Corporate Codes of Conduct and Labour-related
Corporate Social Responsibility
Analyzing the Self-regulatory Mechanisms of Multinational
Enterprises and their Impacts to Developing Countries

Hu xiaoyong
Visiting Researcher
The Japan Institute for Labour Policy and Training

March 2006

Acknowledgements
I would like to express my sincere appreciation to President ONO and the JILPT for
funding this research and giving me the opportunity to communicate with otherresearchers coming from different countries. I would also like to express my gratitude to
Mr. Miura, Mr. Sakai and members of the international department for their support
and assistance. In particular, I would like to deeply thank Ms. Nomura and Ms. Seto
who provided me much valuable materials and assistance for my research. I wish to
express my thanks to all others who contributed to this research. Finally, I am very
grateful to my wife for her support during the year.

ii

Table of contents
Acronyms and Abbreviations…………………………………………………………ⅳ
Abstract……………………………………………………………………………………1
1. Overview of the research……………………………………………………………2
1.1 Introduction…………………………………………………………………………2
1.2 Voluntary codes of conduct—focus of the research……………………………3
1.3 Purpose of the research……………………………………………………………5
1.4 Methodology and limitations………………………………………………………5
2. The Emergence and development of voluntary codes of conduct………………6
2.1 The definitions of voluntary and codes of conduct………………………………6
2.2 The generation and development of voluntary codes of conduct………………8
2.3 Factors influencing on voluntary codes of conduct………………………………93.

Thetheoretical

basis

of

corporations

adopting

self-regulation

mechanisms………………………………………………………………………………10
4. Types of voluntary codes of conduct…………………………………………………16
4.1 Company Codes…………………………………………………………………………17
4.2 Business Association Codes……………………………………………………………17
4.3 Intergovernmental codes………………………………………………………………18
4.4 Multi-stakeholder codes………………………………………………………………18
5. The content of codes of conduct with labour provisions……………………………19
5.1 Forced Labour……………………………………………………………………………20
5.2 Child Labour……………………………………………………………………………20
5.3 Discrimination…………………………………………………………………………21
5.4 Freedom of Association and collective bargaining…………………………………21
5.5 Harassment and abuse…………………………………………………………………22
5.6 Wage and benefits………………………………………………………………………23
5.7 Working hours……………………………………………………………………………24
5.8 Health and safety………………………………………………………………………24
6. Monitoring systems of global supply chain practices………………………………25
6.1 Internal Monitoring……………………………………………………………………25
6.2 External monitoring……………………………………………………………………27
6.3 Independent monitoring/Verification………………………………………………28
7. Multi-stakeholder initiatives…………………………………………………………28
7.1 Clean Clothes Campaign (CCC) ……………………………………………………29
7.2 Ethical Trading Initiative (ETI) ……………………………………………………30
7.3 Fair Labour Association (FLA) ………………………………………………………31iii

7.4 Fair Wear Foundation (FWF) …………………………………………………………31
7.5 Social Accountability International (SAI) …………………………………………32
8. Voluntary and public regulatory approaches of MNEs……………………………36
8.1 International trade link with social clauses………………………………………36
8.2 The Comparison of Regulatory and Voluntary Approaches…………………… 38
8.3 Government and codes of conduct………………………………………………… 39
9. Japanese corporations’ CSR practices and supplier chain codes of conduct……42
9.1 labour-related CSR in Japan…………………………………………………………42
9.2 Social Responsible Investment (SRI) in Japan……………………………………44
9.3 Japanese corporate suppliers’ codes of conduct and their global supply Chain
Policies………………………………………………………………………………………44
10. Estimating the impact of voluntary codes of conduct to developing countries…46
10.1 Case study 1: Working conditions of Vendex KBB suppliers in India and Sri
Lanka………………………………………………………………………………………46
10.2 Case study 2: CSR-implementing in the Footwear and Textile Industries inVietnam……………………………………………………………………………………47
10.3 Case study 3: SA8000 verification in China………………………………………49
10.4 The potential positive impacts of voluntary codes of conduct to developing
countries……………………………………………………………………………………50
10.5 The challenge of voluntary codes of conduct………………………………………52
11. Conclusions………………………………………………………………………………53
References……………………………………………………………………………………55
Appendix………………………………………………………………………………………61
Appendix 1: Nippon Keidanren Charter of Corporate Behavior…………………………61
Appendix 2: Nike Code of Conduct…………………………………………………………63
Appendix 3: OECD Declaration and Decisions on International Investment andMultinational Enterprises……………………………………………………65
Appendix 4: FLA Workplace Code of Conduct…………………………………………… 66
Appendix 5: labour provisions in Various codes of conduct………………………………68
Appendix 6: Multistakeholders External Monitoring/Certification Systems………… 72iv

Acronyms and Abbreviations
AIP

Apparel Industry Partnership

AmChamAmerican Chamber of Commerce

BSR

Business for Social Responsibility

CBCC

Council for Better Corporate Citizenship

CCC

Clean Clothes Campaign

CSR

Corporate Social Responsibility

EICC

Electronic Industry Code of Conduct

ETI

Ethical Trading Initiative

ETU/TCL

European Trade Union Federation for Textile, Clothing andLeatherFIFA

Federation of International Football Associations

FLA

Fair Labour Association

FWF

Fair Wear Foundation

GATT

General Agreement on Tariffs and Trade

GISPRI

Global Industrial and Social Progress Research Institute

GUFs

Global Union Federations

ICCR

Interfaith Center on Corporate Responsibility

ICFTU

International Confederation of Free Trade Unions

ILO

International Labour Organization

IOE

International Organization of Employers

ISOInternational Organization on Standards

ITGLWF

International Textile, Garment and Leather Workers’ Federation

JILPTJapan Institute for Labour Policy and Training

JOEA

Japan Overseas Enterprises Association

JPC

Japan Productivity Centre

MNEs

Multinational Enterprises

MOL

Ministry of Labour of Japan

MSIs

multi-stakeholder initiatives

NGOs

Non-governmental Organizations

OECD

Organization for Economic Co-operation and Development

OSH

Occupational Safety and Health

SAI

Social Accountability International

SMEs

Small and Medium-sized Enterprises

SRI

Social Responsible Investment

TIE Asia

Transnational Information Exchange Asiav

UN

United Nations

UNIDO

United Nations Industrial Development Organization

UNICEF

United Nations Children’s Fund

USAS

United Students Against Sweatshops

WBCSD

World Business Council for Sustainable Development

WRAP

Worldwide Responsible Apparel Production

WRC

Worker Rights Consortium

WTO

World Trade Organizationvi

Corporate Codes of Conduct and Labour-related
Corporate Social Responsibility
Analyzing the Self-regulatory Mechanisms of Multinational
Enterprises and their Impacts to Developing Countries
Abstract
The social responsibility of business has been much debated during the past decades.
In the 70’s and 80’s, attention was primarily focused on the impact on the external
environment. However, in the 90’s focus has expanded to what is known as corporatesocial responsibility (CSR). In recent years, human rights, particularly labour rights
and working conditions, have become a focus of discussion related to the responsibilities
of corporations.
Voluntary codes of conduct have been an important part of efforts to improve labour
rights and labour standards in global supply chains. Over the last ten years these codesof conduct and systems for their implementation have proliferated. Corporations are
faced with various codes of conduct and their suppliers are confused by the numerous
standards and monitoring systems.
This paper examines why and how the development of global trade resulted in the
proliferation of corporate codes of conduct and an increasing emphasis on labour-related
CSR. Also, it analyses the case of labour-related codes and standards, one out of several
social issues in CSR.
This paper tries to explore whether voluntary codes of conduct can ensure worker
rights in developing countries. The key of the difficult problems in the compliance ofvoluntary codes of conduct is corporate trade-off with more commercial interests.
Developing countries are also suspicious about the effectiveness of the voluntary codesof conduct. Nevertheless, voluntary codes provided a new market-oriented regulatory
mechanism in improving labour rights and working conditions, and acted as acomplementary mechanism for the governmental mandatory regulation.

11. Overview of the research
1.1 Introduction
Corporate social responsibility (CSR) has flourished as a major corporate trend sincethe 1990s. With no universally accepted definition, CSR generally refers to corporate
business practices that reach or go beyond the ethical, legal and public expectations. A
number of factors have over the years shaped and developed the idea of CSR, such as
globalization, trade liberalization, and stronger expectations of citizens around theworld, especially the growing use of global supply chains and supplier codes of conduct
in multinational Enterprises (MNEs), which have brought out proliferation of CSR
standard. At the same time, CSR standards promulgated by inter-governmental bodies
concerning activities of MNEs on labour and environment, as well as those stipulated byindustrial associations, non-governmental organizations (NGOs) and other civil socialorganizations,have helped to embed these social norms to their activities of MNEs inglobal supply chain.
As a matter of risk management, MNEs strive to ensure that practices of global
suppliers do not damage their reputation, with CSR initiatives undertaken to show that
their operations reach or exceed legal requirements and societal norms in their homecountry or abroad. Conceptually, CSR practices are largely voluntary.
Actually, the modern concept of CSR has been developed against a backdrop ofdomestic legal regimes and international norms. CSR in its modern form also reflects aheightened public desire to ensure that corporations’ behave in a socially responsible
manner in local places where they do business, and that they report publicly on their
behavior. As a result, an increasing number of MNEs and large domestic companies,
throughout the global value chain, are adopting a variety of voluntary initiatives that
aim to improve their social, environmental, and labour rights and human rights. Suchinitiatives include, for example, voluntary codes of conduct, guidelines, principles,
voluntary agreements, participation in certification and labeling schemes, dialogue withstakeholders1 and partnerships with NGOs and public agencies, increased support forcommunity development programmes and corporate philanthropy, etc.

In the broadest sense, stakeholders can be considered to be anyone affected by theactivities of an enterprise, or whose activities affect the enterprise. Generally, stakeholders
include, for example, employees, shareholders, investors, consumers, regulators and NGOs.
These stakeholders have taken an increasingly important role in promoting the concept of
CSR and sustainability, especially through their efforts to develop standards andcertification programmes.

12

1.2 Voluntary codes of conduct—focus of the researchTerms like CSR, corporate citizenship, business ethics, sustainability andenvironmental responsibility, etc (see table 1), sometimes interchangeably, have becomebuzzwords in the process of globalization. In view of its complex and broad range ofissues: business ethics, human rights, environmental management, community
development and more, there is no single, commonly accepted definition of CSR (see box1). The term CSR is in vogue at the moment but as a concept it is vague and means
different things to different people (David Crowther and Lez Rayman-Bacchus, 2004).
Table 1: A Myriad of Terms and Concepts

business ethics



corporate citizenship

corporate social investment



Corporate social performance

corporate philanthropy



corporate social rectitude

corporate social responsibility



corporate social responsiveness

organizational citizenship

organizational ethics

social accountabilitysocial impact investmentsocially responsible investment

Social responsibility of business

sustainable business

sustainable development

triple bottom line

Box 1
The various definitions of CSR
The World Business Council for Sustainable Development(WBCSD) define CSR as “thecommitment of business to contribute to sustainable economic development, working
with employees, their families, the local community and society at large to improvetheir quality of life” (WBCSD, 2003).
Business for Social Responsibility (BSR) states that “it generally refers to businessdecision making linked to ethical values, compliance with legal requirements, andrespect people, communities and the environment.”2
The European Commission defines CSR as “a concept whereby companies integratesocial and environmental concerns in their business operations and in the interaction
with their stakeholders on a voluntary basis ” (European Commission, 2002)
Keizai Doyukai (The Japan Association of Corporate Executives, 2003) defines CSR as

see: www.bsr.org/resourcecenter/
See Corporate Social Responsibility (CSR) in Japan, current status and future challenges,
CSR Survey 2003, Keizai Doyukai, Japan:www.doyukai.or.jp
23

3

an active approach through which more competitive businesses and better societies canbe built as a mechanism for synergistic development between companies and thesociety.3
These differences are mainly manifested in two aspects: on the one hand, different
businesses in different sectors inevitably put emphasis on different aspects of CSR. For
example, a natural resource business may emphasize on community engagement,
whereas, a retailer may focus on supply chain management. On the other hand,different societies around the world have varying expectations and cultures, and the
CSR definition varies depending on the region, its history and development (WBCSD,
2000). For example, in Europe, where a wide variety of countries and nations occupy alimited area, CSR has been used to strategically focus on issues of diversity,
employment, and labour relations. But in the United States, CSR has been viewed fromthe standpoint of corporate governance and market valuation, partly because
accounting frauds at Enron, WorldCom and other companies led to the enactment of the
Sarbanes-Oxley Act, which aims to reform corporate abuses. Japanese companies havebeen more emphasized external environment.
Perhaps we should not be looking for a single definition since social issues are highly
controversial (Richard Welford, 2003). The term “labour rights”, however, is more
precise. In the context of labour-related CSR, voluntary codes of conduct are used bycompanies to communicate their commitment to a set of labour standards and working
conditions. The most labour-related CSR initiatives are directly or indirectly linked toinitiatives that strive to ensure compliance with minimal labour standards or improve
working conditions. In fact, the most significant developments of corporations have to
do with these issues: reasonable working time and conditions, compliance with the laws,
no discrimination or harassment, elimination of child labour and forced work, training,and others. The standards have been key issues to which CSR policies have beenaddressed. Through voluntary commitment to codes of conduct, companies hope to senda positive signal about their behavior to their various stakeholders.
Since the early 1990s there has been a spectacular growth of voluntary corporate
codes of conduct dealing with labour conditions. The emergence of voluntary corporate
codes is both a manifestation of, and a response to, the process of globalization. The
increased significance of brand and corporate reputation makes the Northern MNEs
call for the Southern suppliers to take responsibility not only for aspects such as quality
and environmental impacts, but also for labour rights and working conditions through4the global value chains. At the same time, changing public attitudes are also an
important part of the context in which corporate codes of conduct have been adopted.

1.3 Purpose of the researchThis paper addresses the subject that corporations use voluntary codes of conduct topromote labour rights and improve working conditions throughout the supply chain. It
discusses several questions raised by the trend of voluntary self-regulation in labour
standards. Firstly why would an increasing number of MNEs voluntary constrain theirown behavior to go beyond what is required by national and international regulation onsocial standards？Secondly, what are forms and contents of the codes of conduct on
labour provision? Thirdly, how do the participants in voluntary codes of conduct deal
with issues of enforcement, accountability, transparency, and credibility? Fourthly, howshould governments view these corporations and civil society’s voluntary initiative
activities? Fifthly, what are Japanese corporate supply chain policies on labour
standards currently? Fifthly, how do the supply chain’s voluntary labour codes impact
on the developing countries?
The purpose of this research is to identify and examine the drivers that account for
the growth of voluntary codes of conduct, and the ways in which MNEs adopt,
implement, monitor and evaluate policies regarding codes of conduct in their global
business operations, and to explore the effectiveness of voluntary self-regulation topromote labour-related CSR. This paper also tries an attempt to analyze the impact of
the MNEs-led codes of conduct movement on worker rights and labour standards todeveloping countries.

1.4 Methodology and limitations
This paper is based on extensive literature review, cases study, investigation andinterview, and some information available from internet resources.
There is no precise information on the extent to which enterprises around the world
have adopted codes of conduct with labour-related provisions in their operations.
Available information focuses on the significant number of large enterprises and various
types of multi-stakeholders initiatives that have done across the apparel or retailer
chain of global operations. Information on corporate supply chain operations in labourcodes mostly appears to be focused on enterprises in Europe and the United States, andthat information on Japanese corporate is limited. Little public data is available toanalyze how well these supplier labour codes are currently performing in developing
countries. Besides some case-study approaches, in this paper, it is an attempt to get a5

more deeply and broader analysis, thus partially filling a gap in available data.

