharge, wastewater treatment and discharge, and air emissions.

Rajan Kamalanathan, vice-president for ethical standards at Wal-Mart, admits that there is “lots more to be done”, including finding ways to collaborate with other brands and retailers to effect lasting improvements for workers. The company is beginning to work with the UN’s International Labour Organisation and Business for Social Responsibility, Kamalanathan says.

But despite Wal-Mart’s insistence that its ethical standards programme is “in place to do what is right for factory workers and the environment” and acknowledgement that it must move “beyond monitoring factories to working in collaboration with stakeholders” to bring “sustainable and positive change to working conditions”, workers’ rights advocates have their doubts.

The Interfaith Center on Corporate Responsibility (ICCR), a large coalition of US religious investors that owns more than two million shares of Wal-Mart stock, has long called for improvements in Wal-Mart’s factory conditions. While the group weakly praises the new report for being more detailed than those of previous years, it says more transparency, particularly on working conditions, is still needed.

The ICCR says the report shows progress and recognition by Wal-Mart of the need to “go beyond monitoring” to take action in conjunction with local unions and non-governmental organisations to improve factory conditions. But the group says it remains to be seen what Wal-Mart actually will do, given its poor record of co-operating with unions and other workers’ rights groups in the US.

Further to go

“Wal-Mart has gone much further, but then it did have much further to go,” business intelligence group Euromonitor International says.

Wal-Mart Watch, a union-backed watchdog group and one of the company’s most vocal critics, was even less positive and called the ethical sourcing report “an attempt to avoid responsibility for the problems the company itself has created”. The group blames the retailer for precipitating “widespread cases of blatant illegal and unethical labour abuses” with the pressure it puts on its suppliers for low cost merchandise.

The sourcing report, according to Wal-Mart Watch, “glosses over the serious problems within its supply chain”. The group says that in particular, the 200 staff working on the standards programme is inadequate to improve conditions in its estimated 21,000 supplier factories.

In contrast, Gap, widely considered a leader in supply chain monitoring, has an internal compliance team of more than 90 people to audit its approximately 2,000 garment supplier factories. Gap’s team conducted 4,316 inspections in 2005. Target, Wal-Mart’s nearest US big-box competitor, says it has 40 full-time compliance employees, including more than 20 foreign-based Target auditors and staff. However, although it says it conducts 100% of its factory audits unannounced, Target does not reveal the number of suppliers involved.

‘Playing with numbers’

The International Labor Rights Fund says Wal-Mart’s report “plays with numbers, ignores plants that have been of particular concern, gives only a vague sense of how exactly it codes factories and avoids clear goals for the future”. And without a commitment to “paying the price required to lift up the company’s exploited workers”, the group says Wal-Mart’s “attempt at frankness about challenges comes across as a gross understatement”.

ILRF criticises Wal-Mart’s shortfall in reaching its previously stated goal of 30% unannounced audits. The group points to other companies, such as Reebok, which says 46% of its audits were unannounced in 2005.

Other areas of concern, according to ILRF, include a lack of concrete benchmarks for improving workers’ conditions, absence of short-term and long-term plans for fixing violations and a lack of independent monitoring.

“Sadly, Wal-Mart’s refusal to rethink its core business strategy, which consists of paying absolute bottom prices for its products, all but ensures that it will make little progress in respecting workers’ rights,” ILRF concludes.

Wal-Mart, however, is not alone. The call by labour rights activists for manufacturers to “move beyond monitoring” is common throughout the clothing and toy industries and other supply chain intensive sectors.

Watchdogs clearly expect more leadership on ethical sourcing from a company with Wal-Mart’s size and scale.

As has been seen with the company’s high-profile green sourcing plan, even the company’s staunchest critics must admit that, like it or not, a little progress from Wal-Mart is worth more than a lot from any other brand. For now, however, when it comes to supply chain monitoring it looks like the retailer is still following – at best.

Useful links:

Wal-Mart’s ‘high risk’ factories

· 3,587 factories displayed “high risk” violations, such as failing to pay workers legally required overtime premiums.

· 187 factories were banned from producing for Wal-Mart for one year, after being rated “high risk” for two successive years.

· 36 factories were found to be employing “one or two” underage workers.

· 18 factories were permanently banned from doing business with Wal-Mart, after “egregious violations” were found.

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