strengthening implementation of corporate social responsibility in

STRENGTHENING

IMPLEMENTATION OF

CORPORATE SOCIAL

RESPONSIBILITY IN

GLOBAL SUPPLY CHAINS

The World Bank Group • Corporate Social Responsibility PracticeThe CSR Practice advises developing country governments on public policy roles andinstruments they can most usefully deploy to encourage corporate social responsibility.

October 2003

2121 Pennsylvania Avenue, NWWashington, DC 20433 USA

The CSR Practice is part of the Private SectorDevelopment Vice Presidency, jointly operatedby the International Finance Corporation andthe World Bank.

Telephone: 202 473 7646Facsimile: 202 522 2138E-mail : [email protected] Internet: www.worldbank.org/privatesector/csr

STRENGTHENING

IMPLEMENTATION OF

CORPORATE SOCIAL

RESPONSIBILITY IN


Helle Bank Jørgensen and Peder Michael Pruzan-Jørgensen, PricewaterhouseCoopers (Denmark)

Margaret Jungk, Danish Institute for Human Rights

Aron Cramer, Business for Social Responsibility

October 2003

This report was prepared for the Corporate Social Responsibility (CSR) Practice in theInvestment Climate Department of the World Bank Group.

The report was prepared by Helle Bank Jørgensen and Peder Michael Pruzan-Jørgensen ofPricewaterhouseCoopers (Denmark); Margaret Jungk of the Danish Institute for HumanRights; and Aron Cramer of Business for Social Responsibility. The study was carried outwith the assistance of Hans-Otto Sano and Rasmus Abildgaard Kristensen, Danish Instituteof Human Rights; Tara Holeman, Tara Rangarajan, Sridevi Kalavakolanu, and DebbieO’Brien, Business for Social Responsibility; and staff at the offices of Pricewaterhouse-Coopers in Delhi; Hong Kong, China; Nairobi; Johannesburg; Honduras; and London.

The report was overseen by a Steering Group made up of Imoni Akpofure of the InternationalFinance Corporation (IFC); Katherine Gordon of the Organization for Economic Coopera-tion and Development (OECD); Denise O’Brien of the UN Global Compact; Nigel Twose ofthe World Bank; and Michael Urminsky of the International Labor Organization (ILO). Thereport does not necessarily reflect the views of those institutions.

The report was financed by the Royal Danish Ministry of Foreign Affairs, the Levi StraussFoundation and the World Bank Group.

This report is a product of the staff of the World Bank. The findings, interpretations and con-clusions expressed herein do not necessarily reflect the views of the Board of ExecutiveDirectors of the World Bank or the governments they represent. The World Bank does notguarantee the accuracy of the data included in this work.

Printed on Acid-Free Recycled Paper.

Acronyms and Abbreviations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vii

Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

1.0 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

1.1 Background of the Study . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

1.2 Structure of the Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

1.3 About the Study . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

1.3.1 Barriers/Key Challenges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

1.3.2 Development of Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

1.3.3 Study Scope . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

1.3.4 Consultation Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

1.3.5 Worker Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

1.3.6 Identification of Participants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

2.0 Barriers and Key Challenges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

2.1 Time for a Change?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

2.2 Overall Observations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

2.3 Key Challenge 1: The Plethora of Individual Buyer Codes Is Now Generating Inefficiencies and Confusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

2.3.1 Overall Observations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

2.3.2 Inefficiencies and Confusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

2.3.3 Code Content Convergence. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

2.3.4 Code Convergence in the Field of Human Rights and Environment . . . . 22

2.4 Key Challenge 2: An Increasing Number of Buyers Are Recognizing That Traditional Top-Down CSR Strategies Are Not Achieving Improved CSR Implementation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

2.4.1 Bottom-Up and Shared Ownership. . . . . . . . . . . . . . . . . . . . . . . . . . . . 23


2.4.3 Lack of Local Capacity as a Barrier . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

Table of Contents

iii

2.5 Key Challenge 3: Insufficient Understanding of the Business Case . . . . . . . . 27


2.5.2 The Business Case for CSR Implementation . . . . . . . . . . . . . . . . . . . . 27

2.6 Other Key Challenges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

2.6.1 Other Key Challenges at the Micro Level. . . . . . . . . . . . . . . . . . . . . . . 29

2.6.2 Other Key Challenges at the Macro Level . . . . . . . . . . . . . . . . . . . . . . 30

3.0 Options for Future Progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

3.1 Summary of Options. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

3.2 Overall Observations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

3.3 Proposed Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

3.3.1 The Assessment Criteria . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

3.4 Public Sector Engagement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

3.4.1 Host Government Actions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

3.4.2 Home Country Governments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

3.4.3 Broader Policy Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

3.5 Standards and Harmonization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

3.5.1 A Universal Base Code? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

3.5.2 Harmonizing and Strengthening the Application of Standards . . . . . . 41

3.5.3 Environmental Standards and Practices . . . . . . . . . . . . . . . . . . . . . . . . 41

3.5.4 National Initiatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

3.5.5 Industry-Specific Initiatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

3.5.6 Discrete Initiatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

3.6 Capacity Building . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

3.7 Worker Education, Empowerment, and Representation . . . . . . . . . . . . . . . . . . 48

3.7.1 Worker Representation and Trade Unions . . . . . . . . . . . . . . . . . . . . . . 50

3.8 Research . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50

3.8.1 The Business Case . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50

3.8.2 Worker Empowerment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

3.8.3 Environmental Standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

3.8.4 Consumers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

3.9 Removing Economic Barriers to CSR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

3.10 Options for Action. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52

3.10.1 Suppliers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53

3.10.2 Buyers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53

3.10.3 Host Governments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54

Table of Contentsiv

Table of Contents v

3.10.4 Home Governments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55

3.10.5 Civil Society Organisations (NGOs, trade unions, and multistakeholder initiatives) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55

3.10.6 International Organisations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56

Annex A: The Key Challenges and Underpinning Assumptions . . . . . . . . . . . . . 57

Annex B: List of Participants Consulted in the Study . . . . . . . . . . . . . . . . . . . . . . 61

Annex C: Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67

Annex D: Summary of Supplier Consultations (website version only) . . . . . . . 69

Overview of Consultations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69

The Numbers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69

Overall Comments on Consultations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70

Key Challenges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70

Key Challenge 1: What Suppliers Said. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71



Other Key Challenges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75

Conclusions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75

Options and Solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76

Overall Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76

Annex E: Summary of Buyer Consultations (website version only) . . . . . . . . . 79


The Numbers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79


Key Challenges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80

Key Challenge 1: What Buyers Said. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81





Overall Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85

Annex F: Summary of Stakeholder Consultations (website version only) . . . . 87


The Numbers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87


Key Challenges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89

Key Challenge 1: What Stakeholders Said . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89




Conclusions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98


Key Challenge 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99

Key Challenge 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100

Key Challenge 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101

Annex G: Summary of Worker Consultations (website version only) . . . . . . . 105