2. The Emergence and development of voluntary codes of conduct
2.1 The definitions of voluntary and codes of conduct
The term voluntary 4refers to the mechanisms used by companies, both individuallyand in conjunction with other companies and organizations, to design and enforce therules themselves. The rules that govern their behavior are adopted voluntarily, either
going beyond current regulatory requirements or establishing new standards in areas inwhich government rules or standards are lacking (Virginia Haufler, 2001). The definition
on voluntary generally includes two broad categories:
Self-regulation: corporations or business associations set their own regulations/rules——codes of conduct, corporate guidelines or mission statements, etc——and pledge toabide by themselves.
Co-regulation: co-regulation denotes regulatory arrangements between business andone or more other parties, which can include governments, trade unions, NGOs, and/or
other civil social organizations.
Co-regulatory arrangements initiated by government authorities are likely to differ
significantly from those initiated by civil society organization or by businessassociations. It is sometimes considered as a hybrid system. As a matter of fact, theboundary between voluntary and mandatory standards is becoming increasingly
blurred and in some sectors CSR criteria are becoming civil regulation (UNIDO, 2002).
Self-regulatory mechanisms in corporations are based on voluntary standards,
usually embodied in codes of conduct, which specify norms and rules by which toevaluate factory performance. The term “codes of conduct” refers to a written policy, or
statement of principles, and intended to serve as the basis for a commitment toparticular corporation conduct. These standards are sometimes quite specific, detailing
precise rules of action, while in other cases presenting only general principles of goodpractices (Douglas, 2001; Braithwaite & Drahos, 2000).
Based on different form of content, ILO has outlined three types of codes of conduct:ⅰ) Compliance codes: directive statements giving guidance and prohibiting certain
kinds of conduct; ⅱ) Corporate credos: broad general statements of corporate
commitments to constituencies, values and objectives; ⅲ) Management philosophy

4

In comparison with “public regulation”, which refers to the imposition of rules by agovernment or by parliament, backed by the use of penalties and the authority of the state,that are intended to change the behavior of individuals or groups.

6statements: formal enunciations of the company or CEO’s way of doing business. 5
According to World Bank estimates, there are 1,000 codes of conduct in existence today,
developed by individual companies on a voluntary basis (World Bank, 2003).
Voluntary self-regulation is an emerging trend in the governance of social andeconomic activity both at the national and international levels. Such self-regulatory
mechanisms are likely to be more effective than statutory regulation in addressing
specific social issues because they are flexible enough to adapt to changing
circumstances (Jenkins, 2001). It took hold in corporations in the earlier 1990s, when
the globalization of economic activity and rising of neo-liberal ideology results in a stateboth less able and less willing to perform many of its regulatory functions (Jenkins,
2001). In this context, new emphasis was placed on the self-regulation and social
responsibility of business. Self-regulatory policies include: voluntary agreements,
programmes, standards, codes of conduct, guidelines, principles, etc., adopted by acompany, industry, government or civil social organizations.
Voluntary self-regulatory movements involve three forms of market-oriented activity
in MNEs and their global supply chain. Firstly, some publicize human and workers’
rights violations or environmental pollutions in subcontracting plants in order toencourage consumers to boycott specific companies, generate pressure on market shareand embarrass company executives. Secondly, some movements seek to develop
certification programs whereby produced under acceptable conditions may be labeled tothis effect. Thirdly, corporations are being urged to adopt and implement “Corporate
Codes of Conduct” , which stipulate a set of minimum working conditions and labour
standards that must be met in their own and their subcontractors’ factories (seeO’Rourke 2000; Fung, O’Rourke, and Sabel 2001; Haufler 2001). Key elements ofvoluntary self-regulatory Initiatives include:

commitment: the political will to achieve effective implementation;

content: meaningful goal or scope;

co-operation: full involvement of stakeholders in preparation of the initiative;checking: monitoring of implementation and of results;communication: reporting to the public on results, as well as listening to
feedback.

5 ILO, Corporate codes of conduct, see online at:
http://www.itcilo.it/english/actrav/telearn/global/ilo/code/main.htm

7

2.2 The generation and development of voluntary codes of conduct
Although CSR is often regarded as a modern phenomenon, reform movements oflabour-related CSR to improve the employment environment and working conditions——such as on the employment of woman and child, hours of work, safety of theworkplace, etc——driven primarily by ethical considerations, date back to the earlynineteenth century in Europe (Brown et al. 1996). In 1919, ILO was established as apart of the implementation of the Treaty of Versailles. Since then on, ILO, with workers,
employers and the state represented in its decision-making bodies, has been thepremier organization in promoting better labour standards through international
agreements and moral suasion.
Since 1919, ILO has adopted over 180 conventions, many of which relating to workers’
rights. Although ILO is a tripartite international organization, composed of delegatesfrom the business and labour unions as well as from governments, and business thus
had a full role in the writing of the conventions, the adoption of these international
labour standards has had little discernible effect on business practices around the world(William, 2001).
Codes of conduct relating to multi-national enterprises’ behavior originated in thelate 1970’s when OECD announced its Declaration and Decisions on International

Investment

andMultinational

Enterprises andILO

established

its Tripartite

Declaration of Principles concerning Multinational Enterprises and Social Policy.
The concept resurfaced as a result of heightened awareness of CSR among various
stakeholder groups in the early 1990s. This developed into a broad movement
involving companies, NGOs, trade unions, and governmental/inter-governmentalorganizations to establish – jointly and independently – codes of conduct. Voluntary
codes of conduct ranged from vague declarations of business principles applicable tointernational operations, to more substantive efforts at self-regulation.
In the mid-1990s some well-known MNEs, primarily in the footwear and apparelindustries, adopted their own codes of conduct regarding workers’ rights and labour
conditions in their production workplace. In large part, the increasing focus on CSR has
been exposed by a number of events in recent years, such as Gap, Disney, Nike and Levifor the use of sweatshops and child labour, and for abusing their workers in theirSouthern supplier workplaces.
In the late-1990s, accompany with civil social movement, sparked the creation ofseveral codes of conduct that various firms could adopt, with monitoring to be done
“externally” by independent inspectors, rather than only “internally” by each firm itself.
The intent was to provide codes reflecting a broad consensus on labour standards, and8to give the codes of conduct process more credibility by supplementing internal withexternal monitoring.
In recent years, some NGOs, as well as international consultant companies were
offering social audit services to corporations. And more and more corporations areembedding codes of conduct and labour standards to their business practices and supply
chain management. The industries that adopted codes of conduct and labour standards
also started from the narrow industry of apparel and sportswear to more wider
industries, such as chemical, agricultural, mining, automotive, electronics and otherindustries.

2.3 Factors influencing on voluntary codes of conduct
A number of factors have influenced the current voluntary codes of conduct and willcontinue to shape its future development. Parties that are seen as stimulating businessto adopt CSR practices include consumers, supply chain partners, investor and workers,
NGOs, governments, and inter-governmental bodies.
2.3.1 Globalization and changes in the character of business
Much of the existing literature explains voluntary self-regulation as a response to twoconnected trends: the shrinking role of national governments (due to globalization,
neo-liberal movements to shrink the state, or simply the failure of state bureaucracies)
and the strengthening of multinational enterprises (Strange, 1996; Evans, 1997;
Schmidt, 1995; Cutler, Haufler, & Porter, 1999).
Trade liberalization and deregulation have created more space for businesses topursue their economic objectives. The increased trade in goods and services acrossborders, including outsourcing, has been accompanied by the rising importance of
MNEs and prevalence of global supply chains. The relative importance of MNEs in theworld economy has increased dramatically since 1980s. The current production of
MNEs amounts to approximately one-quarter of world output. Siemens annual income
is greater than that of either Ireland or Chile, Mitsubishi is larger than Indonesia,
General Motors larger than either Denmark or Norway. The combined income of thelargest 200 corporations is larger than that of 182 nation states. Corporations control
more than a third of the world's productive assets. The 225 richest individuals, mainly
corporate directors or owners, have a combined wealth equal to that of half ofhumanity.6 There are now approximately 64,000 MNEs—defined as firms that engage
in international production—with over 870,000 foreign affiliates.7 In 1997, these firms
6
7

globalization: the role of corporation, see http://www.heureka.clara.net/gaia/global05.htm
UNCTAD, World Investment Report,2000: Cross-Border Mergers and Acquisitions and9controlled $12 trillion in foreign assets, employed 30 million workers and earned $9.5
trillion in revenues—larger than the annual GDP of the United States or the European
Union ( Joseph J. Savitsky, Shahid Javed Burki, 2001). Today, there are more than 800
Nike subcontractors in 50 countries around the world, employing more than 600,000
workers (Boje 2002; Nikebiz 2003). Although investment in developing countries is stillless than that in developed world, some developing countries such as China, India andBrazil manage to attract a significant share of investment. As ultimately, investment isthe engine for growth and increasing living standards, the positive impact of the private
sector cannot be ignored, especially in an age when the role public sector is constantly
shrink: “in the developing world during the 1990’, public investment fell from $60bn to$50bn and private investment rose from $30bn to $300bn”(James Wolfensohn,
President, World Bank, 29 November 2000). It stands to reason that the increasing
power of the MNEs is beyond doubt. The MNEs undoubtedly have the largest single
influence on society.
On the other hand, many areas traditionally seen as “public services” to be owned andoperated by the public sector have been privatized or contracted to private agents. With
the shrinking government resources, governments have become increasingly dependent
on MNEs’ international operations to remain technologically competitive (Stephen J.
Kobrin, 2001). The political and economic power has shifted from states to markets. like
Susan thinks it well, “the centre of gravity in world politics has shifted during the lastquarter century from the public agencies of the state to private bodies of various kinds,
and from states to markets and market operators” (Susan, 1996).
As the most important beneficiaries of globalization and liberalization of trade
regimes, MNEs are increasingly seen as having obligations in the international arena inwhich they operate. Indeed, a lot of leading MNEs have adopted voluntary initiatives
and codes of conduct concerning their social, economic and environmental activities
around the world.
2.3.2 Ethical consumption campaign
Customers are changing their ways of consuming: from mass consumerism attitude in
the 1960s, they evolved in the late 1970s by requiring that purchased products comply
with the stated quality, in the 1980s by asking for environmental friendly products andin the late 1990s by demanding that producers become socially responsible. It is an eraof ethical consumer (Punter & Gangneux, 1998). A recent U.S. marketing survey
indicated that 64% of consumers felt that a company’s record on environmental andsocial behavior influenced their purchasing decisions (Costa, 1998). A CanadianDevelopment. United Nations, Geneva

10marketing survey found that 25% of consumers had boycotted products in the previous
year as a result of concerns with the perceived behavior of companies (Costa, 1998).
Ethical consumerism in the United Kingdom was worth almost $44 billion in 2004
(Deborah, 2005).
Major consumer campaigns are gaining ground across Europe and North America by
joining forces with NGOs and trade unions to demand respect for workers’ basic rights.
The roots of the campaigns go back to the late 1980s, when NGOs and trade unions
began working together to mobilize and channel growing public awareness of outrageover exploitative labour practices as countries, particularly in the South, competed forforeign investment by denying workers’ fundamental rights, and large companies
relocated factories from a country to another country in search of cheap labour.
The campaigns were basically referred to as ethical trade initiatives. NGOs, tradeunions, consumer groups and human rights activists press large MNEs to adopt codes ofconduct respecting minimum labour standards for their factories and those of their
suppliers in Southern countries.
One high profile operation took aim at giant Nike, the athletic shoes manufacturer,
which agreed to accept a code of conduct after a heated consumer campaign in North
America and Europe backed up by media exposes of labour abuse in Indonesia, China
and Thailand. An increasing number of MNEs also adopted codes to protect their brandnames. In a 1998 report, ILO counted and reviewed Over 80% of the codes had been
adopted by MNEs, mostly based in the North8.
2.3.3 Growing investor pressure
Investors are changing the way they assess companies’ performance and making
decisions based on criteria that include ethical concerns. “Investors weigh inconsidering how socially conscious a company is, but labour issues are typically one of
the top two concerns, right up there with environmental policies”, says Adam Kanzer,
general counsel and director of shareholder advocacy at Domini Social Investments(Michelle, 2005). Ethical investing is now becoming a mainstream force. There were 313
green, social and ethical funds operated in Europe in 2003 (See Figure 1), representing
a 12% increase over 18 months since the end of 2001.9 Socially Responsible Investing(SRI) funds in the U.K. alone increased from ￡22.7 billion pounds in 1997 to ￡224.5
billion in 2001.10 Socially responsible investment makes up about 12% of the US$19.9

Codes of Conduct for Multinationals, ILO, see:
http://www.itcilo.it/english/actrav/telearn/global/ilo/guide/main.htm
9 Sustainable Investment Research International, see:www.siricompany.com
10 Ibid.
811

trillion in investment assets under professional management in the world.
Companies addressing ethical and social responsibility are growing rapidly because of
their ability to attract social responsible funds. A 2003 survey indicated that 78% offund managers and analysts believed that the management of environmental and social
risk has a positive impact on companies’ long-term market value. 11 Major stock
exchanges in Europe, North America and Japan, have now created indices comprised of
ethically responsible companies, such as FTSE4Good indexes and the Dow Jones
Sustainability Indexes, Nikko Ecofund. They offer investors an opportunity todifferentiate companies on the basis of their CSR performance.

Figure 1: Cumulated Number of SRI Funds in Europe (1980
to 30 June 2002)
313
280

159
54
4
1980-420
1985-91990-4

1995-92000-1

2002-6

Source: www.siricompany.com
2.3.4 Role of government/inter-government bodies
Legislation, regulation and trade agreements are examples of roles governments playthat influencing CSR activities. The forms of interventions range from setting
standards, to providing technical assistance, to strengthening corporate transparency
through mandatory reporting requirements.
With regard to trade agreements, governments are finding innovative to encourage
improvements in labour standards through capacity building programmes andtraditional form of trade-labour linkages. One agreement that does have enforcement
provisions is the US-Cambodia textile agreement which links annual increases inquotas to progress in reform and enforcement of labour standards. Another tool used bygovernments to encourage CSR is legislation governing corporate disclosure on CSR
activities. France marked the first year that publicly traded companies were required toreport on their CSR activities. Outside that of legislation, and trade agreements, there
11

Ibid.

12

are many roles governments do play to encourage and support CSR activities.
Institutions like the United Nations (UN) and ILO have articulated basic social
norms of acceptable corporate conduct at the global level in the form of some modern“softlaws”.

Targetingcorporate

behavior

directly,

theseinter-governmental

instruments include the UN Global Compact, the ILO Tripartite Declaration of
Principles concerning Multinational Enterprises and Social Policy, and the OECD
Guidelines for Multinational Enterprises. ILO's Tripartite Declaration is reckoned to be
by far the most important inter-governmental CSR instrument. The UN Global
Compact, which consists of universal principles covering human rights, labour andenvironment, is recognized to be a serious act in defining substantive social
expectations globally, while providing a flexible structure of corporate-oriented
initiatives.
2.3.5 The rising of NGOs influence
Since the early 1990s there has been a rapid growth in the NGO sector worldwide.
Currently, there are approximately 40,000 internationally operating NGOs (Anheier etal, 2001), 90% of which have been formed in the past 30 years (Edwards, 2000). It isclear that NGOs represent a vital role, if disparate force in globalization discourses
about social issues. They act as a source of publicity and information, often readily
available through the Internet. In some cases they are actively involved in local
campaigns involving trade unions and activists in the developing world 12 . The
significance of NGOs for the codes of conduct issue is that they can act as agents
shaping the environment in which firms operate (and in which they sell their finishedproducts in developed countries). They are potentially important actors in changing thecost/benefit analysis of firms, individual managers and people in their supply chains
when they make their various calculations about how to fulfill their share of the
co-production of labour regulation.
2.3.6 The rising of CSR standards as a corporate managerial idea
Employee/worker is thought the most important stakeholder. According to a survey
conducted by the Japan Productive Centre cited in Lewin (et al, 1995), the mostimportant stakeholders to Japanese corporations are employees. Another survey inFinland, 82% of Finnish CEOs also consider responsibility towards employees as a very
important area of CSR (Habisch et al, 2005).
A code of conduct can do more than just safeguard a company’s public image.
Improved labour standards result in long-term financial benefits, particularly in theindustrial sector. Employers who have invested substantial capital are interested in
12

NikeWatch is an example of such integrated campaigning.

13

promoting health and safety standards, since these tend to increase the productivity ofworkers and an increase in the level of workforce commitment. Treating the workers
well is expected to make them more efficient, in turn leading to higher efficiency,
profitability and competitive edge---a win-win strategy.
Besides many MNEs that have staff dedicated to CSR activities, there is also a wide
range of CSR activities handled by consultants and companies offering social audit
services to corporations (including advice on and verification of compliance withmanagement standards and codes of practices) in recent years. Other audit companies
are involved in CSR-related publications, sponsoring conferences and initiatives, andpromoting and reporting on the interests in CSR activities.
In addition, through a growing number of electronic CSR newsletters and CSR
websites, the Internet has considerably enhanced the ability to track corporate
activities globally and to disseminate information concerning these activities.

