CASE STUDY Business Responsibility, Global Manufacturing, and the Rana Plaza Building Collapse Bangladesh is the second...

 

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CASE STUDY Business Responsibility, Global Manufacturing, and the Rana Plaza Building Collapse Bangladesh is the second largest exporter, behind China, of ready-made clothing in the world. It is the home of some 3,500 factories, which employ more than 3 million workers. An estimated 80% of these factory workers are women. Most of the country's textile and clothing manufacturing is located in the capital city of Dhaka, with a regional population of 15 million people. Bangladesh factories produce clothing for such familiar companies and brands as Walmart, Target, Gap, Benetton, JC Penny, Tesco, H&M, Sears, Nordstrom, Tommy Hilfiger, Calvin Klein, Izod, Abercrombie and Fitch, Puma, and Adidas. A significant proportion of college and university branded apparel is produced by the Bangladesh apparel industry, According to the World Bank, more than 30% of Bangladesh's population of 150 million people live in poverty. As is true in many less developed countries, many of the poorest people have migrated from the countryside into urban centers in search of work. As is also true in many other countries, the Bangladesh government has worked with domestic and inter- national business to create an economic environ ment that will attract industries to locate operations within its borders. As Chinese labor costs have risen, Bangladesh's low labor costs have increased the country's competitive advantage in attracting textile and clothing producers. On April 24, 2013, more than 1,100 people were killed in the collapse of Rana Plaza, an eight-story textile center in Dhaka. It was the single deadliest industrial accident in the history of the garment industry. Only five months earlier, a fire at the Tazreen Fashions factory in Dhaka killed more than a hundred people who were trapped by fast-moving flames fed by yarn and fabrics. Two previous factory fires in 2010 killed more than fifty workers. News reports indicated that workers had reported cracks in the walls and building foundation to super visors and local authorities in the days leading up to the collapse. These same reports suggested that inspectors who responded to these complaints judged that the building was unsafe, but the own- ers directed workers to return or face dismissal. Only hours after the workers returned to work, the entire building collapsed. Descriptions of the Rana Plaza building followed a pattern that is, sadly, all too familiar. Few building codes exist or are enforced in Dhaka. The building itself was constructed on a former swamp and was not designed for heavy industrial equipment. Two or three stories were added illegally to the original building. In the earlier cases of tragic fires, few of the buildings had fire exits; doorways were narrow; yarn, fabric, and other highly combustible materials were left in open containers; and stairways led only to lower floors rather than to outside exits. The Rana Plaza collapse once again focused inter- national attention on the ethical responsibilities of international business. What responsibilities do cor- porations have for the working conditions, wages, and business policies that exist in countries in which they do business? In particular, what responsibility does a firm have for the business practices and work ing conditions that exist in the commercial entities with which it does business in foreign countries? What responsibilities does a business have for activi ties throughout its entire supply chain? The Ruggie guidelines described in this chapter's introduction and examined at length in the read- ing by Kolstad that follows provide one framework for thinking about the ethical responsibilities of global business. The Ruggie guidelines hold that governments have the responsibility to protect and promote worker rights, but business has only the responsibility to respect rights. In philosophical terms, governments may have positive duties to take active steps to secure the rights of its citizens, but private business has only the negative duty not to directly violate rights. Business has no responsibility to take active, positive steps to secure, protect, or promote worker rights. Consider one of the earliest and most publicized cases of global supply chain responsibility. In the late 1990s, Nike was the target of significant criticism and consumer boycotts over the working conditions that existed at manufacturing plants in Vietnam and other Southeast Asia countries. Critics claimed that Nike relied on sweatshop labor, child labor, unsafe and inhumane working conditions, and that workers were paid only pennies a day. Nike's initial response to these criticisms was char- acteristic of many global businesses at the time.. Nike claimed that they were not directly responsible for the activities of their suppliers. Nike owned no manufacturing plants and simply purchased prod- ucts from the companies that were subject to the criticisms. If anyone had a responsibility to the work- ers of Vietnam, it was the government of Vietnam or perhaps the local Vietnamese business firms, not the foreign private companies who do business with Vietnamese firms. In this sense, Nike was no more. responsible for working conditions in Vietnam than any other consumer who purchased products manu- factured there. At the time, Nike's vice president for Asia was famously quoted as saying that Nike did not "know the first thing about manufacturing. We are marketers and designers." Nike's website seemed to reinforce this perspective: "our business model in 1964 is essentially the same as our model today: We grow by investing our money in design, develop ment, marketing, and sales and then contract with other companies to manufacture our products." This approach would seem consistent with the Ruggie guidelines. Nike was fulfilling its negative duty not to cause harm, at least not directly to cause harm. The Vietnamese government may have had a positive duty to protect its citizens from sweatshop conditions