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105

Country Reports. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105

Knowledge, Awareness, and Ownership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106

Benefits Derived and Tradeoffs: The Process of Implementation . . . . . . . . . . . . . . 107

The Role of Trade Unions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108

Monitoring and the Processes of Implementation . . . . . . . . . . . . . . . . . . . . . . . . . . 108

Conclusions and Worker Perspectives of Possibilities for Change . . . . . . . . . . . . . 109

Table of Contentsvi

AVE Foreign Trade Association of the German Retail TradeBSR Business for Social ResponsibilityCCC Clean Clothes CampaignCSR Corporate Social ResponsibilityDIHR Danish Institute for Human RightsETI Ethical Training InitiativeEU European UnionFLA Fair Labor AssociationFWF Fairwear FoundationGRI Global Reporting InitiativeICTI International Council of Toy IndustriesILO International Labour OrganisationKFC Kenya Flower CouncilNGO Nongovernmental OrganizationOECD Organisation for Economic Co-operation and DevelopmentPwC PricewaterhouseCoopersSAI Social Accountability InternationalSASA Social Accountability in Sustainable AgricultureSME Small and Medium-size EnterprisesUNDP United Nations Development ProgrammeUNEP United Nations Environment ProgrammeWRC Worker Rights ConsortiumWTO World Trade Organization

Acronyms and Abbreviations

vii

Amidst the ongoing debate on how best toachieve good social and environmental

practices in global supply chains, the World BankGroup commissioned a study on barriers to theachievement of better social and environmentalperformance in suppliers, and also on the optionsthat hold the greatest promise for overcomingthose barriers and enabling future improvement.

Specifically, in the words of the Bank Group, theoverall objective of the study is to “. . . contributeto a broader goal of removing unnecessary barri-ers to CSR compliance at the supplier level inglobal supply chains, enabling more suppliers toimplement CSR standards more easily.”1

The specific objectives of this study are to:

� Identify the key barriers to improved imple-mentation of codes of conduct at the level ofsuppliers.

� Identify and prioritize viable options foraddressing these barriers.

BACKGROUND AND PROCESSThis report is based on the perspectives collectedin consultations with close to 400 individuals,including almost 200 workers and 200 representa-tives of organizations and companies, and the sub-sequent analysis of the project consortium on thefeedback received.

The study focuses attention on the apparel and agri-culture sectors, and draws upon consultations inChina, Honduras, India, Kenya, the United States,and Europe. The project consortium met with adiverse range of parties in these locations, includingsuppliers, stakeholders (nongovernmental organi-zations [NGOs], trade unions, multistakeholder ini-tiatives, business networks and public officials),buyers (multinational companies), and workers.Consultations were conducted during a 10-weekperiod between May and July 2003.

The identification of key barriers to improvedimplementation of codes of conduct departed fromthe testing of a select group of key barriers (keychallenges and underpinning assumptions) identi-fied by the World Bank in its Terms of Referencefor the study. The three key challenges put forwardby the Bank are:

1. “The plethora of individual buyer CSR codesis now generating inefficiencies and confu-sion.” The statement suggests the need to read-just and fine-tune the present system ofimplementation. It accepts the view that codesof conduct are an essential tool in the pursuit ofbetter social and environmental conditions,and therefore does not question the trajectory,but rather implicitly calls for a need to adjust itand make it work more efficiently, possibly bypromoting increased standardization of exist-ing principles.

2. “An increasing number of buyers are recogniz-ing that traditional top-down CSR strategies arenot achieving improved CSR implementation.”In contrast to the first, this second statementdoes question the established implementationprocess. It casts doubt on whether the presentsystem, being driven by buyers from a distance,will ever be able to generate the desired out-

Executive Summary

1

1 The Bank Group’s CSR Practice has chosen to define cor-porate social responsibility (CSR) as “The commitment ofbusiness to contribute to sustainable economic developmentworking with employees, their families, the local commu-nity, and society at large to improve their quality of life, inways that are both good for business and good for develop-ment.” When employing the term CSR in connection withcodes of conduct in global supply chains, we use a more nar-row interpretation in referring to social and environmentalpractices and standards.

comes in terms of sustainable compliance andimproved working conditions. Is fine-tuningrequired, or an entirely new approach?

3. “[Suppliers] have an insufficient understand-ing of the business benefits associated withmaking the required investments in CSR.” Thisstatement addresses a key premise for any busi-ness activity, that is, the need for a perceivedbusiness case.

This report assesses the validity and importance ofthese barriers, as well as others raised by partici-pants during consultations. It also presents optionsfor future progress. Options are presented with ref-erence to the barriers, as well as to broader prob-lem areas identified through the consultations andresulting assessment.

SUMMARY OF FINDINGSConsultations revealed numerous commonalitiesamong the many consultation groups’ analyses ofthe barriers to improved implementation of CSRpractices. However, when identifying ways for-ward, the consensus was less pronounced exceptfor the nearly unanimous call for more responsiblelocal government action.

Consultations also showed that environmentalissues, although placed on equal footing with laborissues in the Terms of Reference, went largelyignored during the consultations. There remainsless awareness, concern, and external pressure toaddress environmental matters than labor issues.Furthermore, virtually no attention was given tohuman rights issues other than labor rights, eventhough the overall human rights climate in manylocations is a critical factor determining whether,or how, labor rights are respected.

Although suppliers in different national and indus-trial settings seem to face many of the same chal-lenges, important local and industrial specificitiesneed to be taken into account when designingways forward. Partly for this reason, the studyadvocates an approach that emphasises local own-ership and industry-specific initiatives.

Overall, the consultations, and subsequent analy-sis, indicate that while meaningful progress hasbeen made in apparel, and to a lesser degree inagriculture, the existing “system” of implementa-tion may be reaching its limits in terms of its abil-

ity to deliver further sustainable improvements insocial and environmental workplace standards.This in some ways is natural when one considersthat current approaches are not the result of a sys-tematic effort to marshal the forces of the publicand private sectors, trade unions and NGOs, andworkers. Instead, it is clear from the consultationsthat current efforts are the result of a series ofsteps often taken through ad hoc and isolateddecisions.

The way forward will lead to a greater degree ofsuccess if future decisions are made with fullerregard for collaboration and systemic approaches.All parties involved must employ other means ofimplementation, including capacity building andworker empowerment, to ensure improved work-place standards.

THE KEY CHALLENGESIn terms of the first key challenge suggested by theBank, the vast majority of participants questionedthe degree to which the growing number of codespresents a significant barrier to CSR implementa-tion. Although there is broad dissatisfaction withthe growing number of codes, most participantscautioned against overstating the resulting impact.The main concern expressed by participants isthat, while codes themselves have in many waysconverged in content and form, inconsistent inter-pretation and application of the provisions pre-sents the greatest source of confusion andinefficiency. Most participants believed that theimperfections and inconsistencies of the presentsystem should be addressed, and that doing socould result in some improvements. They did not,however, express great enthusiasm for concertedwork on a single, harmonized base code.