3. The theoretical basis of corporations adopting self-regulation
mechanisms
The voluntary approaches that are central to the CSR agenda have a powerful,
ideological and theoretical grounding. Neo-liberalism, which has guided the process of
economicliberalization

since

the

late

1970s,

critiquescertainformsof“command-and-control” regulation and state intervention on the basis that theyinterfere with both individual freedom and efficiency. In relation to social, labour, andenvironmental standards, the implication is that private enterprise can, to some extent,
regulate itself through corporate self-regulation and voluntary initiatives. It will do solargely in response to a variety of market and social signals, and give its innate capacity
to innovate (Peter Utting, 2005).
Khanna (2001) concludes that the main reasons for engaging in self-regulation
involve stakeholder pressure and avoid regulatory pressure.13 In debates about the
purpose and efficacy of regulation, it is now a commonplace that fixed rules, createdcentrally by governments and backed by inflexible sanctions, are ineffective, expensive
and counter-productive ( Christopher D. Stone, 1975; Eugene Bardach and Robert A.
Kagan, 1982; Robert Baldwin, 1990; Fiona Haines, 1997; Jill Murray, 2004). Others
emphasize on the “hollowing out” of the State by the very processes of globalization(Harry Arthurs, 1996). In this context, corporate self-regulation is seen as one answer tothe problems of governance (David Hess, 1999).
13 firms engage in self-regulation in order to avoid what they perceive to be more costly
government imposed regulation.

14

Periodically, the business case for CSR is threatened by crisis and instability. Someleading corporations hope to govern not through force but through consensus, exerting
moral, cultural, and intellectual leadership, and building good relations with civilsociety that cultivate certain values and opinions conducive to stability and the
avoidance of “radical” alternatives (Levy 1997; Bendell and Murphy 2002). Businesselites are not only responding defensively, they are proactively trying to influence,
control and lead the agenda of institutional reform and social and economic change(Peter Utting, 2002).
Many scholars have contributed to the development of stakeholder theory over thelast decades (Freeman, 1984; Jones and Wicks, 1999; Donaldson and Perston, 1995).
Freeman’s classic definition of a stakeholder is “any group or individual who can affector is affected by the achievement of the organization’s objectives” (Freeman, 1984).
Clarkson (1995) further developed stakeholder theory by defining primary andsecondary stakeholders based on stakeholders’ level of engagement in transactions withthe corporations and their importance for the corporation’s survival. Stakeholder andgovernance theory suggests that modern business should no longer be preoccupied
exclusively with the interests of shareholders and relations with the state and tradeunions, but must respond to the concerns of multiple stakeholders, including NGOs,consumer, environmentalists, and local communities. The stakeholder theory
represents the most influential set of ideas affecting the way that corporate currently
practice.
The rationale for the companies to adopt self-regulation can be seen in the emergenceof brand imaging as a factor influencing the success of firms as business practices are
increasingly coming under public scrutiny (See Figure 2). Reputation is critical tocorporate success. The brand image and reputation of a company have become its mostvaluable asset. A research conducted by a famous consultancy found that the proportionof a company’s value derived from intangible assets rose from 17% in 1981 to 71% in1998 (Fombrun and Shanley 1999). Brand has become a crucial element ofcompetitiveness in global economies (Ries and Trout, 1997). A commitment to CSR(including everything from philanthropy, environmental protection, community
engagement, labour and human rights) can enhance the relationship of brand of acompany and its customers, employees, and business partners. When a corporate adopts
a corporate code for social responsibility, it gains advantages in consumer marketing,public affairs, and employee relations (Virginia Haufler, 2001). In many cases, a crisis
such as the exposure of sweatshop conditions in a factory triggers the mobilization ofpressure groups and leads to the development of new industry principles. Global brands

15may be powerful but are also vulnerable, and society’s expectations of standards ofcorporate behavior are rising. CSR is increasingly synonymous with reputation
management and good brand management.

Figure 2: Competitive Advantages Mentioned by Codes

Number of Codes

60

51

50
40
30

21

20

15

14
9

10
0
Protect orenhancereputatationMorecustomerloyalty

Improved
operation ofbusiness

Stronger staff
loyalty

Control oflegal risks

Source: OECD, 2001

4. Types of voluntary codes of conduct
Based on different initiator, it is used to distinguish from the following types of codes:
company

codes,

business

association

codes,

intergovernmental

codes,

andmulti-stakeholders codes.
According to OECD investigation on 246 codes in the world in 2001, 48% were issued
by individual companies, 37% by industry and associations, 13% by multi-stakeholders
including unions and non-governmental organization (NGOs), and 2% by international
governmental organizations (See Figure 3).

16

Figure 3: Composition of codes by type of issuer

multistakeholders,
13.00%,

International
Organizations,
2.00%
Cmpanies, 48.00%,

Associations,37.00%

Source: OECD, 2001

4.1 Company Codes
Company codes refer to those voluntary initiatives adopted unilaterally by individual
corporations themselves. Company codes are concentrated on sectors where brandreputation and export orientation are important. Available information suggests thatthe world’s larger multinational enterprises, especially those in the textile, clothing,
footwear and leather industry (TCF) and related commerce retailing, have led the trend
toward the usage of codes as a means of responsible sourcing. Motivated partly byextreme public pressure directed at them for real and perceived abuses in overseas
operations, some of the famous MNEs have developed their own company codes such as
Reebok and Nike, Gap, etc (see Appendix 1: Nike Code of Conduct).

4.2 Business Association Codes
Business association codes may be developed by business associations, industry
groups or employers’ organizations (see Appendix 2: Nippon Keidanren Charter ofCorporate Behavior). In contrast to single enterprise codes, these codes reflect anegotiated consensus among association members. Available information suggests that,business associations, while becoming more aware and active on issues of social
responsibility, in general do not adopt codes as tools to address labour concerns. This
trend may be the result of a lack of consensus among widely differing business sectors
represented in the membership of such associations. In contrast, industry associations,both sectors and multi-sectors, have developed a notable number of initiatives relating17

to codes but few contain references to international labour standards. However, at the
global level, associations in the toy, tea, sporting goods, retail and chemical sectors,
among others, have developed codes with labour provisions. Examples are the Athletic
Footwear Association, Tea Sourcing Partnership, Responsible Care (chemical industry),
International Council of Toy Industries and World Federation of the Sporting Goods
Industry, Worldwide Responsible Apparel Production (WRAP, developed by American
Apparel and Footwear Association). Some of these associations have been criticized for
inadequate provisions for implementation and insufficient incentives to encourageretailers to invest in, and work with, suppliers.

4.3 Intergovernmental codes
Intergovernmental codes generally fall with the purview of public international law
as negotiated instruments developed and adopted by national governments. These codes
originated during the 1970s with the OECD’s guidelines for multinational enterprisesand (see: Appendix 3) the ILO’s Tripartite Declaration of Principles Concerning
Multinational Enterprises. Other intergovernmental codes are the EU Codes of Conduct,
the UN norms of Responsibilities of Transnational Corporations and other BusinessEnterprises with Regard to Human Rights. With no binding effect on the domestic or
global behaviour of MNEs, intergovernmental codes exist as a body of documentation
founded on internationally recognized and accepted principles applicable to, among
other things, labour and workforce activities. A critical debate currently exists
regarding the evolution of these international agreements into body of standards thatcan form the basis for defining and verifying accepted corporate conduct and practices.

4.4 Multi-stakeholder codes
Most multi-stakeholder codes are initiated by NGOs and operate through thesubscription method. Typically, the “stakeholders” involved in such code initiatives arecompanies, trade union organizations, other workers’ organizations, labour and humanrightsNGOs,

relevant

government

departments,

and/oracademics.

Such“multistakeholder” codes have evolved in response to the regulatory vacuum in which
corporate codes have developed. Stakeholders, in particular trade union organizations
and NGOs, have sought to address this vacuum by setting certain minimum
requirements, both in terms of what labour standards they believe a corporate codeshould contain, and in terms of how such a code should be monitored and implemented.
The participation of NGOs in codes of conduct involving labour practices has shifted the18

traditional balance between worker and employer at the negotiating table. In recent
times, trade unions have increasingly been accepted by enterprise management andNGOs as important contributors to the initiatives (Michael Urminsky, 2001). The FLA
code (see: Appendix 4), The ETI Base Code, and the SA 8000 standard, are examples ofmulti-stakeholder codes.

5 The content of codes of conduct with labour provisions
Codes of conduct which address labour practices have become a key element in thedebate over improving worker rights and working conditions worldwide. Codes related
to labour standards were originally quite diverse (OECD, 2000; Varley, 1998; Diller,
1999; Compa & Hinchliffe-Darricarrere, 1995), but now it appears to be converging
around the ILO core standards and basic principles14 regarding forced labour, childlabour, discrimination, the protection of health and safety, wages and hours, etc.
Although the general range of issues addressed in these systems is fairly similar, thedetails of codes can vary considerably (Van Tulder & Kolk, 2001).

Appendix 5 presents

variations in some influential codes.
OECD carried out a survey of 246 voluntary codes of conduct and prepared a chart ofthe various elements they encompassed. Labour-related content included the following:
Table 2: The labour contents of codes
Labour content of the codes

Percentage of codes mentioned

Reasonable working environment

75.7

Compliance the laws

65.5

No discrimination or harassment

60.8

compensation

45.3

14

these standards and principles include: ILO Conventions 29 and 105 (Forced & Bonded

Labor) ;ILO Convention 87 (Freedom of Association); ILO Convention 98 (Right to Collective
Bargaining); ILO Conventions 100 and 111 (Equal remuneration for male and female
workers for work of equal value; Discrimination); ILO Convention 135 (Workers’
Representatives Convention); ILO Convention 138 & Recommendation 146 (Minimum Ageand Recommendation); ILO Convention 155 & Recommendation 164 (Occupational Safety &Health); ILO Convention 159 (Vocational Rehabilitation & Employment/Disabled Persons);
ILO Convention 177 (Home Work); ILO Convention 182 (Worst Forms of Child Labor), etc. inaddition, also include some UN conventions and declarations such as Universal Declarationof Human Rights; The United Nations Convention on the Rights of the Child; The United
Nations Convention to Eliminate All Forms of Discrimination Against Women, etc.

19

No child labour

43.2

No forced labour

38.5

Provision of training

32.4

Working hours

31.8

Freedom of association and collective

29.7

bargaining
Source: OECD, 2001

5.1 Forced Labour
Forced labour is any work or service that a worker performs involuntarily or under
threat of penalty. Forced labour takes a variety of forms, for example, prison labour, inwhich imprisoned persons are forced to work as a requirement of sentence and withoutcompensation; indentured labour, whereby an employer forbids a worker to leave
employment at the worker's discretion; and bonded labour, in which a person, often achild, works not for compensation, but to pay off a debt incurred by another in exchange
for the worker's labour.
The prohibition against the use of forced labour was one of subjects of the first global
human rights campaigns. ILO passed the Forced Labour Convention (No. 29) in 1930,
and augmented it several years later with the Abolition of Forced Labour Convention(No. 105) in 1957, both of which prohibit the use of any type of forced labour.
Many codes of conduct are characterized by self-definition, primarily by prohibiting“forced labour” without any further definition of the term (Michael Urminsky, 2001).
Some firms, like Wal-Mart code, require a written document for each employee statingthat employment and overtime are voluntary. Some firms, like Reebok, as well as some
non-corporate codes (SA8000, for example), stipulate that workers not be required tolodge “deposits” or identity papers. Some other codes, for example, CCC code directly
require abide by ILO conventions.

5.2 Child Labour“Child labour” as defined by ILO conventions (No. 138, No. 182) is: work by children
under the age of 15 (or 14 in certain countries) or the age for completing local
compulsory education; and work by children under the age of 18 that is hazardous to thephysical or mental health of the child.
Many codes also provide standards with regard to child labour in addition to
guidelines regarding age, though there is a divergence among codes in terms of theremediation efforts that are offered to combat child labour, such as the provision of20

education and training programs.
Among firms, some accept a minimum age of 14 or the legally established minimum
working age. Nike sets a minimum age of 16 for the production of apparel, and theminimum age of 18 for the production of footwear. However, it allows contractors who
legally used 15 years old at the start of their production for Nike to continue to use such
employees.
FLA defines child labour as the employment of any person under the age of 15, or 14
where the law of the country of manufacture allows. ETI stipulate “there shall be no
new recruitment of child labour”, and provide “for transition of child labour to
educational programs until they are no longer children” and that “children under 18
shall not be employed at night or in hazardous conditions”. SA8000 stipulate that theminimum age for employees is 15, or 14 if the country of manufacture allows, unless the
local minimum age or the age for completion of mandatory schooling is older than 15.

5.3 Discrimination
Companies with operations and business partnerships throughout the world
encounter cultural practices and traditions that vary from region to region and that
impact the workplace environment. Provisions against discrimination are common incodes. Many of codes conform in some part to ILO Convention No. 111 on Discriminationin Employment and Occupation, which prohibits discrimination in access toemployment, training, and working conditions on grounds of race color, gender, religion,
national origin, social origin, or political opinions.
Some firms treated against discrimination in general safeguards, such as no“unlawful discrimination”, or enumerated grounds of discrimination, such as race,
national origin, gender, religion, age, disability, marital status, membership ofassociations, etc. Nike and Reebok, provide for non-discrimination in hiring and wages,
benefits, training, advancement, and retirement, etc. FLA, ETI and SA8000 providethat there be no discrimination with respect to hiring, compensation, advancement,termination or retirement on basis of gender, race, religion, age, nationality, politicalopinion.

5.4 Freedom of Association and collective bargaining
Freedom of association refers to the right of workers to choose freely whether to unite
as a group or union in order to facilitate the joint promotion of their welfare. ILO
Convention No.87 concerns Freedom of Association, and Convention No. 98 provides for
the Right to Organize and Collective Bargaining.

21In spite of extensive recognition internationally, freedom of association continues tobe shaped by the larger political and social context within which it operates. Freedom of
association is sometimes restricted for political and/or economic reasons15. In mostcountries, laws also regulate the existence, structure, and activities of trade unions,while local laws sometimes restrict freedom of association in contravention ofinternationally accepted principles.
Some codes of conduct reflect the inherent difficulty of enforcing these rights by
stipulating that they are allowed to the extent possible under local law. As a result,many firm and non-corporate codes refer generally to “recognizing and respecting lawfulrights” of freedom of association and collective bargaining. For instance, Reebok
maintains the most progressive policy regarding freedom of association and collective
bargaining. In addition to recognizing these rights, the firm ensures that workers are
represented on safety committees, problem-solving committees, and planningcommittees, and they are allowed to elect worker representatives. Some company, suchas Nike, avoids this issue in the code of conduct.
In recent years, stakeholder groups in developed countries -- including labour andhuman rights organizations have aggressively demanded that MNEs and their business
partners recognize and respect freedom of association in their global manufacturing
operations. Union movements in producing countries have also become more active indemanding greater power. SA8000 and ETI state that where rights are restricted underlaw, the firm should facilitate a parallel means of organizing, and seek to ensure that
union representatives are not subject to discrimination and have access to members in
the workplace.

5.5 Harassment and abuse
The definition of harassment and abuse refers to a feeling of intense annoyancecaused by being tormented or cruel and inhumane treatment. Codes reference toharassment and abuse is commonly found and usually demonstrate a strong
commitment to the standard. Many codes offer general comments regarding thefundamental “dignity” of employees.
Some firms, like Adidas and Reebok, offer comprehensive statements that explicitly
prohibit physical, sexual or verbal harassment or abuse. While some firms, Nike, forexample, simply states “free of harassment, abuse and corporal punishment”.
FLA, SA8000, ETI and WRAP all prohibit employee abuse. For example, FLA

15

see: http://www.bsr.org/CSRResources/IssueBriefDetail.cfm?DocumentID=49812

22

provides that against “any physical, sexual, psychological or verbal harassment orabuse.” And SA8000 stipulates no “sexually coercive, abusive, or exploitative behavior”.
A code that seeks to adequately address these problems must clearly define
unacceptable practices, as well as establish a verifiable system to address and resolve
matters in an appropriate manner.