and child labor, but foreign corporations did not. Consumer boycotts and intense public pressure soon persuaded Nike and other global firms that there was little sympathy for this approach among consumers. In the following years, most global firms took steps to use their influence to improve working conditions throughout their supply chain. Most firms adopted some form of monitoring to audit their sup- ply chain partners, created standards for doing busi ness, and pledged to stop doing business with firms who violated worker rights. Such active steps would seem to go beyond what is suggested by the Rug gie guidelines in that they involved positive action. to protect and secure worker rights. As it turns out, the Rana Plaza building had been inspected, and there were inspection and audit sys terms in place in many of the recent Bangladesh trag- edies. For example, Walmart representatives had inspected the Tarzeen factory prior to the major fire there. Critics point to flaws in many inspection and audit practices. Many inspections are voluntary, and no mechanisms exist to require inspections or to mandate a fix for any problems uncovered. Certainly corruption can occur in situations in which low-paid regulations Inspectors are expected to enforce on wealthy factory owners. Conflicts of interest can exist for government inspectors who work in a gov emment committed to promoting manufacturing. jobs and preventing the migration of Industries to other countries. Inspectors themselves may have little training or expertise. Even inspections conducted by the global firms are challenged by the fact that they cannot be present at every factory at all times. The Rana Plaza building had been inspected for working conditions, for example, but it had not been inspected for structural defects in the building itself. If the inspection and auditing processes already place fail to prevent tragedies such as what occurred at Rana Plaza, few choices remain for global firms seeking to fulfill their positive duties to workers. Some might choose to stop doing business in areas where worker safety cannot be guaranteed. For example, following the Rana Plaza collapse, Disney Companies announced that they would stop produc- ing its branded products in Bangladesh. Similar to the policy of divestiture in apartheid South Africa that many companies followed in the 1980s, Disney chose to walk away from a situation that they judged to be unethical. Some observers worry that if major companies. such as Disney leave, workers will be left with little leverage to improve working conditions. Further- more, divesting in countries such as Bangladesh may end up hurting those most in need by taking jobs away for some of the world's poorest people. A second approach is to strengthen workplace. regulations, inspections, and enforcement. One initiative, called the Accord on Building and Fire Safety in Bangladesh, has been developed by several nongovernmental organizations (NGOs) and some major global apparel firms. One major advocate for the Accord is the Worker Rights Consortium (WRC), an independent labor rights group that has joined with more than 180 U.S. colleges and universities. committed to monitoring working conditions in factories, particularly those manufacturing college- branded apparel. The Accord differs from previous commitments because the rights are legally binding and local workers were brought into the process. According to the WRC website, companies signing. the Accord make a contractually enforceable com- mitment to do the following: Require all of their supplier factories in Bangla- desh to submit to rigorous fire and building safety inspections, led by recognized, independent fire safety experts. • Accept public disclosure of all inspection reports. Require all suppliers to implement all repairs and renovations necessary to make their factories safe, as determined through the inspection process. Underwrite the cost of the necessary repairs and renovations and maintain orders for at least two years with those suppliers that undertake the needed renovations and operate safely. Require suppliers to allow worker representa- tives into their factories to educate workers about. workplace safety and worker rights. • Cease doing business with any supplier that fails. to comply with any of the above.. Prior to the Rana Plaza collapse, only two major global firms, PVH (which owns Tommy Hilfiger, Calvin Klein, Izod, and other clothing brands) and the German firm Tchibo, signed the Accord. Within a month, forty-three other global firms agreed to sign, and by October 2013 more than one hundred firms had signed the Accord, including such well-known brands as Abercrombie and Fitch, Puma, Addidas, Benetton, Bonmarche, and H&M. An alternative to the Accord is provided by the Alliance for Bangladesh Worker Safety, a group founded by major North American apparel compa- nies, most of whom have refused to sign the Accord. The major differences are that the Accord is legally binding whereas the Alliance relies on voluntary agreements, and the Accord includes labor unions and workers as a formal part of their organization whereas the Alliance does not. The Accord also requires signatory companies to pay an annual fee to help underwrite the costs of renovating buildings found to be unsafe. Students are encouraged to learn more about each, and about their own college or university's participation in ethically responsible sourcing at Accord on Building and Fire Safety in Bangladesh; (http://www.bangladeshaccord.org) and the Alli- ance for Bangladesh Worker Safety (http://www. bangladeshworkersafety.org/). What responsibilities do you think a business has for working conditions at manufacturing plants that supply their products? How do you think the Ruggie guidelines would: apply in the case of the Rana Plaza collapse? • What responsibilities do end-use consumers, such as a college bookstore or a college student, have. for the working conditions at the factories manu- facturing college-branded apparel? How far along a supply chain do responsibilities. extend? Research the Accord and the Alliance. Which