In terms of the top-down approach, identified inthe second key challenge, participants noted thatalthough this approach had probably been essen-tial in beginning to raise awareness and achieveprogress, it nonetheless was insufficient and eveninefficient in achieving further real and sustainedimprovements. Participants broadly agreed thatsuch improvements required the implementationof capacity building and worker empowermentprograms, although many acknowledged the diffi-culty of such embarking on such projects given thecurrent absence of a comprehensive and account-

Strengthening Implementation of Corporate Social Responsibility in Global Supply Chains2

Executive Summary 3

able means of engaging workers as well as theirunions. At the same time, participants recognizedthat pressure from the top down would remain anecessary catalyzing feature of efforts to addressCSR in supply chains for some time. Indeed, work-ers consulted for the study confirmed this percep-tion by noting that top-down pressure wasnecessary to enable the implementation of workerempowerment.

On the third key challenge, participants agreed thatthe business case—or how it is perceived andunderstood—plays an important role in determin-ing the willingness and motivation of both suppli-ers and buyers to undertake investments in CSRpractices. While this challenge therefore wouldseem to be a significant barrier to further adoptionof CSR practices by suppliers, there are mixed per-ceptions of the degree to which the business caseactually exists.

ADDITIONAL CHALLENGES

In addition to the three key challenges identifiedby the Bank, many participants pointed to struc-tural barriers to CSR implementation relating tothe overall business environment. In particular,several representatives from each consultationgroup pointed to the very structure of thebuyer–supplier relationships in the apparel andagriculture industries, distinguished by complex,shifting, and “anonymous” supply chains, aspresenting a barrier to implementation of socialand environmental standards.

Some of the barriers articulated by participants inthe study took the form of inaction, rather thanaffirmative steps that do not further the process.Virtually all participants noted that the absence ofaction by local governments presented a significantbarrier; not only as a barrier to the achievement ofgood practice generally, but also as a barrier to theimplementation of codes of conduct and other crit-ical steps taken by nonstate actors. The consensuson this point was so overwhelming that it was takeninto consideration despite the fact that the focus ofthe present study, as formulated in the Bank’sTerms of Reference, was intended to be on the pri-vate sector rather than on the public sector.

Finally, it is important to note that some stakehold-ers do not accept the basic premise at the core of this

study—that codes of conduct are a useful mecha-nism for addressing the social and environmentalissues. Trade unions in particular contend that pub-lic enforcement of laws, and collective bargainingagreements, are a far more effective and accountablesystem for ensuring that labor principles, and tosome degree environmental principles, are honored.It is, in fact, possible to extrapolate from this viewthat codes themselves are a barrier—an importantcountervailing opinion that is worth considering asoptions for future progress are developed.

OPTIONS FOR GOING FORWARDWhen considering options for strengthening CSRimplementation in supply chains, it is essential toremember that individual initiatives are morelikely to be successful if undertaken with fullregard for other steps than if they are undertaken inisolation. Under the best circumstances, a coherentframework would blend a broad range of publicand private efforts: those taken by business alonewith those involving partnership between sectors,and those that look both at social and environmen-tal issues. Such an approach would reflect a neces-sary and natural maturation process as the firstgeneration of efforts to address CSR in supplychains comes to an end, and would likely lead tothe more sustainable progress that all parties to thisdebate are seeking.

The study also has revealed characteristics of suc-cessful approaches that should be considered tohelp ensure the success of future efforts. Theseinclude collaboration between interested parties,local “ownership,” an effort to balance the ongoingneed for innovation and experimentation with thedesire to achieve scalability, and a renewed effortto identify ways that private and civil societyefforts draw upon or take note of the potential forgovernment involvement.

It should be noted that no single solution emergedfrom the study. Unlike the early to mid-1990s, whennumerous parties coalesced around monitoring asthe primary means of addressing labor issues, thenext generation of efforts is likely to draw on a vari-ety of approaches that, taken together, can make asubstantial contribution toward the goals at the heartof this study.

The options presented in the report are arrangedaround six categories; a brief summary of each isgiven below. In chapter 3 the suggested options areaddressed to six categories of actors: suppliers,buyers, host governments, home governments,international organizations, and civil society.

� Public Sector Engagement: Although publicsector options were not the focus of the surveysconducted for this project, participants almostunanimously called on the public sector, espe-cially host country governments, to enhancetheir contribution to upholding social and envi-ronmental standards in supply chains. Real, sys-temic progress will not happen unlessgovernments get involved more vitally, and thiswas perhaps the area of greatest agreementamong those consulted. A greater commitmentto the enforcement of existing standards, to thedegree they are consistent with internationalnorms, is viewed widely as having value initself, and in supporting the efforts of privatesector actors and civil society to promote bettersocial and environmental practices. Note that theBank has anticipated from the start of this pro-ject that it would sponsor subsequent researchconcerning the roles of the public sector.

� Standards and Harmonization: This issuereceived significant attention in the course ofconsultations. While some, especially a num-ber of suppliers, assert their desire for a uni-versally applicable base code of conduct, theinvestment needed to refine the relativelysmall differences present in today’s codes mayprove too costly. Efforts to reach agreement ona single global framework risk getting boggeddown in extensive technical and political ques-tions. Instead, more successful and impactfulsteps toward harmonization can be takenthrough initiatives to develop comprehensiveapproaches at the national and industry level.The mechanisms for achieving this may vary;however, the development or enhancement ofnational, multistakeholder initiatives focusingon specific industries appears to hold particu-lar promise, as do the adaptation or replicationof certain existing pilot models, although thescalability of some of these efforts remains inquestion. In addition, there is a need to expandattention paid to environmental issues in exist-ing and future codes.

� Capacity Building: In the view of most, localcapacity building remains a critical ingredientin making both current and future steps moreeffective, particularly capacity building focus-ing on workers, suppliers, civil society, andsocial auditors. The options suggest a focus onsocial infrastructure that will deliver value, notonly in terms of better performance on themore immediate labor and environmental prin-ciples, but also on supporting and contributingto broader development goals.

� Worker Empowerment: Further progresswill be made by providing more and bettereducation to workers concerning their rights,and strengthening mechanisms through whichthey can protect those rights—whether throughaccess to public systems for redress of prob-lems, participation in representative tradeunions, dialog with local civil society organi-zations, or participation in private efforts toimplement codes of conduct.

� Research: Research leading to enhancedknowledge and understanding of CSR can alsocontribute to progress. Initial focus should beplaced on whether the business case for CSRexists, and if so, how it can be strengthened. Inaddition, the consultations illustrated the needto build greater understanding of how toachieve worker empowerment in the multipleoperating environments to which apparel andagriculture supply chains extend, with dueconcern for the types of workers involved.