5.6 Wage and benefits
Codes commonly refer to a minimum (or living) wage for workers and demonstrate astrong commitment to the standard. The minimum wage generally refers to a wage thatis sufficient for workers to meet their basic material needs, plus some discretionary
spending. Many codes stipulate certain pay practices, including such provisions as thecompensation of workers for overtime in compliance with local laws; forbidding
deductions from wages as a disciplinary practice; requiring to provide clear andaccurate pay slips to employees for each pay period; prohibiting pay deductions not
stipulated by law or agreed to by the worker; and requiring that workers be allowed tocheck themselves in and out of work. Another aspect of pay practices is the provision oflegally mandated benefits.
Many corporate codes of conduct stipulate wage and compensation. Nike, for example,
stipulate to provide each employee “at least the minimum wage, or the prevailingindustry wage, whichever is higher”, and “a clear, written accounting for every pay
period; and does not deduct from employee pay for disciplinary infractions”, and “alllegally mandated benefits”.
Recently, stakeholders such as socially responsible investors, NGOs, churches andlabour unions have called upon companies to pay their employees and contractors'
employees a living wage. A component of nearly every corporate code of conduct
governing labour conditions in contractors' facilities is that workers be paid at least thecountry's legal minimum wage, or the prevailing industry wage, whichever is higher.
FLA, SA8000 and ETI require that minimum wages be at least the legal or industry
minimum, and WRAP requires factories to provide no less than local minimum wages.
SA8000 and ETI also stipulate that wage meet the basis needs of employees and provide
discretionary income.
Defining an acceptable minimum wage level, or a 'living wage' in various countries isparticularly difficult, and there is currently no consensus about the standard thatshould be used or the method of calculation. The most frequently offered suggestion for
calculating a living wage is to determine the price of a market basket of goods which
represents at least the minimum subsistence for an average worker in that particular

23

country. No universal standard, however, defines what should be considered an
individual's basic material needs.

5.7 Working hours
Codes referencing work time is quite common, including some of the primary issues
that should be covered in a provision on work time, such as clear limits on regular andovertime hours, the requirement of a day of rest a week, and the inclusion of paid
annual and sick leave. Some codes also specify that overtime work must always byvoluntary unless the worker’s contract clearly stipulates some amount of mandatory
overtime. The most comprehensive of the codes also require employers to provide
maternity leave and nursing breaks for female employees.
Many codes of companies stipulate a regular 48 hours of work per week or 60 hours
per week including overtime, and provide for at least one day off in every seven period.
Reebok mandates that regular working hours, including overtime, be no more than 10hours per day, also stipulates that working hours must include reasonable meal andrest breaks. Nike provides “one day off in seven, and requires no more than 60 hours ofwork per weed on a regularly scheduled basis, or complies with local limits if they are
lower”.
FLA, SA8000 and ETI require working hours at 48 hours per week or the legal limit,
whichever is less, and that at least one day off be given in every seven. WRAP stipulates
that work and overtime hours be restricted to legal limits and that employees be given
at least one day off in every seven. On the issue of overtime, Nike, FLA, SA8000 and
ETI all require that overtime is fully compensated according to local law.

5.8 Health and safety
Many codes of conduct stipulate the Health and safety provisions. However, there isalso great variation within substantive content of the standard itself. Codes may use
general self-regulations, while some codes cite national law or international standards
as a basis for their health and safety standards. Some go into great detail regarding
specific practices to be targeted for improvement, such as inclusion of examples ofrelated fire safety, adequate lighting and ventilation standards, which is significant inthat it helps factory management to clarify the goals of a given MNE code. Codes
statements may also require that health and safety standards applied in the factory be
extended to any dormitory facilities maintained by the factory.
FLA, WARP, SA8000, and ETI all require “safe and health working environments”.
FLA provides a checklist of health and safety elements during visual inspections,24

including fire safety mechanisms, evacuation plans, fire extinguishers, electrical wiring,
medical facilities and first aid kits, personal protective equipments, and guidelines forhazardous and combustible materials use, storage and control. Both SA8000 and ETI
indicate that steps should be taken to prevent accidents and injury, and that regular
health and safety training should be conducted for workers, for example, access should
be given to clean toilet facilities and potable water, sanitary food storage should be
provided, etc.
Many codes of companies, for instance, Nike, Gap, Levi’s, Reebok, require a “safe andhealthy working environment”. Furthermore, some of these firms list some health andsafety practices that are specifically required, usually with respect to housing facilities,
toilets, dining facilities, and occupational practices.

6. Monitoring systems of global supply chain practices
For a code of conduct to be effective, it should contain a clear method of
implementation and means to ensure compliance. Monitoring typically involves fourtypes of activities: (ⅰ) visually inspecting workplaces primarily for health and safety
and visually obvious violations; (ⅱ) interviewing management to understand workplacepolicies and practices; (ⅲ) reviewing wage, hour, age and other records for integrality
and accuracy; and (ⅳ) interviewing workers to verify workplace policies and practices.
Companies have experimented with three types of monitoring of codes: internal,
external and independent.

6.1 Internal Monitoring
Internal monitoring is conducted by a company itself to ensure its subsidiaries,
suppliers and sub-contractors to comply with standards of code. To ensure that theirbusiness partners engage in humane labour practices, increasing numbers of companies
are monitoring their suppliers' practices on labour rights and working conditions. In
addition, businesses are designating and training their staffs to monitor adherence with
their standards on human rights and labour practices, which are often referred to as"codes of conduct," as well as with local legal requirements.
The monitoring systems developed by companies to promote sustainability typicallycontain the following elements:(1) A set of formal policy documents, usually including a code of conduct and a set ofpolicies addressing labour standards and working conditions.
(2) Designated organizational units and specialist positions responsible for helping todrive change in these areas and for providing support to operations.

25

(3) A process for assessing social performance, as well as economic and technical risks
when developing these activities.
(4) An auditing regime for monitoring compliance with corporate policies at site level.
(5) Regular public reporting on corporate performance in labour rights and working
conditions, including remediation/penalty advice.
In practices, most internal monitoring is done by a company's quality control staff,
personnel staff or others with the same responsibilities. Some companies are now
establishing new CSR department in charge of internal monitoring.
Many large brands and retailers have developed procedures for monitoring suppliercompliance with their newly created codes of conduct. The Gap, for instance, has avendor compliance department with over 100 staff responsible for monitoring theimplementation of the company’s code of conduct throughout its global supply chain16.
Levi’s, Disney, Walmart, H&M, and other companies have all established similar
programs.
In 1992, Nike established a code of conduct on labour and environmental practices for
its network of suppliers. Suppliers compliance with the code is monitored through a
program of internal evaluation conducted first by Nike staff, and then reviewed byexternal consulting firms. Nike has developed internal monitoring tools such as its
SHAPE (Safety, Health, Attitude of Management, People Investment, and Environment)
audit and MESH (Management, Environment, Safety, and Health) program, whichallow the company to integrate the evaluation of labour and environmental issues into
broader management practices and training. Nike now has over 80 staff who monitor
labour and environmental conditions in the company’s contractor factories.17 Other
companies, such as Reebok and Adidas, have also established similar programs.
The advantage of internal monitoring is that monitors may be allowed free access toall information relevant to the production process without the risk of jeopardizing any
privileged information, such as trade secrets. While the basic problem of internalmonitoring is that it relies on the "good faith" of a company itself. A company has agenuine desire to be a good corporate citizen, to improve its labour practices for reasonsof improved efficiency and stability, and to avoid negative publicity, so monitoring
system that individuals entrusted may be able to enforce real compliance with thesestandards. However, in many cases, the monitoring is being done merely to placate
those hostile consumers, and efforts to monitor may be restricted to a mere exercise inpublic relations. Moreover, those companies with the best of intentions will have no16
17

http://www.gapinc.com/public/SocialResponsibility/sr_facmonitor.shtml
see: www.nikebiz.com/labour/mesh.shtml

26

incentive to reveal their suppliers’ bad practices to the public. This is because the factthat a company has always established long term stable relationship with its suppliers
and neither of them hopes to lose each other. Under such circumstances, it is notstrange that many organizations and individuals suspect the information presented by
the company to the public. In fact, a code that includes a statement of principles
concerning business behavior does not necessarily result in the application of thoseprinciples in the firm’s operations. the International Organization of Employers (IOE),
for example, has estimated that 80% of codes are really just statements about generalbusinesses ethics and contain no implementation plan.18

6.2 External monitoring
External monitoring is conducted by a third party that is contracted with thecompany to verify workplace compliance with codes of conduct. The third party may be
industry associations or employers’ organizations. It can also be professional inspections
or auditing firms. In the past several years the Nike has hired the accounting firm
Ernst and Young to provide labour audits of its plants in Southeast Asia.
External monitoring can utilize knowledge and experiences of external specialists,
find out more questions in a company’s supply chain management. However, externalmonitoring carries an information flow problem similar to that of internal monitoring.
Since the external monitor is on contract with the company, the monitor is not free todisseminate information of inspection to the public. Instead, the external monitor
provides merely a labour-related CSR report to the company, whether or notdisseminate it depending on the company itself. This was a problem which arose in the
Nike/ Ernst and Young example (O’Rourke, 1997). The Nike was discovered with serious
health and safety hazards at its producing facilities in Vietnam, but this information
was precluded from publicizing. Despite its findings, Ernst and Young nonethelesscertified that Nike was in compliance with its code. Nike chose not to correct theviolations, and continued to assert publicly that the audits were assisting suppliers to
improve their labour conditions. But later, to the company's embarrassment, an
independent NGO representative discovered and publicized the violations uncovered by
Ernst and Young.
Another criticism leveled against external for-profit monitors is that they may nothave the expertise or sensitivity necessary to conduct accurate interviews with workers.

18 Joint Views of the IOE and ICC on the draft norms on the responsibilities oftransnational corporations and other business enterprises with regard to human rights,
July 22, 2003, International Chamber of Chamber of Commerce, online: www.iccwbo.org

27

Workers may be afraid to provide accurate information to external monitors, whom they
perceive as company representatives.
A major critique of external monitoring is that the "third party", a “monitor-for-hire”,
is under contract to the company on a for-profit basis. This potential conflict of interest
raises concerns that external monitoring is not “independent” and thus may miss orcover up problems in factories.

6.3 Independent monitoring/Verification
Independent monitoring is that a company enters into agreements with NGO-led
coalitions to monitor and produce reports. It may also use local organizations, such as
labour, religious, human rights or other community-based groups, to conduct labour
investigations where such groups are located. Independent monitoring model with
NGOs and trade unions pursue accreditation systems with certification fees.
Many stakeholders believe that independent monitoring reviews are more credible
than reviews conducted by the companies themselves or even external monitoring.
Independent monitoring relies upon local organizations that have the capacity,
resources and interest to inspect and report on suppliers’ labour standards and theirworking conditions.
In recent years, Nike also relies on independent monitoring conducted through FLA
to provide it with an objective snapshot of working conditions in its supply chain. FLA,
of which Nike is a participating company, is a consortium of brands, universities andNGOs. FLA accredits independent monitors to perform unannounced audits of 5% of
Nike supply chain each year.19 For each member, FLA reviews audit findings, oversees
remediation efforts and internal compliance processes, and reports publicly on all ofthese activities.
Independent monitoring also suffers from criticism such as the higher certification
fees and that trade unions are noticeably absent from many of these arrangements.
Who should play the major role in code verification is still on debate. The subject will befurther discussed in the following section.

7. Multi-stakeholder initiatives
The limitations of company codes of conduct and internal monitoring have beenaddressed in recent years and suffered some criticism from stakeholders, especiallysome NGOs. Many stakeholders are suspicious of firms-driven voluntary initiatives.
They demand that firms work within broad, credible, multilateral frameworks, and be19

http://www.nike.com/nikebiz/nikebiz.jhtml?page=25&cat=monitoring&subcat=fla

28

based on universal values such as those affirmed in the ILO Core Labour Conventions
and the UN Declaration of human rights. In this context, a number ofmulti-stakeholders initiatives (MSIs) have been produced, involving setting standard,facilitating dialogue, reporting, monitoring, auditing, and certification related to social
standards.
Most MSIs are initiated by NGOs, although industries, trade unions and multilateralorganizations have also taken the lead in some cases. The major MSIs emerged in the
United States and Europe: Clean Clothes Campaign (CCC), Ethical Trading Initiative(ETI), Fair Labour Association (FLA), Fair Wear Foundation (FWF), Social
Accountability International (SAI) and the Work Rights Consortium (WRC) certification
programs. Each of these programs has a code of conduct based on the ILO core
standards and the UN principles.
The motivation for companies to participate in these schemes varies. In some cases,
certification has become a condition of doing business. For example, some Northernbuyers require their Southern suppliers to be certified. Sometimes a particular scheme
is adopted because it is seen as providing a useful management tool (David Brereton,
2002). More typically, however, companies signed up these schemes because of thereputation benefit derived from participating. Even if companies see little inherent
advantage in joining such a scheme, they may still choose to participate in order toavoid the public criticism which non-participation may suffer from.

7.1 Clean Clothes Campaign (CCC)20
Founded in Netherlands in 1990, the CCC is a network of over 300 unions and NGOs
— — consumer organizations, solidarity and church groups, world shops, research
institutions, and women organizations which closely cooperate with partnerorganizations in developing and transformation countries.
The CCC aims to improve labour conditions in the worldwide garment andsportswear

industrythrough

information

consumers,

influencing

companies,

supporting workers’ organizations and campaigning on legal issues.
In 1998, having got close consultation with worldwide partners and international
union organizations, the CCC adopted its “Codes of Labour Practices for the Apparel
Industry including sportswear”. There were more than 250 signatories including theInternational Textile, Garment and Leather Workers’ Federation (ITGLWF), theEuropean Trade Union Federation for Textile, Clothing and Leather (ETU/TCL), theAsia Monitor Resource Center (AMRC), the Transnational Information Exchange Asia20

http://www.cleanclothes.org/

29

(TIE Asia), etc. The CCC code was shaped according to the model codes of theInternational Confederation of Free Trade Unions (ICFTU).
As a result of negotiations between retailers/brand and the CCC in these yeas, anumber of pilot projects have been carried out in the Netherlands, France, Sweden,
Switzerland, the UK and Germany. In these pilot projects, the CCC code was adopted
by the parties concerned to function as an immediate or longer term reference
document.

7.2 Ethical Trading Initiative (ETI)21
The Ethical Trading Initiative (ETI) was initiated in England in 1998. ETI is analliance of companies, NGOs, and trade unions, working to “identify and promote goodpractice in the implementation of codes of conduct of labour practice, including themonitoring and independent verification of the observance of code provisions” (ETI,
2001). ETI was established explicitly as an experimental, learning initiative, designed
to help identify and disseminate information on how to implement labour codes that
benefit workers in global supply chains.
The ETI uses various instruments: a) the ETI Based Codes, which outlines the social
standards and the implementation/verification principles; b) experimental and research
projects; c) monitoring corporate performance; d) building capacity; e) other activities
such as the “Joint Initiative on Corporate Accountability and Workers’ rights”
The ETI base code refers to the relevant ILO conventions. Freedom of association,
working conditions, wage levels and child labour are regarded as key aspects.
ETI has conducted pilot projects in a number of countries, including China, South
Africa, India, etc. Pilots are key to the ETI strategy, as they generate information on
issues such as how to monitor for child labour, how to evaluate the quality of 1-day
audits, how different actors can contribute to auditing, how to establish worker
complaint systems better, etc. ETI reports the findings of its pilots and company
internal auditing to member organizations but not to the general public.
The ETI experimental projects offer a broad variety of approaches to theimplementation of international labour standards in global supply chains oftransnational companies involving commercial auditing and various forms of
multi-stakeholder verification. In some instances, progress consisted in building bridges
between stakeholders, meanwhile in others it went as far as establishing local
inspection bodies and contacts to local governments as well as improving labour
conditions.
21

www.ethicatrade.org

30

7.3 Fair Labour Association (FLA)22
Fair Labour Association (FLA) was founded in 1998 on the basis of the Apparel
Industry Partnership (AIP), which was initiated to address labour rights standards in
USA and world-wide apparel industries. The aim of FLA is to improve working
conditions in factories in the garment and sports shoe sector in USA and abroad. To date,
FLA comprises 16 companies, 191 colleges/universities and 33 NGOs.
FLA has developed a “Workplace Code of Conduct and Principles for Monitoring”.
According to the FLA monitoring program, participating companies agree to internal
and independent external monitoring as well as remediation in order to promotecompliance with the provisions of the FLA codes. FLA monitoring is conducted in theform of unannounced visits.
All internal and external monitoring reports will be provided fully to the FLA. The
FLA publishes annual public reports on the global compliance record of each its
participating companies. The information related to monitored and independently
verified factories is disclosed on its website.
In August 2004, FLA published its Year Annual Public Report on the independent
external monitoring. According to this report, FLA conducted independent externalmonitoring visits to 110 facilities in 20 countries in the year 2003.
Labour and human rights organizations are encouraged to undergo the accreditation
training process. FLA currently accredited the following 12 monitors to perform thework of independent external monitoring: A&L Group, Cal Safety ComplianceCorporation, Cotecna Inspections, COVERCO, Bureau Veritas, Global Standards/Toan
Tin, Grupo de Monitoreo Independiente de EI Salvador, Kenan Institute Asia,
LIFT-Standards, Phulki, SGS, T-Group Solutions.