do you think provides better protection for Bangladesh workers? CASE STUDY Business Responsibility, Global Manufacturing, and the Rana Plaza Building Collapse Bangladesh is the second largest exporter, behind China, of ready-made clothing in the world. It is the home of some 3,500 factories, which employ more than 3 million workers. An estimated 80% of these factory workers are women. Most of the country's textile and clothing manufacturing is located in the capital city of Dhaka, with a regional population of 15 million people. Bangladesh factories produce clothing for such familiar companies and brands as Walmart, Target, Gap, Benetton, JC Penny, Tesco, H&M, Sears, Nordstrom, Tommy Hilfiger, Calvin Klein, Izod, Abercrombie and Fitch, Puma, and Adidas. A significant proportion of college and university branded apparel is produced by the Bangladesh apparel industry, According to the World Bank, more than 30% of Bangladesh's population of 150 million people live in poverty. As is true in many less developed countries, many of the poorest people have migrated from the countryside into urban centers in search of work. As is also true in many other countries, the Bangladesh government has worked with domestic and inter- national business to create an economic environ ment that will attract industries to locate operations within its borders. As Chinese labor costs have risen, Bangladesh's low labor costs have increased the country's competitive advantage in attracting textile and clothing producers. On April 24, 2013, more than 1,100 people were killed in the collapse of Rana Plaza, an eight-story textile center in Dhaka. It was the single deadliest industrial accident in the history of the garment industry. Only five months earlier, a fire at the Tazreen Fashions factory in Dhaka killed more than a hundred people who were trapped by fast-moving flames fed by yarn and fabrics. Two previous factory fires in 2010 killed more than fifty workers. News reports indicated that workers had reported cracks in the walls and building foundation to super visors and local authorities in the days leading up to the collapse. These same reports suggested that inspectors who responded to these complaints judged that the building was unsafe, but the own- ers directed workers to return or face dismissal. Only hours after the workers returned to work, the entire building collapsed. Descriptions of the Rana Plaza building followed a pattern that is, sadly, all too familiar. Few building codes exist or are enforced in Dhaka. The building itself was constructed on a former swamp and was not designed for heavy industrial equipment. Two or three stories were added illegally to the original building. In the earlier cases of tragic fires, few of the buildings had fire exits; doorways were narrow; yarn, fabric, and other highly combustible materials were left in open containers; and stairways led only to lower floors rather than to outside exits. The Rana Plaza collapse once again focused inter- national attention on the ethical responsibilities of international business. What responsibilities do cor- porations have for the working conditions, wages, and business policies that exist in countries in which they do business? In particular, what responsibility does a firm have for the business practices and work ing conditions that exist in the commercial entities with which it does business in foreign countries? What responsibilities does a business have for activi ties throughout its entire supply chain? The Ruggie guidelines described in this chapter's introduction and examined at length in the read- ing by Kolstad that follows provide one framework for thinking about the ethical responsibilities of global business. The Ruggie guidelines hold that governments have the responsibility to protect and promote worker rights, but business has only the responsibility to respect rights. In philosophical terms, governments may have positive duties to take active steps to secure the rights of its citizens, but private business has only the negative duty not to directly violate rights. Business has no responsibility to take active, positive steps to secure, protect, or promote worker rights. Consider one of the earliest and most publicized cases of global supply chain responsibility. In the late 1990s, Nike was the target of significant criticism and consumer boycotts over the working conditions that existed at manufacturing plants in Vietnam and other Southeast Asia countries. Critics claimed that Nike relied on sweatshop labor, child labor, unsafe and inhumane working conditions, and that workers were paid only pennies a day. Nike's initial response to these criticisms was char- acteristic of many global businesses at the time.. Nike claimed that they were not directly responsible for the activities of their suppliers. Nike owned no manufacturing plants and simply purchased prod- ucts from the companies that were subject to the criticisms. If anyone had a responsibility to the work- ers of Vietnam, it was the government of Vietnam or perhaps the local Vietnamese business firms, not the foreign private companies who do business with Vietnamese firms. In this sense, Nike was no more. responsible for working conditions in Vietnam than any other consumer who purchased products manu- factured there. At the time, Nike's vice president for Asia was famously quoted as saying that Nike did not "know the first thing about manufacturing. We are marketers and designers." Nike's website seemed to reinforce this perspective: "our business model in 1964 is essentially the same as our model today: We grow by investing our money in design, develop ment, marketing, and sales and then contract with other companies to manufacture our products." This approach would seem consistent with the Ruggie guidelines. Nike was fulfilling its negative duty not to cause harm, at least not directly to cause harm. The Vietnamese government may have had a positive duty to protect its citizens from sweatshop conditions and child labor, but foreign corporations did not. Consumer boycotts and intense public pressure soon persuaded Nike