� Removing Economic Barriers to CSR: To besuccessful, the options presented will need toaddress, or at least take note of, structural eco-nomic barriers to the wider adoption of CSR.These barriers include (a) the very nature ofsupply chains themselves, which, especially inthe apparel industry, may contain inherent dis-incentives to the adoption of good practices;(b) the lack of a level playing field, whichmeans that companies at both the buyer andsupplier level face de facto penalties for adopt-ing practices that transcend significantly thoseundertaken by competitors; and (c) the mixedmessages and incentives buyers sometimessend to suppliers, who are faced with duelingdemands from compliance staff requiring goodconditions, along with merchandisers whooften demand lower prices, faster deliveries,and shorter lead times.


Executive Summary 5

ADDITIONAL OBSERVATIONS GOING FORWARDThe following overall observations about the studyand its findings are noteworthy and should be keptin mind when going forward:

� Much more attention was given to issues in theapparel industry than in agriculture. In addition,the input received concerning agriculture high-lights the fact that it is not a single industry butrather a collection of several commodity-drivenindustries that have distinct structures and sup-ply chains. Reaching generalized solutionsacross subindustries with diverse economic andsocial structures may not be easily achieved.

� Monitoring of codes of conduct, a subject thathas received intense attention in recent years,was not at the center of the discussions.Instead, participants focused on other issues, ornoted that monitoring should evolve to concen-trate more on education and less on policing.Although few parties suggested that privatemonitoring would disappear, there was anunderstanding—at least on an implicit level—that monitoring should and would be deempha-sized in the near term.

� The numerous multistakeholder initiatives inplace received relatively little attention,although they were considered by some(mostly buyers and many Northern stakehold-ers) to be an important part of future solutions,in particular in the area of harmonization andstandardization of codes of conduct.

� The identified need to expand attention to envi-ronmental issues, especially in the apparelindustry, is important. Unlike on labor issues,there are few broadly recognized internationalenvironmental standards; therefore, a differentapproach may be needed to address this.

� Perspectives varied by location, in part becauseof the considerable differences in economy,culture, and economics. While the implicit goalof this project and many efforts in the field is todevelop options that can be adopted globally,these solutions will need to take local factorsinto account if they are to have the desiredimpact.

� Some observers worried that the move towardstrengthened social and environmental require-ments would disadvantage the small andmedium enterprises (SMEs) that are needed togenerate greater economic growth in the devel-oping economies.

� There remains a lack of critical mass of buyersstrongly engaged in CSR issues. Consultationstended to involve a self-selected group of themore active buyers, some of whom cautionedagainst the adoption of guidelines and optionsthat could raise the cost of entry for newlyactive parties, thereby missing the opportunityto engage more companies in CSR practices.

As noted above, the study broadly confirms theunderlying assumption of the Bank Group that thepresent system of implementation of codes of con-duct is insufficient and even inefficient in achiev-ing further real and sustained improvements insocial and environmental standards in global sup-ply chains. It identifies a number of barriers as wellas points to ways forward for overcoming thosebarriers, most notably by emphasizing the need forlocal ownership and collaborative, national andindustry-specific multistakeholder initiatives. It isnoteworthy that, with the exception of a smallnumber of consulted organizations, participantsgenerally welcomed change as well as the oppor-tunity to work with parties across institutional andgeographic borders.

Since the early 1990s multinational corpora-tions have increasingly addressed social and

environmental issues arising in their global supplychains. This development has been driven by, interalia, a growing concern among consumers andother key stakeholders as well as business itselfabout social and environmental conditions in theproduction of consumer products for export fromdeveloping countries.

A number of multinational corporations haveresponded to this concern by developing codes ofconduct that stipulate social, environmental,human rights, and ethical requirements with whichsuppliers are obliged to comply.2 In general, codesare intended to complement local legislation byimplementing those standards and, often, interna-tionally accepted principles such as ILO Conven-tions where applicable laws are inconsistent withinternational principles.

To date, codes have been applied most widely inthe apparel, footwear, and toy industries, and tosome degree in agriculture. Increasingly, however,codes are being implemented in other manufactur-ing industries, including household goods, elec-tronics, and automobiles.

The overwhelming majority of codes of conductfocus on labor issues, including health and safetyissues, and to a lesser extent include provisions onthe environment. Codes have been implementedprimarily through a system of monitoring by multi-

national companies, commercial service providers,and in some cases civil society organizations.

1.1 BACKGROUND OF THE STUDYThe present, informal voluntary “system” of codeimplementation has been in operation for a little lessthan a decade. Although full agreement has yet to beestablished on the achievements of codes of conduct,many observers believe that codes make some con-tribution to the enjoyment of labor rights and, to alesser degree, good environmental practice.

In addition, and as noted in the World Bank GroupTerms of Reference for the present study, it maybe argued that such efforts also have implicationsfor governance generally, and in the best case canhelp to deliver a public good beyond those indi-vidual firms involved directly.

At the same time, many also believe that currentapproaches may not be sustainable, and that othermethods of achieving these goals are needed toaugment the impact of codes and to address issuesthat the codes have not.

This study seeks in large part to make a broadassessment of the types of barriers present in thecurrent system that might prevent achievement ofbetter social and environmental performance onthe part of suppliers, and also the options that holdthe greatest promise for future improvement.

This project was undertaken with a deeply heldappreciation for the progress made on these issuesin recent years, and with admiration for the grassroots development of a broad-based global com-munity that has committed itself to finding ways toensure that business is conducted in a manner that

Overview1

7

2 The term “codes of conduct” is often used to mean differ-ent things. For the purposes of this study, the term is definedto mean a mechanism by which multinational companiesestablish social and environmental guidelines for their sup-pliers. Codes that deal with issues such as corruption, faircompetition, and customer service are not addressed here.

contributes to the wider enjoyment of humanrights, the extension of the economic benefits ofglobalization, and the achievement of environ-mental improvements.

Indeed, this study could not and would not haveoccurred 10 years ago, and many positive changeshave taken place in this time: businesses (both sup-pliers and buyers) now have functions dedicated toaddressing human rights, labor, and environmen-tal issues; many civil society organizations glob-ally have staff focused on achieving betterbusiness performance on human rights, labor, andenvironmental issues; and in some cases, newinstitutions—especially those with multistake-holder characteristics—have been developed andhave deeply enriched the debate and contributed toreal improvements.

Many participants in the consultations undertakenfor this study—buyers, suppliers, and stakeholdersalike—shared this observation, noting that the tim-ing of the study was well chosen. In addition, thisstudy can provide particular value to the ongoingdebate on implementation of social and environ-mental standards in global supply chains in that itexplores and brings together the views and per-spectives of a wider community of companies,organizations, and workers involved with imple-mentation of CSR in global supply chains, includ-ing the often nonvocal actors such as suppliers andworkers.3

The participants consulted in the course of thisstudy contributed a wealth of valuable and perti-nent information and perspectives that will hope-fully stimulate the debate and provide additionalimpetus to developing options for strengthening ofCSR implementation among suppliers in globalsupply chains.4

1.2 STRUCTURE OF THE REPORTThis chapter describes the background of theresearch, its scope, methodology, and the sourcesof information relied upon for the research.