7.4 Fair Wear Foundation (FWF)23
FWF launched in Netherlands in 1999, with aims to promote humane labour
conditions in worldwide factories that produce garments for the Dutch market. Its
memberships include business association, trade unions and NGOs. The FWF code of
conduct is based on the model code of the ICFTU.
The FWF member companies accept responsibility for labour conditions in their own
company and their supply chains including suppliers and subcontractors. The member
companies must monitor the implementation of labour conditions in the entire supply
22
23

www.fairlabor.org
http://www.fairwear.nl

31

chain based on the social standards of the FWF code of conduct.
FWF has developed different instruments to achieve its aims: complaint proceduresfor employees, external factory audits, contacts with local organizations, and audits ofmanagement systems. FWF builds networks of partner organizations composed of tradeunions, employer organizations, NGOs and public bodies in countries or regions where
its members’ suppliers locate.
The external verification takes place at two levels: the FWF verifies 1)theimplementation of labour conditions, and 2)the management system requirements.
Consultations with local organizations play a key role in the verification of the FWF.
The FWF verification relies on an effective complaints mechanism of workers.
Members of FWF partner networks and other interested parties have the possibility to
file complaints to the FWF which assesses whether or not it is related to the FWF codeof conduct. Member companies are then responsible for dealing with the complaint andinitiating corrective action. All parties involved are informed regularly. The FWF isultimately responsible for ensuring that the complaint is adequately being dealt with.

7.5 Social Accountability International (SAI)24
In 1997, the US-based SAI (formerly known as the Council on Economic Priorities
Accreditation Agency (CEPAA), a US corporate responsibility research institute)developed the “Social Accountability 8000 (SA8000)”standards, with the support ofNGOs, trade unions, and companies. The main purpose of SA8000 is to help companies“maintain just and decent working conditions throughout the supply chain”. The
SA8000 standard is mainly based on the experience gained from the ISO 9000 norm on
quality management. It consists of a set of labour standards, a management systemstandard (for managing the implementation of labour standards), a certification
procedure (which includes trainings and audits), the SA8000 certificate, and an
accreditation system for auditors. Unlike many other codes, SA8000 is a global codethat can be implemented in any country and in any sector.
SA8000 provides the necessary definitions and management systems to develop an
auditable system, which can be checked by qualified auditors. SAI accredits certification
firms and NGOs to audit and certify companies. It is the first auditable standard on
working conditions. The majority of the companies adopting SA8000 are in the retailsector, manufacture clothing, toys and shoes. The greatest Interest lies in the sectors
where there are well-known brands that need to be protected. Interest in SA8000 is
growing among the agricultural, chemical and electronic sectors. As of December 31,
24

www.cepaa.org

32

2004, Companies adopting SA8000 had a combination of 363,702 employees, andSA8000 certificates have been issued in 45 countries to over 572 companies.25
The increasing impact of SA80000 is that it can be auditable. It also has management
systems to embed the standard into the company culture, and this makes it easier forlarge companies to adopt SA8000.

7.6 Worker Rights Consortium (WRC)26
WRC was founded in 2000 on the initiative of “United Students Against Sweatshops”(USAS). The purpose of WRC is to improve labour conditions in the sportswear supplierfactories of companies producing goods under license for US universities (Nike, Adidas,
Reebok, etc.). WRC supports and verifies licensee compliance with the codes of conducts
for apparel manufactures which US colleges and universities have developed in recent
years to ensure that the licensed goods sold on their campuses are produced underhumane working conditions. The WRC had 143 college and university members as of2004 and focuses primarily on factories producing apparel with university logos.
WRC employs three broad strategies: (1) inspections of factories from which WRC has
received worker complaints; (2) proactive inspections in countries with patterns of poor
practice and worker organizing efforts; and (3) information disclosure requirements.
WRC does not certify company compliance with a code of conduct, conduct systematic
monitoring, or accredit monitors. Instead, it encourages (not requires) participating
universities to adopt codes of conduct that closely resemble the WRC’s model code,
which includes strong provisions for a living wage, women’s rights, and worker’s rights
of freedom of association. The WRC requires member universities to commit to broad
public disclosure and to develop mechanisms to verify information reported bycompanies and their suppliers.
The WRC’s goal is to ensure which factories that produce university-branded apparelcomply with a base code of conduct and, in particular, with rights of freedom of
association and collective bargaining. The WRC also seeks to educate workers
themselves about university codes so that workers may report code violations to local
NGOs or the WRC. The WRC aims to work collectively with its university affiliates, thelicensee corporations (the manufacturers), and local NGOs to correct problems thathave been identified. The WRC’s investigative efforts rely on collabouration with local
NGOs and activists; personnel from either its board WRC, or affiliated university
25 SA8000 Certified Facilities - as of December 31, 2004, see:
http://www.sa-intl.org/index.cfm?fuseaction=Page.viewPage&pageID=513&grandparentID=
473&parentID=617
26 www.workersrights.org

33

members; and labour and human rights experts.
Comparing above various MSIs, there are some differences among them (SeeAppendix 6). Firstly, the composition of their membership is different. There are notindustry representatives in their members of the WRC and the CCC, while FLA has nounion members participation and government observer is involved in the ETI. Secondly,
the scope of application is different. All the MSIs share the goal of improving labour
conditions in the worldwide apparel and sports shoe industry. However, the FLA, theETI and SA8000 do not confine themselves to this industrial sector. The FLA also
addresses companies in other sectors which manufacture licensed products for US
colleges and universities. The ETI’s field of activity includes the food, and horticulture
sectors. SA8000 can be applied to all industries. Thirdly, the model of monitoring isdifferent. Under both SA8000 and FLA, companies choose and hire the social auditors,
either private sector firms or NGOs, from those that have been accredited in these
programs. ETI has decided to avoid, at least for the present, accrediting auditors or
certifying factories. Instead, ETI is experimenting with pilot projects to evaluate
different models for verifying code compliance. ETI pilot project approach offer
advantages to southern and northern NGOs interested in playing a direct role in factory
monitoring and social auditing. It would allow NGOs to test out their possible roles inmonitoring, social auditing, and the possibility of North/South collabouration.
MSIs have been somewhat successful in addressing certain weaknesses associatedwith corporate self-regulation. Particularly, they attempt to impose a degree of
coherency on the confusing proliferation of company codes, and the attention they havedirected to issues of labour rights and working conditions, independent monitoring, theresponsibilities of suppliers in MNEs value chains. MSIs also rely upon localorganizations and activists that have the capacity, resources and interest to inspect andreport on factory conditions. These models of MSIs bring into decision-making processes
a broader range of actors and can, therefore, have positive impacts to address
governmental enforcement of laws, and respect for individual human beings, andimprove working conditions in global chain of MNEs.
However, there are major differences in the extent to which these MSIs integrate
trade unions, local-level monitoring and verification organizations, or more civil society
actors in Southern countries. Questions have also arisen regarding the accountability,
legitimacy and credibility of some MSIs and the NGOs with a dominant position inthese new systems of corporate regulation, including their representation of workers’
interests and their close association with the corporations they seek to regulate. Many34

trade unionists suspect that behind the new enthusiasm for codes of conduct andrelated monitoring plans is an agenda aimed at replacing the bargaining the role oftrade unions and their effectiveness in the political arena. Some see the real goal of
MSIs by corporations’ supporting as the destruction of strong, class-based workers’organizations (Compa, 2001). Many Northern advocates oppose a monitoring role forinternational accounting firms or other corporate-oriented social auditors. Others
oppose monitoring even by Northern-based NGOs or unions, and insist that only
indigenous, locally-based NGOs and unions should monitor codes of conduct.
Workers, unions and NGOs in many Southern countries have additional criticisms.
For many of them, the movement for codes of conduct is a peculiarly Northern
phenomenon. Some Southern actors suspect the aim of those NGOs and privates comingfrom Northern whether they real address to improve worker’s rights. In fact, thelanguages of codes have been rarely disseminated to workers in Southern countries(Compa, 2001).
In addition, the cost and complexity of many MSIs’ procedures, and the limited
capacities of many NGOs or other organizations involved both quantity and scale(UNRSD, 2004). Furthermore, most firms remain fairly immune to the pressures andincentives that are driving CSR and that might encourage them to participate in MSIs.
(See table 3)
Table 3: Multi-national Corporations, Certification and Reporting:Participation in Selected Multistakeholder Initiatives
AS OF 2002: TOTAL MNCs=64,000; TOTAL AFFILIATES=870,000
Multistakeholder initiative

Entities

As of

SA8000 certification

572

Dec. 2004-participating companies

12

Dec. 2003-affiliated companies (licensees)

1266

Dec. 2003-participating companies

34

Dec. 2003-affiliated companies

n/a

Fair labour Association

Ethical trading Initiative

Fair Wear Foundation-participating companies

15-affiliated companies (licensees)n/aMar. 2005

Sources: UNRSD, Corporate social responsibility and business regulation 2004; Wick (2005), Workers’ tool or PR
ploy? a guide to codes of international labour practice; SAI, FLA and ETI Web sites.

35

8. Voluntary and public regulatory approaches to policy
Regulating MNEs requires establishing rules to influence corporate practices inpublic interest. Traditionally, the global economy forces were governed by two
approaches. One approach is to pursue a formal-legal institutional framework, either
through multinational agreements involving organizations such as ILO and WTO, or
through such bilateral agreements as social clauses in trade agreements. Anotherapproach is that direct activists press on firms to adopt labour standards, which areultimately enforced by consumer pressure. This approach, which may bypass
governments and international organizations, typically seeks to influence corporate
behavior directly through the adoption of voluntary codes of conduct. It is oriented
toward getting corporations to change their behavior voluntarily, using such incentives
as the threat of a consumer boycott or certification to improve a company’s standing in
consumer markets. Needless to say, these two approaches each has its strengths andweaknesses.

8.1 International trade link with social clauses
Calls for including a social clause dealing with labour and environmental issues ininternational trade policy have been mentioned for several decades, but all of labour's
efforts to achieve this through international organizations of governments, primarily
the General Agreement on Tariffs and Trade (GATT) and its successor, the World Trade
Organization (WTO), have been rebuffed. Even efforts merely to create a WTO working
group just to study the idea of linkage, were roundly rejected at WTO ministerial
meetings in Marrakech in 1994, Singapore in 1996, and Seattle in 1999. The clash
between developing and developed countries on this issue contributed to ministers’
failure to reach consensus on the launch of a new round of trade negotiations.27
The linkage of trading to labour standards was viewed with great suspicion by many
developing country governments. They saw such clauses as a new form of northernprotectionism aimed at keeping cheaper southern goods out of their markets. Sanctions
would have their most damaging effect on the workers themselves, and could trigger a
trade war. They are also opposed by corporations, which are pushing for ever-greater
freedom and deregulation in their relentless global searches for cheap labour and lax

27 The 1996 WTO Ministerial affirmed the primacy of the International Labor Organization(ILO) in developing and enforcing international labor standards, effectively removing itself
from the process of developing a social clause. The WTO, which although has the power toimpose sanctions for violation of its rules, has refused to create labor and environmental
standards codified as part of the world trading system in Seattle conference in 1999,
claiming them already existing in the ILO.

36

environmental policies. It is feared that concerning over standards could threaten
global liberalization trade.
ILO is one vehicle for generating multilateral standards. In recent years, ILO hascommitted itself to developing greater coherence among multilateral institutions
concerned with labour standards and trade. However, ILO is far from becoming a global
arbiter or enforcer of labour standards, for ILO is unable to impose penalties forviolations of these rules, as the implementation of which is entirely voluntary on thepart of member nations. The issue of labour rights, therefore, has been left in thehands of an organization structurally incapable of enforcing its own provisions andmandate (Richard, 2000). Absent from truly global governance institutions, adoption
and enforcement of labour standards remain the ultimate respective national
governments. As is well known, governments can be highly selective in their ratificationof ILO labour standards (See table 4), and even more selective in terms of
implementation and enforcement. Even if in ratified countries, the effects ofenforcement are also weak.
Table 4: Ratifications of ILO core conventions (as of 22 Feb 2003)
Core principle
Forced labour

Convention
ForcedCountries

U.S.

Japan

China

ratifiedratifiedratifiedratifiedlabour,

161

N

Y

N

forced

159

Y

N

N

141

N

Y

N

152

N

Y

N

161

N

Y

Y

158

N

N

N

121

N

Y

Y

convention No.29
Abolitionoflabour,convention

No.105
FreedomofFreedom of association

association

NO. 87and collective

Right to organize andbargaining

collective

bargaining,

convention No.98
Discrimination

Equal

remuneration,

convention No.100
Discrimination,
convention No.111
Elimination of

Minimumchild labour

convention No.138

age,

37

Worst Forms of Childlabour,

133

Y

Y

Y

convention

No.182
Source: ILO website
The voluntary code campaigns can be seen as a response to the stark failure ofgovernments and multilateral institutions to help ensure a fair distribution of trade
benefits to workers and small producers. With businesses increasingly hostile tostatutory regulation and trade unions since the late 1980s, the campaigning groups
have focused on market-based mechanisms to achieve social and environmental goals.
In addition, the voluntary code campaigns have made it easier to build consensus
between northern and southern NGOs than previous attempts at reforming the world
trading system.

8.2 The Comparison of Regulatory and Voluntary Approaches
Voluntary regulatory initiatives have become popular in recent years. They cover arange of approaches including corporate codes of conduct that lay out the social
commitments the company makes; management and accounting systems that translate
those commitments into specific roles and responsibilities within the organization; andmonitoring, auditing, certification, and labeling programs that testify to successfulachievements. They have been heralded by many businesses as effective ways ofencouraging action that goes “beyond compliance” (David, 2002).
At the conceptual level, there is general consensus that sustainable development can
not be achieved through a regulatory approach alone. Voluntary initiatives are needed
to help meet the complex and urgent challenges of sustainable development. Bothregulatory and voluntary approaches have their own benefits and limits. (See table 5).

Table 5: Comparing Regulatory and Voluntary Approaches
Regulatory Approaches

Voluntary Approaches

Main advantages

Main advantages

9 Transparency

9 Great flexibility

9 Great credibility

9 Lower compliance and administrative costs

9 Compulsory application to all

9 Speed in establishing and amending rules

9 Cost is borne by the entire society, and9 Avoidance of jurisdictional concerns, and

9 The availability and range of sanctions

9 Internalization of responsibility

Typical limits

Typical limits

9 Inflexibility

9 Low credibility

9 Expensive operation costs

9 Low transparency38

9 Jurisdictional limitations, and

9 Process often dominated by industry, and9 slow in developing or amending law

9 A limited array of potential sanctions

Voluntary regulation has emerged to fill some legal and normative vacuum (John J.
Kirton, 2004). In fact, such as “soft law”, that reflected in voluntary codes andcertification schemes, faced with the complex global social environment---greater
flexibility and harmonization, has some important advantages over “hard law”. Most
obviously, it is easier to adopt as it need not go through the laborious process ofachieving governmental approval, something which can be particularly difficult at theinternational level. In addition, precisely because it works through market mechanisms,
it is more palatable to policy-makers and many citizens in developing countries. The
latter have often strongly opposed the efforts of some western governments and many
western activists to use trade policy that restrictions represent a disguised form ofprotectionism. Private systems of regulation are less objectionable since they rely on
voluntary agreements between western firms or consumers and developing country
producers.
While these codes of conduct are private voluntary self-regulatory mechanisms forregulating labour practices and promoting respect for international labour standards insupply chains, they can’t substitute for intergovernmental cooperation or international
labour standards. Nor can they substitute for national law and the enforcement thereofor for systems of industrial relations (involving trade unions and collective bargaining).
Where national and other applicable law and the workplace standards in these codes
address the same issue, the provision that is the highest workplace standard will apply.