and other global firms that there was little sympathy for this approach among consumers. In the following years, most global firms took steps to use their influence to improve working conditions throughout their supply chain. Most firms adopted some form of monitoring to audit their sup- ply chain partners, created standards for doing busi ness, and pledged to stop doing business with firms who violated worker rights. Such active steps would seem to go beyond what is suggested by the Rug gie guidelines in that they involved positive action. to protect and secure worker rights. As it turns out, the Rana Plaza building had been inspected, and there were inspection and audit sys terms in place in many of the recent Bangladesh trag- edies. For example, Walmart representatives had inspected the Tarzeen factory prior to the major fire there. Critics point to flaws in many inspection and audit practices. Many inspections are voluntary, and no mechanisms exist to require inspections or to mandate a fix for any problems uncovered. Certainly corruption can occur in situations in which low-paid regulations Inspectors are expected to enforce on wealthy factory owners. Conflicts of interest can exist for government inspectors who work in a gov emment committed to promoting manufacturing. jobs and preventing the migration of Industries to other countries. Inspectors themselves may have little training or expertise. Even inspections conducted by the global firms are challenged by the fact that they cannot be present at every factory at all times. The Rana Plaza building had been inspected for working conditions, for example, but it had not been inspected for structural defects in the building itself. If the inspection and auditing processes already place fail to prevent tragedies such as what occurred at Rana Plaza, few choices remain for global firms seeking to fulfill their positive duties to workers. Some might choose to stop doing business in areas where worker safety cannot be guaranteed. For example, following the Rana Plaza collapse, Disney Companies announced that they would stop produc- ing its branded products in Bangladesh. Similar to the policy of divestiture in apartheid South Africa that many companies followed in the 1980s, Disney chose to walk away from a situation that they judged to be unethical. Some observers worry that if major companies. such as Disney leave, workers will be left with little leverage to improve working conditions. Further- more, divesting in countries such as Bangladesh may end up hurting those most in need by taking jobs away for some of the world's poorest people. A second approach is to strengthen workplace. regulations, inspections, and enforcement. One initiative, called the Accord on Building and Fire Safety in Bangladesh, has been developed by several nongovernmental organizations (NGOs) and some major global apparel firms. One major advocate for the Accord is the Worker Rights Consortium (WRC), an independent labor rights group that has joined with more than 180 U.S. colleges and universities. committed to monitoring working conditions in factories, particularly those manufacturing college- branded apparel. The Accord differs from previous commitments because the rights are legally binding and local workers were brought into the process. According to the WRC website, companies signing. the Accord make a contractually enforceable com- mitment to do the following: Require all of their supplier factories in Bangla- desh to submit to rigorous fire and building safety inspections, led by recognized, independent fire safety experts. • Accept public disclosure of all inspection reports. Require all suppliers to implement all repairs and renovations necessary to make their factories safe, as determined through the inspection process. Underwrite the cost of the necessary repairs and renovations and maintain orders for at least two years with those suppliers that undertake the needed renovations and operate safely. Require suppliers to allow worker representa- tives into their factories to educate workers about. workplace safety and worker rights. • Cease doing business with any supplier that fails. to comply with any of the above.. Prior to the Rana Plaza collapse, only two major global firms, PVH (which owns Tommy Hilfiger, Calvin Klein, Izod, and other clothing brands) and the German firm Tchibo, signed the Accord. Within a month, forty-three other global firms agreed to sign, and by October 2013 more than one hundred firms had signed the Accord, including such well-known brands as Abercrombie and Fitch, Puma, Addidas, Benetton, Bonmarche, and H&M. An alternative to the Accord is provided by the Alliance for Bangladesh Worker Safety, a group founded by major North American apparel compa- nies, most of whom have refused to sign the Accord. The major differences are that the Accord is legally binding whereas the Alliance relies on voluntary agreements, and the Accord includes labor unions and workers as a formal part of their organization whereas the Alliance does not. The Accord also requires signatory companies to pay an annual fee to help underwrite the costs of renovating buildings found to be unsafe. Students are encouraged to learn more about each, and about their own college or university's participation in ethically responsible sourcing at Accord on Building and Fire Safety in Bangladesh; (http://www.bangladeshaccord.org) and the Alli- ance for Bangladesh Worker Safety (http://www. bangladeshworkersafety.org/). What responsibilities do you think a business has for working conditions at manufacturing plants that supply their products? How do you think the Ruggie guidelines would: apply in the case of the Rana Plaza collapse? • What responsibilities do end-use consumers, such as a college bookstore or a college student, have. for the working conditions at the factories manu- facturing college-branded apparel? How far along a supply chain do responsibilities. extend? Research the Accord and the Alliance. Which do you think provides better protection for Bangladesh workers?

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