Chapter 2 pertains to barriers to the implementa-tion of social and environmental standards inglobal supply chains. The three main barriers,which were presented by the Bank Group at theoutset of the study, and which were subsequentlyused as the basis for further consultation in theresearch, are dealt with in three separate sections.Each section attempts to discuss the originallydefined barrier in more detail, exploring how thevarious parties consulted during this study per-ceived each barrier: Did they think the problemwas defined too narrowly or broadly? Was itmerely a symptom of a larger problem? Or,indeed, was it not a barrier at all? Another sectiondiscusses additional barriers that were identified inthe course of the consultation process. These addi-tional barriers are given the same consideration asthe three original ones, and form an equal part inthe analysis and the subsequent consideration ofoptions in the remainder of the study.

Chapter 3 covers the various options that couldhelp contribute to further and more sustainableimplementation of CSR in supply chains. Theoptions are presented in six broad categories: pub-lic sector action, harmonization and standardi-zation of private sector approaches, capacitybuilding, worker education and empowerment,research, and removing economic barriers toCSR.

Annex A lists the three key challenges and theirassociated assumptions that were presented by theBank Group at the outset of the research. Thesewere the result of an earlier brief round of informalconsultations conducted by the Bank with a selectgroup of suppliers and stakeholders. Through thesubsequent research and formal consultation pro-cess conducted by the consortium, the barrierswere later refined and expanded.

Annex B provides the names of the organizationsthat took part in the consultation process. Partici-pants are divided into categories based on theircountry and organization type.

Annex C contains a glossary of terms used through-out the report.


3 A number of Southern and Northern stakeholders, as wellas some suppliers and buyers, however, expressed a certaindegree of skepticism with reference to the Bank Group andthe Bank’s policies in other development areas, includingstructural adjustment programs.4 The study was undertaken by a consortium consisting ofBusiness for Social Responsibility (BSR), the Danish Insti-tute for Human Rights (DIHR), and PricewaterhouseCoopersDenmark (PwC-Denmark).

Overview 9

A further four annexes D-G report on the findingsof the consultation processes for the various groupsof participants. These are not included in theprinted version of the report, but can be found inthe version available on the World Bank’s website.Annex D covers suppliers, annex E presents buy-ers’ views, annex F represents what was heardfrom stakeholders (including NGOs, intergovern-mental organizations, unions, and multistakeholderinitiatives), and annex G relates the views of work-ers. In each, the emphasis is on reporting, in clear,straightforward terms, what was heard from thevarious groups consulted, without adding the viewsof the consortium. The analysis and interpretationof the consultants is restricted to the main body ofthe report.

1.3 ABOUT THE STUDYThe overall objective of the present study is to “. . . contribute to a broader goal of removingunnecessary barriers to CSR compliance at thesupplier level in global supply chains, enablingmore suppliers to implement CSR standardsmore easily.”5

The specific objectives of this study are:

� To identify the key barriers to improved imple-mentation of codes of conduct at the level ofsuppliers.

� To identify and prioritize viable options foraddressing these barriers.

The study was thus initiated under the premise thatreal and sustained implementation of codes of con-duct will help ensure an effective complianceregime, which, in turn, will contribute to improv-ing the working conditions of laborers at the levelof suppliers and possibly beyond to the communi-ties that support them.

The study was undertaken mainly through a consul-tative process focusing on the apparel and agriculture

industries. During the course of three months, con-sultations were undertaken with 194 individuals rep-resenting 164 institutions, as well as 199 workers, infour exporting countries: China, Honduras, India,and Kenya, as well as in Europe and the UnitedStates. Consultations focused on suppliers, buyers,stakeholder groups (NGOs, trade unions, interna-tional institutions, multistakeholder initiatives),workers, and a small number of public officials.

The project consortium reviewed the input and pre-sents this report on the basis of those consultations,as well as the consortium’s analysis of those dis-cussions. Annexes D-G (only available on the web-site version of this report) contain summaries of theviews expressed by suppliers, stakeholders, work-ers, and buyers.

The reliance on in-person consultations yieldedunique perspectives that in many cases dependedon the location and experiences of those consulted.This approach necessitated a qualitative assess-ment of the issues discussed, whereas a more for-mal approach might have produced more easilyquantifiable commentary on the issues at hand. Asa result, the report seeks wherever possible to indi-cate the degree to which the various parties con-sulted for the survey held common views, ratherthan a precise numerical assessment of opinion.

1.3.1 Barriers/Key ChallengesThe identification of key barriers to improvedimplementation of codes of conduct was under-taken by testing a select group of key barriers (andunderpinning assumptions) already identified bythe Bank Group in the Terms of Reference to thepresent engagement.

In the view of the Bank Group, these key barriers(key challenges) are reasonably well documentedand constitute an emerging consensus about areasthat prevent progress from being furthered. Assuch, the study started by testing these challenges/barriers—and the assumptions that underpinthem—with the organizations participating in theconsultation process. Based on the findings of theconsultations, the challenges and underpinningassumptions were revised and added to, andfinally, options (solutions) for addressing the chal-lenges were identified, as described in furtherdetail below.

5 The Bank Group’s CSR Practice has chosen to define cor-porate social responsibility (CSR) as “The commitment ofbusiness to contribute to sustainable economic developmentworking with employees, their families, the local community,and society at large to improve their quality of life, in waysthat are both good for business and good for development.”When employing the term CSR in connection with codes ofconduct in global supply chains, we use a more narrow inter-pretation in referring to social and environmental standards.

The three key challenges, which are outlined indetail in annex A, are:

1. The plethora of individual buyer CSR codes isnow generating inefficiencies and confusion.

� Inefficiencies have emerged as a result of theoverlap and repetition among buyers’ CSRprograms. Suppliers assert that this imposesunnecessary burdens both on buyers and sup-pliers. The challenge is to minimize theseinefficiencies, in ways that make sense forbuyers and suppliers and that bring desiredbenefits to all, notably to workers.

� Confusion refers to supplier claims that thediversity of CSR requirements among buy-ers serves as a barrier to entry to supplierswho do not know which route to follow todemonstrate their commitment. Further-more, confusion resulting from discrepan-cies and inconsistencies in the details ofCSR implementation can undermine con-sistent CSR practice in the workplace.Here, too, the challenge is to minimize thisconfusion with a view to mutual benefit.6

2. An increasing number of buyers are recogniz-ing that traditional top-down CSR strategiesare not achieving improved CSR implemen-tation. The challenge is to adapt strategies inlight of current supplier-level experiments thatacknowledge the importance of participation,empowerment, and capacity building targetinga variety of stakeholders.