8.3 Government and codes of conduct
Although CSR initiatives has traditionally been regarded as an activity thatcompanies engage in voluntarily, the growth and influence of the “corporate citizenshipmovement” has led to increasing calls for governments to regulate the social behavior ofcompanies (Gianni Zappala, 2003). Governments all over the world are beginning torecognize the importance of addressing the activities of CSR initiatives. Increasingly
the words CSR initiatives and sustainability are emerging in public policy discussions.
More recently, the focus has shifted to the relationship between public policy and CSR
initiatives.
There may be several ways to categorize the different approaches of government’s
involvement in codes of conduct campaign. In some cases, the government initiatives
the approaches, in other cases the government plays only an indirect role. The
influences that governments had shaped private corporate initiatives include:39

8.3.1 Enforcement strategies and legal and regulatory risk management
Regulatory enforcement has increasingly relied on private initiatives as the first lineof enforcement (OECD, 2001b). Because such a strategy often involves creating an
incentive for firms to adopt particular management practices and systems, and it often
boosts firms’ reliance on such systems. In some OECD countries, this creates powerfulincentives to identify major risks and to devise systems of internal control designed to
manage such risks. These often include codes of conduct and supporting management
systems and practices.
In May 2002 the French government adopted a new law requiring that listing
companies should provide information on how the company takes the social andenvironmental consequences of its activities into account. 28 The New Economic
Regulations (Nouvelles Regulations Economiques – NRE) is the first law passed on thisissue in the world. The decree includes not only social and environmental information,
but also information such as relations with subcontractors, the impact of the firm’s
activities on local development, and also the respect for human rights in the subsidiarycompanies abroad. The law makes it mandatory for all nationally listed companies toreport on social and environmental issues in annual reports. It is a legal obligation todisclose information on the social and environmental impact of company activities andshould not be confused with a reporting device.
In 2001, with the support of the German Federal Ministry for Economic Cooperation
and Development (BMZ), the Roundtable on Codes of Conduct was set up. Industrial
associations, companies, NGOs, trade unions and representatives of the German
government all participated in it. 29 The Roundtable calls for the introduction ofvoluntary codes of conduct in German firms with production plants or suppliers indeveloping countries. This is a contribution to the socially responsible shaping of
globalization and supports the emergence of socially equitable market economies indeveloping countries. In a joint effort, recommendations on the introduction, monitoring
and verification of social standards are worked out and pilot projects are developed.
In 2001, the European Parliament deliberated a European code of conduct fortransnational corporations located in Europe and operated in developing countries, aswell as required companies to report on their environmental and social performance.

8.3.2 Taxes relief and financial support
28 Shari Nourick (2004) Advancing the CSR Agenda in the EU: National and Local Level
approaches, http://www.lux-ias.lu/PDF/Nourick.pdf.
29 Codes of conduct on social standards, the Roundtable on codes on conduct, Germany.
See:http://www.coc-runder-tisch.de/coc-runder-tisch/inhalte/publikationen_rt/Guide_social_s
tandards_2004_engl.pdf

40Some OECD governments provide favorable tax treatment to the non-profit sector
and define the non-profit sector for tax purposes so that it includes the NGOs that
operate in this field. At times, this favorable tax treatment is available for contributions
to other institutions (professional societies and universities) that are also active in thisfield.
Governments and intergovernmental organizations tend to play supportive roles inselected hybrid code systems, serving as catalysts, facilitators, endorsers and evenfinancial supporters (Gianni Zappala, 2003). The Ethical Trading Initiative receives itscore funding from the Government of the United Kingdom30, SAI and WRC both have apart of fund which comes from government.
In particular, NGOs have played central and varied roles in the development of many
corporate responsibility initiatives. This has indirectly shaped the CSR movement andhas probably been quite important in the countries where tax incentives for non-profit
activity are high. NGOs have monitored the activities of particular corporations. They
have issued model codes of conduct that they hope will be influential. They haveprovided expert advice in the field on matters of CSR. They have also created
information systems designed to shed light on various aspects of firms’ behavior.
8.3.3 Direct participation in initiatives
The UK government sends a representative to observe the ETI board meetings. The
Apparel Industry Partnership was developed with the encouragement of theGovernment of the United States. The code prepared by the Federation of International
Football Associations (FIFA), with international trade union secretariat assistance, led
to an agreement to run cooperative projects to eliminate child labour from particularindustries in South Asian countries, where the ILO and the United Nations Children’s
Fund (UNICEF) cooperate with industry groups, workers, governments and NGOs.
8.3.4 Contributions to specialists and techniqueSome governments have played important and varied roles in the development ofmanagerial and technical expertise that underpins voluntary initiatives. These include
provision of government expertise to the organizations that discuss and design
standards.
The FLA (Apparel Industry Partnership Agreement) was promoted by the UnitedStates Department of Labour in response to concerns that various apparel
manufactures were using child labour in hazardous, sweatshop conditions, both
domestically and internationally. The partnership, convened by the government,

30

ETI is funded by a grant from the government (40%) and by membership fees(60%).

41

brought together representative of industry, consumer and human right groups todiscuss these issues.

9. Japanese corporations’ CSR practices and supplier chain codesof conduct
In recent years CSR has come to be an important management subject and has
drawn much attention in Japan. With discussions of CSR having increased in US andEuropean countries during the past few years, Japanese corporations have started to
pay more attention to CSR practices in US and Europe. Many Japanese managers
abroad learn various CSR practices and bring them back to Japan (Hirofumi Ideshita,2002). As described by Keizai Doyukai (Japan Association of Corporate Executives) in"the 15th Corporate White Paper" in March 2003, the importance of corporations takingsocially responsible actions begins to penetrate slowly into the minds of businessleaders, and the dissemination of CSR concept in the Japanese society seems to shift
from "why" to "how"( Keizai Doyukai, 2003). However, compared to the European andAmerican societies which are more concern about labour rights and human rights in
CSR, Japanese society shows a relative low-key response in this aspect

in general(Paul, 1992; GISPRI, 2003; Kanji Tanimoto & Kenji Suzuki, 2005).

9.1 labour-related CSR in Japan
It is argued that the concept of CSR is not new in Japan, as well as in other societies.
Japanese companies have been traditionally seen as having widely perceived
themselves as social institutions. Companies have long been engaged in initiatives thatfurthered the interests of the community, and manifested most predominantly byphilanthropic contributions and conventional beliefs in life-long employment. However,in contrast to the old idea of CSR, its modern concept today is voluntarily and largely
driven by constituencies such as consumers, NGOs, investors, international trade union
organizations, activists, and the corporations themselves.
In Japan, the focus on CSR began with environmental efforts. In recognition of their
dedication to the environment issues, Japanese companies hold a much higher
proportion of the ISO 14000s certifications than other industrialized countries (CBCC,
2003). Starting in the mid 1990s, an increasing number of Japanese companies began
developing environmental management systems aimed at ISO14001 certification. By
the late 1990s, the term “kankyo keiei” (meaning “environmental management” inJapanese) began to come increasingly into use, and companies began to prepare
environmental reports to disclose their environmental management efforts. As of 2003,42

about 600 companies in Japan have published environmental reports. If site-based
reports separated from branches and factories are counted, this number exceeds 1,000,
indicating the country's outstanding performance in this area (Hiroyuki Tada, 2003).
But today CSR has expanded to human rights, fair labour standards, consumer
protection, and health and safety issues, etc. The Nippon Keidanren’s ‘Corporate
Behaviour Charter’ (established in 1991, revised in 1996, 2002, 2004) calls upon
members to strive to respect diversity, individuality and differences of their employees,
to promote safe and comfortable workplaces, and to ensure mental and physicalwell-being of their employees.
The Keizai Doyukai in its ‘21st Century Declaration’ (2000) advocated corporate
responsibility for creating not only “economic wealth” but also “social and human value”.
Their strong commitment to CSR principles was reaffirmed in its 15th Corporate White
Paper “Market Evolution and CSR Management” in 2003.
According to a Keizai Doyukai 2004 report, about 32% of all the companies that havesubmitted self-evaluations reported that they had established department in charge of
CSR. However, the ratio of corporate codes of conduct which have article on labour isstill small in Japan (GISPRI, 2003). According to one review of Japanese case studies,“only 30% of Japanese large corporations have written codes of ethics and more than
70% do not have any system for monitoring ethical behavior” (Nakano Chiaki, 1999).
The issue of human rights as one of the CSR areas has not progressed so far as thedevelopment of other activities regarding to CSR in Japan (GISPRI, 2003). Even Nippon
Keidanren's Charter of Corporate Behavior and the recent white paper on CSR
management published by Keizai Doyukai allocate few lines for human rights issues.
There are some reasons to explain the relative scarcity of labour standards andworkplace issues：Firstly, employees have traditionally been considered as stakeholders
of a company and there exists a perception on the part of companies that they have forlong addressed the issues and thus less need to address them systematically umbrella ofCSR (Kee, 2004); Secondly, company policies on environmental issues and community
health have been in place the longest, while labour rights and human rights having acomparatively shorter lifespan (World Bank/IFC, 2003); Thirdly, Japanese companies
are highly aware of CSR, but tend to avoid formal administrative processes, which are
preferred by Western companies. Instead, Japanese firms predominantly use cultural
mechanisms such as philosophy and guiding principles to address such issues. The
planning and management of most important issues are conducted through teams orcommittees, while little formal monitoring is conducted (Lewin et al, 1995). In addition,some scholars, Paul (1992), for example, stated that the lack of political and religious

43debate issues of justice and social problems also led to the fact that the idea of CSR in
Japan had developed slowly.

9.2 Social Responsible Investment (SRI) in JapanThe CSR movement is supported by socially responsible investing (SRI), a type ofinvestment which actively supports companies that exercise social responsibility. In
Japan, several SRI “Eco-funds” were launched in 1999. As of the end of 2003, the net
asset value of all of Japan’s 16 SRI funds totaled about 80-90 billion yen (about US$770-870 million). This amounted to only 0.3% of the total assets of investment funds inJapan. Even including the operating assets of institutional investors, these funds’ net
asset value remained at the less-than -100 billion yen (about U.S. $960 million) level.
This is incredibly small compared to the much larger SRI markets in Europe and U.S.31
According to a survey conducted by the Japan Research Institute on CSR
management trends at Japanese companies, Japanese firms are likely to face lessdemand to address workplace issues from investors. Reflected in the prominence of
eco-funds in SRI, Japanese investors have a relatively lower interest in the social
aspects of CSR compared with environmental issues. A

Ministry of Environment

survey suggests that private individuals in Japan, who are either investors orinterested in investing generally, are concerned significantly more about environmental
measures and customer health and safety than about workplace issues, in contrast to
US and Europe (Ministry of Environment, 2003).

9.3 Japanese corporate suppliers’ codes of conduct and their global supply
Chain Policies
Interest in supply chain policy appears as a relatively recent wave of CSR
internationally (Moon, 2003) and reflects Japanese companies, particularly MNEs,
taking greater responsibility for community, society and environmental responsibility of
their suppliers and business partners in recent years. An survey conducted by Kyoko
Fukukawa & Jeremy Moon (2003), revealed that over half (51% by the top 50 companies
on their home web-sites) of the companies established policies or guidelines for businesspractices in relation to suppliers, particularly in the area of environmental
responsibility.
It is clear that concerning more about environmental responsibility is a distinguishedcharacter of Japanese companies' oversea supply chain policy. There are some examplesof Japanese MNEs’ CSR practices in their supply chain management:31

http://www.csrjapan.jp/research/trend/pdf/csr2003_summary.pdf

44One example is that Hitachi Group established its self-regulation on CSR activities in
2005, the Group is aware of the need to enhance its corporate value not only byobserving all relevant laws and regulations, but also by fulfilling its social
responsibilities as a good corporate citizen. The Hitachi Group has drawn a new
Environmental Vision Sustainability Compass. The ultimately aim is to create arecycle-oriented society and co-exist in harmony with the nature. Utilizing Design forenvironment, Hitachi is striving to minimize the impact that products have on theenvironment. In order to reduce environmental impact at each of its production sites,
Hitachi is now creating eco-factories working to prevent global warming through energy
conservation measures, reduction of waste and management of chemical substances. By
the end of March 2005, 277 of Hitachi’s companies in Japan and overseas have obtained
ISO14000 certification.
Another example is that NEC Group established Green Procurement Guidelines for
suppliers in 2004, NEC has been making company-wide efforts to implement a green
procurement policy that gives priority to purchasing materials with low environmental
impact. Based on Green Procurement Guidelines, NEC awards green certifications andenvironmental ratings to suppliers, with the goal of ensuring that all purchasing meetsgreen procurement criteria by the end of 2006.
In comparison to other western countries, with regard to supplier codes of labour
conduct, Japanese MNEs that adopted such rules of behavior are much less than US
and European MNEs. The labour standards and workplace issues of CSR concerning,are considered less important in Japanese business dealings with business partners.
The suppliers note that buyer companies readily request specifications on quality,
privacy of confidential information, and environment, but workplace criteria arefrequently not prerequisites for business partnerships (Kee, 2004). Japanese
corporations’ supply chain policies tend to focus on internal ethical matters rather thaninternational societal issues (Kolk, A. & R. van Tulder, 2003).
However, some corporations are willing to establish suppliers’ codes of labour conduct
in resent years. For example, the Sony Group established its supplier codes of conduct
in June 2005 32 . The code outlines standards to ensure that the labour rights andworking conditions of its supplier. Sony Group expects its suppliers to adhere to its
basic policies on compliance with applicable laws and regulations respecting humanrights and safeguarding the environment. It appears to reflect a kind of “competition”

32 see:http://www.sony.net/SonyInfo/Environment/management/chain/qfhh7c000006e5vx-att/qfhh7
c0000000z9c.pdf

45

that increasing Japanese companies are adopting codes of conduct with labour rights
and working conditions. But some factors make it a “dilemma” that the corporations
address international labour issues: Japanese imports are increasing, making overseas
labour issues more relevant to Japan, so the growing concerns about labour standardsin America and Europe may bring more pressures on Japanese companies; and there ispotential danger that labour issues could become barriers to trade with developing
countries—which would make it more difficult for Japanese companies to maintain andbuild new relationships with developing country suppliers.

10. Estimating the impact of voluntary codes of conduct todeveloping countries
The diversity of current codes and monitoring systems has led to both confusion anddebate about the benefits and limitations of self-regulatory strategies. The versions ofvoluntary mechanisms are range from individual factories paying to be certified, tomultinational

brandsinternallymonitoring

theircontractor

factories,

tomulti-stakeholder initiatives accrediting third-party organizations to inspect factories,
to independent NGOs inspecting factories individually or in coordination with worker
organizations. While no comprehensive assessment of the effectiveness of this voluntaryself-regulation to date, there is no public data available to analyze how well thesesystems of regulation are currently performed in developing countries. However, there
are some sporadic materials getting from some programs.

10.1 Case study 1: Working conditions of Vendex KBB suppliers in India and
Sri Lanka
In 2001, the Dutch CCC commissioned SOMO, the center for Research on MNEs in
Netherlands, to investigate working conditions in factories of India and Sri Lanka
producing for Vendex KBB, the Dutch largest retail group that have codes of labour
standards. 33 Vendex KBB claimed that they were monitoring their suppliers forcompliance with their codes of conduct, but refused to reveal anything about the way
the monitoring was being done, how many factories had been checked so far, and whatkind of methodology was used to obtain information on the working conditions.
However, the investigation findings revealed that Vendex KBB's current code of
conduct and monitoring system, and those of its subsidiaries, were ineffective inpreventing labour rights violations, and that many violations of minimal standards still
33 The reality behind corporate social responsibility: Research on labor conditions in supply
chain of Vendex KBB, see: http://www.cleanclothes.org/news/newsletter15-12.htm

46

existed on a large scale. Numerous violations of the basic labour rights endorsed by
Vendex KBB were found in this investigation.
The investigation found that the major obstacles for garment workers in India and Sri
Lanka were the lack of freedom of association and the right to organize, long working
hours (60 hours a week on average, sometimes even 90 hours), forced overtime, and low
wage levels. Some of the factories paid wages that were even below the legal minimum
wage, which was around $40 to $50 (US) per month. The only improvements in recent
years seemed to have taken place with respect to child labour and health and safety,
though the conditions in these factories were still far from safe and garment workers
continued to suffer from health problems. Improvements could be seen in the areas thatwere possible to be checked by physical factory inspections, but even the management
said that Vendex KBB had never carried out factory inspections. Most of the workers
that were interviewed for this research project had never been interviewed by "social
auditors" working for Dutch retailers (or any other Western retailers for that matter).
The few workers that had been interviewed by auditors said they had been told bymanagement beforehand what they should say, and they were too afraid to tell thetruth.