3. The reticence of some suppliers to undertakeCSR compliance reflects a view that there isinsufficient understanding of the businessbenefits associated with making the requiredinvestments, including a failure on the part ofsuppliers to understand standards as a part ofthe contractual relationship, rather than adebate over Western values. The challenge is tobe clear about the business benefits at the sup-

plier level, and to develop business practicesthat maximize those benefits.7

Although the study remains focused on addressingthis set of barriers and challenges, other barriersand challenges brought up by participants duringconsultations have been reviewed and analyzed,and are summarized in the report.

1.3.2 Development of OptionsThe consultations conducted in the course of thestudy also focused attention on the development ofoptions to address the key challenges outlined bythe Bank and others noted in the course of the con-sultations.

In particular, the Bank requested that options beexplored with the following considerations inmind:

� Business needs of the buyer (including organi-zational structures, risk management, reputa-tional assurance), and whether these needsmake the adoption of the option more or lesslikely.

� Risk of the option contributing to a loweringof standards.

� Costs, in terms of time and money, required toimplement the option, and whether or not thedifferent stakeholders would be willing tomake the required investment.

� Feasibility of implementation of the option,and in particular, what roles are required ofparticular institutional actors, and are theactors willing to undertake such roles.

� Implications for public sector roles, includingthose of industrial country donors and devel-oping country governments.

In addition to the five criteria established by theBank, the consortium also considered the impactof the options, as well as the degree to which theoptions would reinforce the success of other ini-tiatives, when assessing the value of the suggestedoptions.


6 “CSR implementation” refers to the specific practices of acode of conduct expected of suppliers by buyers; these prac-tices are frequently communicated through detailed guide-lines that accompany codes of conduct, and by companymonitors who conduct site visits and work with suppliers onremediation plans.

7 In the Terms of Reference, the Bank Group notes: “It shouldbe clear that by promoting the business case, this is not anattempt to absolve companies of their obligation to complywith legal obligations, but merely a mechanism for improv-ing compliance.”

Overview 11

In contrast to the more structured consideration ofthe key challenges, the consultations exploring var-ious options were kept relatively open. The rea-soning for the more open exploration was two-fold:

� The consortium was asked to consider optionson several levels, ranging from narrow optionsthat addressed only one or two problem areasof code implementation, to options thatattempted to present more comprehensive solu-tions to the problem as a whole.

� The consultations on the key barriers revealedthat most stakeholders believed that the prob-lem was too narrowly defined, and that solu-tions/options at a wider level were required totackle the issue properly.

1.3.3 Study ScopeAs mentioned above, the study was undertaken asan extensive and comprehensive consultation pro-cess engaging a wide range of companies andorganizations in two industries, apparel and agri-culture, in China, Honduras, India, Kenya, theUnited States, and Europe.

The two industries were selected on the basis oftheir relevance to the issues addressed in this study.The apparel sector was one of the first industries towork with codes of conduct, and therefore it repre-sents an abundance of experience and perspective.The inclusion of agriculture reflects the view of theBank and the project consortium that relevantsocial and environmental issues are present in thatsector’s supply chains. In addition, the nonindus-trial mode of much agricultural extraction meansthat the findings may be sufficiently different so asto enrich the results of the study. Finally, our selec-tion of industries was guided by the preferencesexpressed by the Bank Group.8

The four exporting countries involved in thestudy were selected on the basis of their relevanceto the industries involved in the study, geographicdiversity, and their interest to various stakeholdersas well as the Bank Group.9 Consultations were

carried out in the United States and Europe becauseof the disproportionate presence in those two loca-tions of buyers with codes of conduct, stakeholdergroups, and international institutions active onCSR issues.

The following categories of institutions were con-sulted during the course of the study:

� Workers in the agriculture and apparelindustries.

� Suppliers in the agricultural and apparel indus-tries in the four exporting countries.

� Local NGOs in the four exporting countries.� International NGOs in the United States and

Europe.� Local trade unions in the four exporting

countries.� International trade unions in the United States

and Europe.� Industry organizations in the four exporting

countries and in the United States and Europe.� Multinational companies’ representatives in

China, India, the United States, and Europe.

In addition to these key groups we consulted anumber of representatives from each of the follow-ing groups: government and intergovernmentalorganizations, multilateral development institu-tions, multistakeholder initiatives, research institu-tions, and professional services companies.

In table 1.1 we provide an overview of the consul-tations with the various stakeholder groups in therespective industries and countries.

1.3.4 Consultation MethodologyThe consortium consulted a substantial number ofsuppliers, workers, trade unions, and NGOs in thefour developing countries and buyers’ representa-tives in China and India, as well as in the UnitedStates and Europe. Group consultations (work-shops) with workers, suppliers, buyers, and stake-holders were the primary means of consultation.Annex B contains a complete list of consultedorganizations and companies.

The group consultation form allowed the study toharness the perspectives of a critical mass of par-ticipants and generally yielded highly interactivediscussions, as participants responded to perspec-tives and opinion held by others. However, we

8 In the request for proposal, the Bank Group required theinclusion of the apparel sector as well as encouraged theinclusion of agriculture.9 In the request for proposal, the Bank Group requested a min-imum of three countries representing distinct regions, includ-ing China.

acknowledged that some participants may havefelt uncomfortable about offering their views insuch a setting. To reduce the potential that suchconcerns could limit the participation of some par-ties, we established a secure website as an alterna-tive means for participants to express their viewsconfidentially and anonymously. In a few cases,where it was believed that participants would notbe able to speak freely in a group setting, the con-sortium conducted individual interviews. Individ-ual interviews were also conducted in situations inwhich the participants were believed to hold aunique or highly specialized perspective, or whenscheduling conflicts prevented participation ingroup meetings. Of the 194 individuals10 consultedfor the purpose of this study, 43 people represent-ing 40 institutions were interviewed individually,and the remaining 151 individuals representing122 institutions were consulted in group sessions.

In advance of each consultation, participants werebriefed on the purpose of the study, the objectivesof the consultations, and the agenda for the meet-ings, via a letter of invitation and/or a telephonecall. In addition, all participants received a one-page description of the study, a brief narrative ofthe key challenges and, upon request, the fulldescription of the key challenges.

Workshops were facilitated by a minimum of twoproject staff with at least one person being a localnational. Except in the United States and Kenya, a

minimum of two of the institutions represented inthe project consortium was present at all conven-ings.11 Workshops were conducted in the local lan-guage (Cantonese, Mandarin, Spanish, or English,as appropriate). All staff involved throughout thestudy have extensive experience with the issues atthe heart of the study as well as experience in con-ducting workshops. All facilitators and note-takerswere provided with a detailed facilitator’s guide, areport format, and an analytical framework to beused for preparing the final report.

In general, consultations focused on (1) input andperspectives on the key challenges and assumptionsoutlined in the Terms of Reference, (2) the oppor-tunities present for improving the implementationof CSR in global supply chains, and the develop-ment of concepts and options (solutions) that couldlead to more effective and sustainable solutions tothe issues that form the core of the study.

1.3.5 Worker MethodologyA separate methodology was developed for consul-tations with workers. The consultations with work-ers were conducted by locally based representativesof civil society organizations: the Institute for Con-temporary Observation in China, the Equipaje deMonitoreo Independiente—Honduras in Honduras,a former staff member of the Global Alliance forWorkers and Communities in India, and the KenyanHuman Rights Commission in Kenya.


Table 1.1 Consultation FiguresHong Kong, China Honduras India Kenya United States Europe Total

Buyers AP 24 7 20 9 60Buyers AG 3 5 8Suppliers AP 8 10 10 28Suppliers AG 2 7 5 14Stakeholders 6 4 8 13 17 36 84Workers 58 60 21 60 199

AP, apparel sector; AG, agricultural sector.Note: Annex B contains a complete list of consulted organizations and companies.

10 This figure excludes the consultations with workers, whichinvolved 199 individuals.

11 PwC’s Kenyan and South African offices conducted theconsultations in Kenya, and BSR conducted the consultationsin the United States.

Overview 13

The methodology for worker consultations speci-fied one or more focus group meetings dependingon whether, for example, gender issues or rela-tions between casual workers and regulars werebetter dealt with in separate groups. In addition, alimited number of individual interviews were con-ducted to solicit the input of vulnerable groups,such as women and migrant workers. We con-sulted a total of 199 workers. The objective wasnot to make an in-depth quantitative survey basedon structured interviews with many informants,but rather to get an overall impression of benefits,constraints, and processes of implementation andmonitoring from the point of view of workers onthe floor.

1.3.6 Identification of ParticipantsParticipants were identified through the consor-tium’s existing international and local networks.12

The following criteria guided the selection of par-ticipants:

� Knowledge of the subject matter.� Interest in the development of more effective

and sustainable solutions for addressing CSRin global supply chains.

� Willingness to engage in a consultative, collab-orative process.

� Credibility in the field of CSR.� Ability to engage within the timeline of the

project.

The study consulted first-tier suppliers. While theimplementation of codes of conduct in the supplychain has implications beyond that of the first sup-plier level, to date only a limited number of multi-national corporations are effectively implementingcodes of conduct at the level of subsuppliers andbeyond.

12 Some companies and organizations declined to participatein the consultations. Most indicated a problem either with thenarrow time frame for participation, or that they had takenpart recently in studies of a similar nature.

Codes of conduct establishing guidelines forglobal supply chain partners of multina-

tional enterprises have existed for approximatelya decade, generally emerging as one response toconcerns about social and environmental prac-tices. During this time, the application of codesof conduct has contributed in varying degreestoward wider and deeper implementation ofsocial—and to a lesser extent environmental—standards, mainly in developing countries.

The implementation of social and environmentalstandards through codes of conduct has relied on afairly rudimentary and straightforward system ofcode development, implementation, monitoring,and remediation. The system relies heavily on pri-vate monitoring of code compliance as the princi-pal means of ensuring compliance with the codeprovisions. These approaches have not been theresult of systematic analysis, with the result thatthe whole system does not appear to exceed thesum of its parts.

During this decade, the principal policies, strate-gies, and procedures related to codes haveevolved: many codes have become more consis-tent with internationally agreed principles; imple-mentation guidelines for broad principles stated incodes have in many cases been established; audit-ing and monitoring procedures have increased inquantity, and to some degree in quality; and therehas been increasing engagement between the pri-vate sector and civil society. At the same time,many observers believe that fundamental condi-tions remain in need of substantial improvement.

Much of the original impetus for codes of conductcame from the United States and Europe, withmultinational corporations and civil society orga-nizations in these regions being more involved

than institutions in exporting countries. Compa-nies’ efforts are widely viewed as reflecting amixed motive of seeking to protect the rights ofworkers and environmental concerns, while alsoseeking to protect their reputations and brandequity.

In the mid- to late 1990s several collaborative ini-tiatives involving other stakeholders emerged,bringing together a number of companies andstakeholders around common codes and imple-mentation measures. These efforts, referred to inthe report as “multistakeholder initiatives,” devel-oped for a number of different reasons. In general,these initiatives have sought to develop and reflecta wider consensus around code content and imple-mentation mechanisms, engage knowledgeableand credible parties from civil society, provide ameans for greater coordination and collaboration,and share costs of implementation. Althoughthese multistakeholder initiatives and industry-wide efforts can be seen as an enhancement of theinitial generation of codes developed by individualcompanies, they are nonetheless part of the sametrajectory that has guided the implementation ofsocial and environmental standards so far.

2.1 TIME FOR A CHANGE?As implied in the Terms of Reference for thisstudy, there is now an emerging consensus bymany observers of this approach that, while rec-ognizing the advances made under the present sys-tem, there is a need to approach these questionsdifferently to achieve better working and environ-mental conditions in global supply chains.

As noted earlier, the World Bank identified threekey challenges to be considered as possible barri-

Barriers and Key Challenges

2

15

ers to the attainment of better social and environ-mental conditions. While the three key challengesaddress distinct problems, they are also closelyinterrelated. Taken together, the three key chal-lenges suggest that the present system of imple-mentation needs to be reconfigured.

Thus, the first key challenge, “the plethora ofindividual buyer CSR codes is now generatinginefficiencies and confusion”, suggests the needto readjust and fine-tune the present system ofimplementation. It accepts the view that codes ofconduct are an essential tool in the pursuit of bet-ter social and environmental conditions, andtherefore does not question the premise, butrather implicitly calls for a need to adjust it andmake it work more efficiently, possibly by pro-moting increased standardization of existingprinciples.

The second key challenge, “an increasing numberof buyers are recognizing that traditional top-down CSR strategies are not achieving improvedCSR implementation,” instead questions the estab-lished implementation process. It reasons that thepresent system, being driven by buyers from a dis-tance, will not in itself be able to generate thedesired outcomes in terms of sustainable compli-ance and improved working conditions, even iffine-tuned to the greatest extent possible.

The third key challenge, “[suppliers] have aninsufficient understanding of the business benefitsassociated with making the required investment”,addresses a key premise for any business activity,that is, the need for a perceived business case.

In addition, the consultations conducted for thisstudy also revealed additional challenges, which insome cases were considered more important thanthe three key challenges identified here.

The following sections reference how participantsconsulted throughout the study commented on thekey challenges outlined by the Bank, present addi-tional challenges raised by the parties consulted,and provide an analysis of these perspectives.

2.2 OVERALL OBSERVATIONSBy and large, participants in the consultations con-firmed the underlying assumption of the study,that while the present system of implementation

has resulted in some improvements, some of themsubstantial, it possibly has reached its limits, andmay not be positioned to bring about further realand sustainable improvements in social and envi-ronmental workplace standards in developingcountries without meaningful adjustments.