10.2 Case study 2: CSR-implementation in the Footwear and Textile
Industries in Vietnam
During January 2003 to March 2004, the World Bank implemented a program oftechnical assistance on government roles for strengthening CSR in Vietnam.34 This
program focused on CSR issues of labour standards through a case study of the footwear
and textile industries in Vietnam.
The survey showed that although most requirements of codes of conduct wererelatively similar to Vietnamese laws, to comply with the requirements of these“national standards” was not easy in fact. Foreign investment factories and internal
factories which were new set up had more advantages, while factories which wereconstructed a long time ago (over 10 years) or factories with limited infrastructure weredifficult implementations, especially those middle and small enterprises.
According to the survey, factories which had initiated and implemented requirementsof codes of conduct must carry out improvement mass activities, such as improvement

Study on corporate social responsibility labour-related practices, Ministry ofLabor-Invalids and Social affairs (MOLISA) and Institute of Labour Science and Social
affairs (ILSSA),Vietnam, 2004. see:
http://siteresources.worldbank.org/INTPSD/Resources/Vietnam_ILSSA.pdf
3447

on OSH and working conditions, renovating the production arrangement, developing
and improving internal monitoring and management system, training, etc. This
investment process was very costly. In CSR-implementing and CSR-initiating firms,
such investment was taking important position in total of the investment.
The implementation situation of some main codes of conduct in the Vietnamese
enterprises was encouraging, but not so satisfactory. For example, in general, allsurveyed enterprises were complying well with Vietnamese legislation and rules of thecodes, however some enterprises were detected to have some violations such as asking
for payment from workers in recruitment, forcing workers to work overtime, restricting
the time of using toilet at work time, etc.
On the whole, there were some difficulties and challenge in CSR’s implementation:
1) Further investment for improvement. CSR-implementing and CSR-initiating
factories had to spend much money on upgrading and improving other infrastructures,such as: storage, internal path, canteen, toilet, fire control facilities, lighting system,
ventilation, garbage treatment, etc.
2) Working hours. Although footwear and textile enterprises were allowed to extend
overtime hours to be up to 300 hours/year, many viewed that such level was too low to
fit with the real demand. Most of enterprises had overtime hours exceeding the
stipulated level of labour legislation. As stated by enterprises, it was unavoidable towork overtime in some period in the year, because of delivery deadline, especially thosewere producing for different partners without long-term contract. Furthermore, theissue was more difficult because the workers wanted the extra money and would often
willingly take the overtime, even if illegal, despite the increased risk of injury due tofatigue. Other issues related to working hours included mandatory overtime andinadequate compensation for extra working hours.
3) Workers turnover. The instability of production is caused by nature of orders,seasons and material sources. This phenomenon is widespread among footwear andtextile industry. Workers turnover makes not only difficult to organize production but
also hard to implement some mandatory regulations or provisions on codes of conduct.
4) Vague awareness and limited understanding on codes of conduct. Although
workers were aware of the codes’ existence in factories, they only had a vague
knowledge about it. The codes seemed to be interpreted solely as a vehicle forestablishing and reinforcing legitimate expectations regarding working conditions.
Furthermore, many factories stated that even when they had implemented a certain
code of conduct, they were still lack of information of origin, source and underlying
reasons for its performance.

48

Nevertheless, through CSR-implementing, firms developed and improved internalmonitoring management. They specified function, responsibility, personnel, facilities
and detailed work plan to each management unit, etc. Managers stressed thatadherence to the code was very important as it could affect the number of future orders,and managers at some workplaces believed it could also improve performance.

10.3 Case study 3: SA8000 verification in China
In recent years, various Chinese media have produced many reports about CSR. The
CSR debate in China is mainly focused on foreign companies, particularly Europeanand U.S. companies and their supply chains, concerning about corporate codes ofconduct and certification processes.
In the various codes and monitoring systems, the SA8000 verification system was
widely referred in China. SA8000 enables companies to guarantee to their customers
that their commitment to good working conditions meets a certain (minimum) standard,
which largely conform to China’s labour law. The main “performance requirements” ofSA8000 address eight labour issues: 1) child labour; 2) force labour; 3) health and safety;4) freedom of association and the right to collective bargaining; 5) discrimination; 6)
disciplinary practices; 7) working hours; 8)compensation.
Failure to comply with SA8000 verification has a potential market sanction, so some
Chinese companies and government agencies worried that the European and US
governments were planning to limit Chinese imports that did not adopt these CSR
standards’ factories. Such a measure would effectively force Chinese exporting
manufacturers to adopt these social standards, which would involve various costs andthus limit China’s competitiveness as a manufacturing and exporting economy. To date,in fact, no western government is intending to close its country to products that are notcertified. However, although no immediate cause exists for Chinese manufacturers to
adopt one of CSR standards, in some sectors pressure from foreign buyers to raiselabour standards and to do so in a verifiable way is already being felt. This applies
particularly to Chinese suppliers to international brand companies in the footwear,
clothing and toy sectors.
As of December 31, 2004, the number of SA8000 certified factories in China was 79. 35
The certified industries mainly include: toys, apparel, textiles, accessories, electronics,
etc.
Compared with other supplier’s codes of conduct, SA8000 verification is carried out by
independent organizations or private companies (e.g. consulting company). All the cost35

http://www.sa-intl.org/sa8000/49

is undertaken by supplier. A survey conducted by the ILS (Institute for Labour Studies,
China) showed that the cost associated with SA8000 audits or achieving certification
ranged from $1500 to $15,000 depending on the size of the business. This does not take
into account the cost of infrastructure upgrades, staff training, consulting on changes inmanagement systems, or other expenses associated with bringing the company to thepoint of compliance. Companies that are faced with capital limitations have great
difficulty in undertaking the certification process.
the most occurring motivations for factories to adopt SA8000 are: 1) meeting thedemand of Northern buyers: some Northern buyers requires their suppliers in China to
be certified, as result, some export-oriented companies adopt SA8000 with a hope to get
more orders and partners and to extend the market; 2) self-awareness of enterprises:some provident companies inherent desire to maintain high labour standards andworking conditions, and with a consider taken for SA8000 standards’ implementation asa strategic plan in business and production development, especially for high-quality
labour force, high-yield productivity, better product quality and image, and effective
business and production; 3) pressed by other stakeholders: including local NGOs, labour
organization, and activists, consultant firms, etc.
In essence, consumer pressure regarding labour rights and working conditions
originated in U.S. and Europe. Labour rights and working conditions in theseexport-oriented enterprises are thought to be below local labour law and ILO standards.
Actually, China labour law is at least as strict as ILO standards. Likely SA8000
standards are inspired primarily by ILO conventions and other international principles
and local laws. The main practical problems on the workplace are high number ofworking hours, low salaries, and inadequate health and safety measures. Under thecurrent conditions in China, the main impact of SA8000 seems to be not so much in the
direct improvement of working conditions in individual factories, although in individual
cases it may play an important role in raising awareness among workers regarding
labour rights. The main impact seems to be in a longer term development where
SA8000 helps putting labour issues on the agenda of government authorities,
companies, industry organizations, trade unions, auditing firms and other stakeholders’organization.

10.4 The potential positive impacts of voluntary codes of conduct todeveloping countries
Although too few research data is available to allow drawing conclusions
regarding the impacts of voluntary codes of conduct to developing countries, there

50

are definitely some potential positive impacts in the further development:
10.4.1 Strengthening law and regulation
Voluntary codes and monitoring systems provide an important, complementarymechanism to strengthen the existing legal systems, and may foster greater desire to
improve those systems. Through adopting a code, a corporation could also acknowledge
its responsibility to abide by local labour laws. In most cases, local labour laws even indeveloping countries offer adequate protections for workers, conforming to at least
minimum international standards on subjects such as working hours, overtime
compensation, forced labour and child labour. However, labour issues still occur
frequently because governments lack adequate enforcement budgets, or are shortage oflabour inspection staff and other facilities. They are not able to fulfill the duty to handle
with the related labour issues. Therefore the implementation of CSR standards acts as
a supplement and enforcement to local laws and international principles. And thevoluntary corporate supervision mechanism has significantly supported national andlocal labour supervision system.
10.4.2 Access to contracts and new markets
Good compliance with codes can help corporations gain specific contracts or trading
relationships with MNEs or companies in Northern markets, as well as can help thementer international market.
10.4.3 Better performance on taking care of workers
Another important effect of voluntary codes of conduct is better performance ontaking care of workers. Codes of conduct act as a check on problematic corporate
behaviour and have generated some improvements in labour conditions, in which healthcare, salary, social welfare, working hours, labour contract are taken more notice. In
addition, workers’ awareness of the legal protections can be strengthened through codesof conduct and monitoring systems. Furthermore, the codes of conduct provide analternative dispute resolution mechanism for workers, as well as providing publicagencies with incentives to better enforcement of existing labour laws and regulations.
10.4.4 More ability to attract and retain employees
As a potential management tool, improving labour relations and working conditions
can reduce absenteeism, staff turnover and the cost of replacing and training staff. CSR
standards can also improve motivation and job satisfaction so as to attract and retain
employees and increase their loyalty to the corporations. In addition, good working
conditions can help companies to improve the quality and productivity of their output.

51

10.5 The challenge of voluntary codes of conduct
Although the initiatives to promote codes of conduct, and independent monitoring andverification systems have made progress in recent years, there remain several
outstanding issues on debate, the following are a number of limitations that must be
considered:
10.5.1 No-tariff Technical Barriers to Trade
An important voice coming from developing countries is that CSR standards are amechanism for retaining jobs, trade and investment in developed countries. The processof globalization has result in MNEs transferring labour-intensive production from thedeveloped countries in order to raise profitability by taking advantage of lower labourcosts. This process is most keenly felt by older semiskilled workers in the developed
countries where employment is limited (Stephen J. Frenkel, 2004). Unions and some
civil society organizations representing the benefit of these workers hold that MNEs be
responsible for unfair labour competition. This has been the most controversial in
relation to motivations of making CSR standards mandatory, or linking them to trade
agreements. Low-wage developing countries fear that any regulation to protect evenminimum labour standards in their countries will lead MNEs to shift direct investment
to another country where there is less regulation. For instance, the 2002 version of theannual white paper prepared by the American Chamber of Commerce (AmCham)claimed that labour costs in China were now higher than in many other parts of Asia, so
the government’s attempts to force the private sector to bare the brunt of social welfare
for workers alike was unreasonable. “Recent legislation requiring a minimum wage andbenefits for part-time workers has also placed an additional cost burden on
employers”.36 Efforts of developing countries to raise labour standards lead to loss of
productive investment, exports and employment opportunities, so under globalization
labour rights protection gets increasingly difficult.
10.5.2 The burden of monitoring and auditing and improvement
The proliferation of standards makes compliance difficult and costly. Failure canmean losing access to key markets. Besides the direct costs of making improvements,
monitoring compliance with CSR standards involves significant costs both in terms of
the administrative burden and the costs of external auditing and certification.
Independent auditors can be more expensive, particularly where they involve
international professional firms. Many firms are producing for a number of foreign

36 The American Chamber of Commerce, People’s Republic of China, “labor and benefits,”
2002 White Paper: American Business in China, 2002, see:
http://www.amchamchina.org.cn/publiccations/2002/en-9.htm

52

companies, each with their own standards. These firms are probably audited by varies
Northern buyers. This overlap audit work can increase the burden of certified firms. To
meet the requirements of CSR standards, many manufactures had to invest in buildings,
workshops, offices, occupational safety and health (OSH) equipments, fire control andprevention facilities, reformed management systems and consultation services. For the
manufactures in developing countries, these costs could be highly expensive in relation
to their small scale and outputs. The high compliance costs mean the potential loss ofcompetitive advantages such as cheap labour and low operating costs.
10.5.3 The defect of Standards for auditing
Despite the proliferation of different codes, in reality these are almost all based on thecore ILO conventions, covering the same themes and with similar standards that fallback on local law and industry standards as minimum standards. However, there is still
extensive debate about what these standards actually mean on the ground. Some issues
have yet to be fully developed, for example, how to implement working hours standards
to cope with seasonal fluctuations in production. The instability of production is caused
by nature of orders, seasons and material sources. This leads to low business efficiency
and high labour turnover. In response to this, enterprises have to increase shifting
working hours especially at peak time. This phenomenon is widespread among textile
and footwear manufactures.

11. Conclusions
CSR has been increasing as a result of the recognition of the essential contribution ofbusinesses to social, environmental and Human Rights progress, as well as pressuresfrom consumers, investors, employees, governments, international organizations, NGOs,
media and other civil society organizations. A growing number of businesses havealready taken CSR as a priority in their agendas. Voluntary of labour codes andassociated management and reporting systems are private initiatives designed to help
firms achieve a variety goals——protecting corporate reputation, improving employee
morale, enhancing consumer loyalty, avoiding costly sanction, etc. These voluntary
initiatives are widely acknowledged to be one of the most important developments ininternational business.
While it is hard to determine how much improvement MNEs-led codes of conduct andmonitoring programs could achieve. The key of the difficult problems in the complianceof voluntary codes of conduct is corporate trade-off with more commercial interests. The
effects of global civil society campaigns are both controversial and uncertain. Somecritics argue that social regulatory standards are a “cultural” feature of specific societies

53and should not be subject to global harmonization (Ronnie D. Lipschutz, 2003). Indeed,
domestic legislation in the home country is the most important influence on these
initiatives (OECD, 2001). Some economists point out that labour regulation would
reduce the economic attractiveness of host countries, undermine their comparativeadvantage in low-labour, and increase unemployment. Developing countries are also
suspicious about the effectiveness of the voluntary codes of conduct. They worried about
the developed countries act the linkage of trading to labour standards as new Non-tariff
technical barriers to trade.
Nevertheless, the voluntary codes of labour conduct campaigns are in general apositive development. After all, they provided a new market-oriented regulatory
mechanism in improving labour rights and working conditions, and acted as acomplementary mechanism for the governmental mandatory regulation. Comparedwith mandatory regulation, the voluntary self-regulation mechanisms have some
important advantages in facing with the complex labour issues in global society. But themain impact seems to be still depending on the endeavor of local governments in alonger term.

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60

Appendix 1:

Nippon Keidanren Charter of Corporate Behavior37
4th version released: May 18, 2004
Member corporations of Nippon Keidanren (hereafter referred to as "Members")
believe that corporations exist not only as economic entities designed to pursue profits
through fair competition, but also as social entities which must make a contribution tosociety at large. Members are expected to respect human rights and to conduct
themselves in a socially responsible manner toward the creation of a sustainable
society, observe both the spirit as well as the letter of all laws and regulations applying
to their activities both in Japan and abroad in accordance with the following ten
principles.
1. Members, by the development and provision of socially beneficial goods andservices in a safe and responsible manner, shall strive to earn the confidence of theirconsumers and customers, while taking necessary measures to protect personal dataand customer related information.
2. Members shall promote fair, transparent, free competition and sound trade. They
shall also ensure that their relationships and contacts with government agencies andpolitical bodies are of a sound and proper nature.
3. Members shall engage in communication not only with shareholders but also withmembers of society at large, including active and fair disclosure of corporate
information.
4. Members shall strive to respect diversity, individuality and differences of theiremployees, to promote safe and comfortable workplaces, and to ensure the mental andphysical well-being of their employees.
5. Members shall recognize that a positive involvement in environmental issues is apriority for all humanity and is an essential part of their activities and their very
existence as a corporation, and shall therefore approach these issues more proactively.

37

http://www.keidanren.or.jp/english/policy/cgcb.html

61

6. As "good corporate citizens," members shall actively engage in philanthropic
activities, and other activities of social benefit.
7. Members shall reject all contacts with organizations involved in activities inviolation of the law or accepted standards of responsible social behavior.
8. Members shall observe laws and regulations applying to their overseas activities
and respect the culture and customs of other nations and strive to manage theiroverseas activities in such a way as to promote and contribute to the development oflocal communities.
9. Management of members shall assume the responsibility for implementing thischarter and for taking all necessary action in order to raise awareness in theircorporation and inform their group companies and business partners of their
responsibility. Management shall also heed the voice of their stakeholders, bothinternally and externally, and promote the development and implementation ofsystems that will contribute to the achievement of business ethics.
10. In the case of incidents contrary to the principles of this charter, management ofmembers must investigate the cause for the incident, develop reforms to prevent
recurrence, and make information publicly available regarding their intended actions
for reform. After the prompt public disclosure of information regarding the incident,
responsibility for the event and its effects should be clarified and disciplinary action
should be taken, including the highest levels of management where necessary.

62

Appendix 2:

Nike Code of Conduct38
Implicit in that act was the determination that we would build our business with allof our partners based on trust, teamwork, honesty and mutual respect. We expect all ofour business partners to operate on the same principles.
At the core of the NIKE corporate ethic is the belief that we are a company comprisedof many different kinds of people, appreciating individual diversity, and dedicated toequal opportunity for each individual.
NIKE designs, manufactures and markets products for sports and fitness consumers.
At every step in that process, we are driven to do not only what is required by law, butwhat is expected of a leader. We expect our business partners to do the same. NIKE
partners with contractors who share our commitment to best practices and continuous
improvement in:
1. Management practices that respect the rights of all employees, including the rightto free association and collective bargaining
2. Minimizing our impact on the environment
3. Providing a safe and healthy work place
4. Promoting the health and well-being of all employees
Contractors must recognize the dignity of each employee, and the right to a work
place free of harassment, abuse or corporal punishment. Decisions on hiring, salary,
benefits, advancement, termination or retirement must be based solely on theemployee's ability to do the job. There shall be no discrimination based on race, creed,gender, marital or maternity status, religious or political beliefs, age or sexual
orientation.
Wherever NIKE operates around the globe we are guided by this Code of Conduct andwe bind our contractors to these principles. Contractors must post this Code in all major
workspaces, translated into the language of the employee, and must train employees on
their rights and obligations as defined by this Code and applicable local laws.
While these principles establish the spirit of our partnerships, we also bind ourpartners to specific standards of conduct. The core standards are set forth below.
Forced Labour
The contractor does not use forced labour in any form -- prison, indentured, bonded orotherwise.
Child Labour38

http://www.nike.com/nikebiz/nikebiz.jhtml?page=25&cat=code

63

The contractor does not employ any person below the age of 18 to produce footwear.
The contractor does not employ any person below the age of 16 to produce apparel,
accessories or equipment. If at the time Nike production begins, the contractor employs
people of the legal working age who are at least 15, that employment may continue, but
the contractor will not hire any person going forward who is younger than the Nike orlegal age limit, whichever is higher. To further ensure these age standards are complied
with, the contractor does not use any form of homework for Nike production.
Compensation
The contractor provides each employee at least the minimum wage, or the prevailingindustry wage, whichever is higher; provides each employee a clear, written accounting
for every pay period; and does not deduct from employee pay for disciplinary infractions.
Benefits
The contractor provides each employee all legally mandated benefits.
Hours of Work/Overtime
The contractor complies with legally mandated work hours; uses overtime only wheneach employee is fully compensated according to local law; informs each employee at thetime of hiring if mandatory overtime is a condition of employment; and on a regularlyscheduled basis provides one day off in seven, and requires no more than 60 hours ofwork per week on a regularly scheduled basis, or complies with local limits if they are
lower.
Environment, Safety and Health (ES&H)
The contractor has written environmental, safety and health policies and standards,
and implements a system to minimize negative impacts on the environment, reduce
work-related injury and illness, and promote the general health of employees.
Documentation and Inspection
The contractor maintains on file all documentation needed to demonstrate compliancewith this Code of Conduct and required laws; agrees to make these documents available
for Nike or its designated monitor; and agrees to submit to inspections with or without
prior notice.

64

Appendix 3:OECD Declaration and Decisions on International
Investment and Multinational Enterprises39
The 1976 Declaration by the Governments of OECD member countries on
International

Investment

andMultinational

Enterprises

constitutesapolicycommitment to improve the investment climate, encourage the positive contribution
multinational enterprises can make to economic and social progress and minimize andresolve difficulties which may arise from their operations. All parts of the Declaration
are subject to periodical reviews. The most recent review concerned the Guidelines forMultinational Enterprises and was completed in June 2000. All 30 OECD member
countries, and nine non-member countries have subscribed to the Declaration.
The Declaration consists of four elements, each of which has been underpinned by a
Decision by the OECD Council on follow-up procedures:¾

The Guidelines for Multinational Enterprises constitute a set of voluntary rulesof conduct for multinational enterprises. Observance of these Guidelines is
encouraged and facilitated by adhering governments through National Contact
Points;¾

National Treatment : Adhering countries shall accord to foreign-controlled
enterprises on their territories treatment no less favorable than that accorded inlike situations to domestic enterprises;¾

Conflicting requirements : Adhering countries shall co-operate so as to avoid or
minimizetheimpositionof

conflicting

requirementsonmultinational

enterprises;¾

International investment incentives and disincentives : adhering countries
recognize the need to give due weight to the interest of adhering countries
affected by laws and practices in this field; they will endeavor to make measures
as transparent as possible.

39

http://www.oecd.org/

65

Appendix 4:

FLA Workplace Code of Conduct40
Forced Labour There shall not be any use of forced labour, whether in the form of prison
labour, indentured labour, bonded labour or otherwise.
Child Labour No person shall be employed at an age younger than 15 (or 14 where thelaw of the country of manufacture41 allows) or younger than the age for completing
compulsory education in the country of manufacture where such age is higher than 15.
Harassment or Abuse Every employee shall be treated with respect and dignity. No
employee shall be subject to any physical, sexual, psychological or verbal harassment orabuse.
Nondiscrimination No person shall be subject to any discrimination in employment,
including hiring, salary, benefits, advancement, discipline, termination or retirement,on the basis of gender, race, religion, age, disability, sexual orientation, nationality,
political opinion, or social or ethnic origin.
Health and Safety Employers shall provide a safe and healthy working environment toprevent accidents and injury to health arising out of, linked with, or occurring in thecourse of work or as a result of the operation of employer facilities.
Freedom of Association and Collective Bargaining Employers shall recognize andrespect the right of employees to freedom of association and collective bargaining.
Wages and Benefits Employers recognize that wages are essential to meeting
employees’ basic needs. Employers shall pay employees, as a floor, at least theminimum wage required by local law or the prevailing industry wage, whichever ishigher, and shall provide legally mandated benefits.
Hours of Work Except in extraordinary business circumstances, employees shall (i) not
be required to work more than the lesser of (a) 48 hours per week and 12 hours overtimeor (b) the limits on regular and overtime hours allowed by the law of the country of
manufacture or, where the laws of such country do not limit the hours of work, the

http://www.fairlabor.org/all/code/index.html
All references to local law throughout this Code shall include regulations
implemented in accordance with applicable local law.
40
41

66

regular work week in such country plus 12 hours overtime and (ii) be entitled to at least
one day off in every seven day period.
Overtime Compensation In addition to their compensation for regular hours of work,
employees shall be compensated for overtime hours at such premium rate as is legallyrequired in the country of manufacture or, in those countries where such laws do notexist, at a rate at least equal to their regular hourly compensation rate.
Any Company that determines to adopt the Workplace Code of Conduct shall, in
addition to complying with all applicable laws of the country of manufacture, comply
with and support the Workplace Code of Conduct in accordance with the attached
Principles of Monitoring and shall apply the higher standard in cases of differences orconflicts. Any Company that determines to adopt the Workplace Code of Conduct also
shall require its licensees and contractors and, in the case of a retailer, its suppliers tocomply with applicable local laws and with this Code in accordance with the Principlesof Monitoring and to apply the higher standard in cases of differences or conflicts.

67Appendix 5:

labour provisions in Various codes of conduct
Code

Nike Inc.

Ethical
Initiative

Content
Forced labour“the contractor does notuse forced labour”

Labour Social Accountability Worldwide

Trading Fair
Association

International

Responsible Apparel(SA8000)

Production (WRAP)

(ETI)

(FLA)

“there is no forced, bonded or“there shall not be any use of“shall not engage in or support“will not use involuntary or

involuntary prison labour”

forced labour”

the use of forced labour, norforced labour”

shall personnel be required tolodge ‘deposits’ or identity
papers”

Child Labour

the minimum age of 18 to“therenewMinimum age: 15; or 14 where

Minimum age: 15; or 14 if

Minimum age: 14; or age for

produce footwear or 16 to

recruitment of child labour”,

the law of the country of

meetscompletingproduce apparel, accessories or“to develop or participate in

manufacture allows; or age for

exemption; or local minimum

minimum age established byequipment. “If at the time Nike

programs

childcompletingage which is higher

law; whichever is greater

production

labour to attend and remain in

education

employees

begins,
of

the

the
legal

quality

shall

to

be

no

enableeducation

until

longer a child”, “Children

15,

under 18 not be employed at

employment

may

or

in

countryschoolingornoworking age who are at leastthat

compulsory

developing

continue, but will not hire any

night

hazardous

person going forward who isconditions”, “These policies

younger than the Nike or legal

and procedures shall conform

68

age limit, whichever is higher”

to

the

provisions

of

the

relevant ILO standards”

Discrimination“no discrimination in hiring,“no discrimination in hiring,“No discrimination in hiring,“employ, pay, promote, andcompensation,accesssalary, benefits, advancement,compensation,accesstoterminate workers on theadvancement, termination

training,

promotion,

discipline,

training,

promotion,basis of their ability to doorretirement

the job, rather than on the“decisionsonhiring,salary,benefits,

retirement

based

termination

or

must

be

termination

retirement

retirement, on basis of gender,

termination

on

the

based on race, caste, national

race religion, age, disability,

based on race, caste, nationalbasis

ability”,“noorigin, religion, age, disability,

sexual orientation, nationality,

origin,religion,disability,

characteristics or beliefs”

ongender, marital status, sexual

political opinion, or social or

gender,sexualorientation,orientation, union membership

ethnic origin”

union membership, or politicalsolelyemployee’s

todiscrimination

based

race,

creed,

gender,maritalormaternity

status,religiousorpolitical

beliefs,

or

age

or

or

of

personalaffiliation”

or political affiliation”

sexual orientation”

Freedom of Association
andBargaining

Collectiven/a“Workers have the right to join“shall recognize and respect“shall respect the right of“will respect the right ofor form trade unions of their

the right of employees toall personnel to form andemployees to exercise theirown choosing and to bargain

freedom of association andjoin trade unions of theirlawfulcollectively”, “Where the rightcollective bargaining”

choiceassociation and collective

and

to

bargainto freedom of association andcollectively”, “Where rightcollectiveisrestricted by law, employer

thefacilitates parallel means for

restrictedbargaining
under

law,

employer facilitates, and does

freeassociation

not hinder, the development ofbargaining”

rightsoffreebargaining”

and

69

parallel means for independent
and

free

association

andbargaining”

Harassment and abuse

Wage and benefits

Working hours

the“physical abuse or discipline,“no employees shall be subject“shall not engage in or“will

dignity of each employee,

the threat of physical abuse,tosexual,support the use of corporalenvironment

free

of

and the right to a work

sexual or other harassment andpsychologicalverbalpunishment,harassment,

abuse

or

place free of harassment,verbal abuse or other forms ofharassment or abuse”

punishment

in

abuse

intimidation“must

recognizeorcorporal

shall

any

physical,orbephysicalmentalcoercion,orandprovidecorporalverbal abuse”

any form”

punishment”

prohibited”

To provide each employee atWages and benefits paid for a

the minimum wage required by

Legal or prevailing industry“will

least the minimum wage, or

standard working week meet,

local law or the prevailingwage,

minimum

the prevailing industry wage,

at a minimum, national legal

industry wage, and legallyneeds/provide

whichever is higher; to provide

standards

mandated benefits

incomea clear, written accounting forbenchmarkevery pay period; and notwhichever is higher. In any

deduct from employee pay forevent wages should always bedisciplinary infractions.

enough to meet basic needs

To

and

providealllegallytoorindustry

and

meet

basic

discretionary

at

work

least

the
total

compensation required by
local

law,

includingmandated

standards,

provide

pay

a

all

wages,

allowances and benefits”

somemandated benefits.

discretionary income

To provide one day off in

48 hours per week and one day

48 hours per week and 12

48 hours per week and 12“one

seven, and less 60 hours ofoff in every seven period;

hours overtime or the limits onhours overtime maximum perseven-day period, except asworkovertime shall be voluntary

regular and overtime hours

week.

be

required to meet urgent

andallowed by the law of theprovided with at least one day

business needs”, “shall not

per

week

on

a

regularly scheduled basis,

12

hours

overtime

Personnel

shall

day

off

in

every

70

or

complies

with

local

maximum per week.

limits if they are lower.

Health and Safety“tominimize

impacts

negativeonenvironment,

thereducecountry. One day off in every

off in every seven-day period.

exceedseven period“overtime work shall belimitations

voluntary”

countries”“will provide a safe andenvironment

healthy

working

healthyhealthy

prevent

environment

provided”,

shall“Toiletbefacilities

environment

toworkingandillness, and promote theclean, safe, and meet the basic

healthprevent

generalneeds of the workers”

linked with, or occurring ininjury to health arising out

the course of work or as aof,result of the operation of

occurring in the course of

employer facilities”

work, by minimizing, so far

employees”

arising

out

of,

as

adequate

shall

take

of

the

“shall provide a safe andaccidents and injury tohealthof“shall provide a safe andand accommodation, shall be

injurylegal“A safe and hygienic working

andwork-related

the

steps

accidents

associated

is

with

work

environment”

to
and

or

reasonably

practicable, the causes ofhazards inherent in theworking environment”

Source: organizational websites

71Appendix 6:

Multistakeholders External Monitoring/Certification Systems
Clean

Clothes

EthicalTrading

Fair

LabourFair

Wear

SocialWorkers

RightsCampaign

Initiative

Association

Foundation

Accountability

Consortium

(CCC)

(ETI)

(FLA)

(FWF)

International(WRC)(SA8000)
Year of foundation

1990(adopted codes in

1998

1996

1999

1997

2000

1998)
Members/ governance

unions,NGOs,

activists

Companies,

unions,NGOs, observer from

Companies,

NGOs,

colleges/ universities

the government
Scope of application

Objectives

Apparel industry

Apparel,food,

Apparel,Companies,business

Companies,

NGOs,

Colleges/ universities,

associations,

unions,unions,lawyer,academics,

NGOs

consultant

NGOs

apparelAll industries

Apparel,unions,university

horticulture

university licensees

Improvement of labour

Improvement of labour

Improvement of labour

Improvement of labour

Improvement of labour

Improvement of labour

conditions

in

the

conditions

in

the

conditions

in

the

conditions

in

the

conditions

conditions

worldwide

garment

worldwide

garment

worldwide

garment

worldwide

garment

industries

andsportswear

industry

licenseesand food industry andindustryandallin horticultureindustries

producing

in

all

in

the

sportswear factories offactories producing forcompanies

producingthe Dutch market

goods under license for
US universities

under license for US
university
Monitoring/

Pilot

projects

verification

monitoringinandPilot projects complete

Monitors

andand selected by theseveralunderaccredited

Verification of 10% of

Monitorseach

and selected by SAI

memberaccreditedWRCagencyundertakes spot-check72

verification under way

performcertification

inspections in selected

operates according to aperiodic inspections offacilities every 3 years.

auditsfactories;

licenseedifferentofat least 30% of their

FWF

certification lasts forfactories.

external

facilities during theircooperation

every 3 years

Investigation

monitors of academics,

initialnetworks of partner

remediation reports inunions and NGOs

participation period.

organizations

close cooperation withAll monitoring must

producing countries.

internalorconduct

supplier

FLA

model

to

company’sway, each pilot project3

involveyear

verification

in

with

of

in

local

supplier

and

NGOs,

and

academic experts

consulting

local NGOs. Monitors
use a combination ofannounced

andunannounced visits.
Reporting/ disclosure

Audit reports go to

WRC verification andmust publish annual

SAI

remediation reports goreports

companies.

to all parties involved.

a

Auditors inform NGOs

Disclosure

Participating

supplier register to theand unions about the

production facilities of

independent research,companies are publicly

FWF.

outcome.

licensee suppliers.

media) and makes it

listed on website. No

FWF publishes annual

Public list of certified

The WRC updates its

publicdisclosure of locations

verification reports.

factories.

factories list quarterly

Basis

on

sales

ranging

CCC
information
workplacevariety(factory

Company reports go to

Annualthe ETI.

each company based

ETI informs the publiconsourcesannually

external

workers,verification results

gathers
about
from
of

a

about

the

reports

internal

onandmonitoring.

Membercompanies

andcommunicate

and

to

the

of

all

of certified factories.
Member company fee

n/aBasis on the annual

A minimum of $5,000

Yes;revenues ranging fromdependingspecific amounts

on

their

but

No

publiccompany
fromNocompany

participation73

$3,600 to 54,100
Certification fee

n/a

Yes;

but

No

specific amounts

annual revenues.
public

Yes;

but

No

specific amounts

public$13,000 to $90,000
Yes;

but

No

specific amounts

publicFrom$15,000$1,500

to

Yes;

but

No

publicspecific amounts

Source: Wick (2005), Workers’ tool or PR ploy? A guide to codes of international labour practice; organizational websites

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