In terms of the first key challenge suggested by theBank, most participants questioned the degree towhich the plethora of codes presents a significantchallenge. For the most part, participants pointednot to the basic provisions of codes, which theyview as having largely converged to a significantdegree. Instead, there is a widespread impressionamong those working in the field that the incon-sistent interpretation and application of codes pre-sents the greatest confusion and inefficiency.Accordingly, many questioned whether efforts toachieve code harmonization would yield real andsustained improvements in social and environ-mental workplace conditions. Nonetheless, mostparticipants believed that the imperfections andinconsistencies of the present system should beaddressed, and that doing so could result in someimprovements.

In terms of the top down approach also identifiedas a potentially significant barrier, participantsnoted that although this approach had probablybeen essential in the beginning to raise awarenessand achieve progress, the present top-downapproach was insufficient and even inefficient inachieving further real and sustained improve-ments. It is important to note, however, the widelyheld view that the top-down approach remainsimportant in many circumstances, and thatengagement from buyers and other institutions inthe North would continue to be part of the picture,and could reinforce needed bottom-up strategiesfor capacity building, worker empowerment, andgovernment enforcement of laws. Indeed, work-ers consulted for the study confirmed this percep-tion by noting that top-down pressure wasnecessary to enable the implementation of workerempowerment.

On the third key challenge, participants agreedthat the business case—or how it is perceived andunderstood—plays an important role in deter-mining the willingness and motivation of bothsuppliers and buyers to undertake investments inCSR practices. The business case was described


Barriers and Key Challenges 17

alternately as related to obtaining or losing orderson the basis of CSR, as well as the inherent busi-ness value of implementing social and environ-mental practices. While this challenge would seemto be a significant barrier to further adoption ofCSR practices by suppliers, there are mixed per-ceptions of the degree to which the business caseexists. Many participants, including suppliers,buyers, and NGOs, appear to hold the view thatimplementation of social and environmental stan-dards in many instances tends to generate costs andprovides a relatively low return on investment.

In addition, many participants pointed to structuralbarriers to implementation relating to the overallbusiness environment. In particular, several repre-sentatives from all consultation groups pointed tothe very structure of the buyer–supplier relation-ships in the apparel and agriculture industries,including complex, shifting, and anonymous supplychains, as presenting a structural barrier to imple-mentation of social and environmental standards.

Several other barriers were raised in addition to thethree key challenges in the Terms of Reference.Some of the barriers articulated by participants inthe study took the form of inaction, rather thanaffirmative steps that do not further the process.

Virtually all participants noted that the absence ofaction by local governments presented a significantbarrier. It is essential to note that government inac-tion was viewed not only as a barrier to theachievement of good practice generally, but also asa barrier to the implementation of codes of conductand other critical steps taken by nonstate actors.

In a similar way, consultations also showed thatenvironmental concerns beyond those related tooccupational health and safety have yet to enter fullythe agenda of most groups consulted in the study,including buyers, NGOs, and trade unions. Anexception to this is in the agricultural sector, wherethe consulted workers stated that codes had reducedthe environmental (health and safety) risks in work-ing with pesticides and other chemicals.

Finally, it is important to note that some stake-holders do not accept the basic premise that codesof conduct are a useful mechanism for addressingthe social and environmental issues at the core ofthis study. Trade unions in particular contend thatpublic enforcement of laws, and collective bar-

gaining agreements, are a far more effective andaccountable system for ensuring that labor princi-ples, and to some degree environmental principles,are honored. It is, in fact, possible to extrapolatefrom this view that codes themselves are a barrier,and this view provides an important countervailingopinion that is worth considering as options forfuture progress are developed.

2.3 KEY CHALLENGE 1The Plethora of Individual Buyer Codes Is Now Generating Inefficiencies and ConfusionIn the Terms of Reference, the Bank Group esti-mates that 1,000 buyer codes exist today.13 TheBank suggests that the increasing number of codes,and the variety of standards they contain, is asource of inefficiency and confusion that may limittheir effectiveness. In addition, it is unclear to whatextent the 1,000 codes identified by the Bank aresupported by the substantial implementation sys-tems that are required to provide reasonable assur-ance that the standards are met.

In the Terms of Reference, this proliferation ofcodes is argued to have two distinct sets of conse-quences:

� First, the duplication of codes disrupts or evenprevents full implementation of social and envi-ronmental standards at the level of the individ-ual supplier. ● The individual supplier becomes too preoccu-

pied with meeting the different requirementsof his/her buyers to be able to offer time andresources to address real implementation.

● The duplicative requirements of buyers putunnecessary financial and managerial burdenson suppliers.

● Suppliers “get caught” by buyers’ differentand, at times, conflicting requirements, thusremaining in a “compliance limbo.”

13 The term “code of conduct” is often used to mean differentthings. In this report the term is used to refer to guidelinesestablished by buyers to establish social and environmentalperformance for their suppliers. It is not certain whether theBank’s estimate of the number of codes of conduct appliesthis definition and, if not, what impact it would have on theestimated figure.

� Second, to the degree that duplicative andinconsistent codes create barriers to entry forsuppliers aspiring to produce for internationalcompanies, this could have implications fornational economies because such issues havethe potential to interrupt the development oflocal participants in the benefits of global trade.In citing this potential factor, there is no sug-gestion that those implementing codes intendthis result.

In addition, the duplication of codes may present acase of industrial suboptimization since the same(or better) end result (that is, compliance withsocial and environmental requirements) could beachieved with fewer resources through greatercoordination and cooperation between buyers

This means that all concerned, including buyers,suppliers, and workers stand to lose: buyersbecause they are not given the level of assurancesought; suppliers (and buyers) because they wasteresources and are not able to harness the potentialbenefits of CSR; and workers because they do notbenefit from improved working conditions.

2.3.1 Overall ObservationsWith the exception of suppliers, who have mixedviews, participants overall expressed skepticismabout whether the plethora of codes in itself wasa source of real inefficiency and confusion,although they did agree that the duplication ofcodes did cause some additional burdens to sup-pliers. On the whole, participants pointed insteadto inconsistent application of codes as presentinga significant barrier to the implementation ofCSR practices in global supply chains. This viewwas widely shared across the different participat-ing groups, although dissenting voices came outin almost all groups, most notably among suppli-ers, some of whom did see the number of codesas a problem in itself. One of the main reasonscited for contesting the notion that the explosionof codes presented a problem was the generalobservation that most codes have the practicalimpact of restating local laws, and that codesadopted by the most visible buyers reflect astrong and growing convergence around coreInternational Labour Organisation (ILO) conven-tions, and also frequently reference the principles

embraced in the Organisation for Economic Co-operation and Development (OECD) Guidelinesfor Multinational Enterprises.

Thus, while participants believed that the incon-sistent application of codes was a problem,including duplicative and inconsistent monitor-ing efforts, many of those consulted also directlyand indirectly cautioned against an overdramati-zation of the scale and scope of the challenge. Anumber of suppliers also seemed to acknowledgeimplicitly that many of the difficulties could beovercome relatively easily. Some stakeholdersasserted the fact that the implementation of codesis no different from the implementation of otherstandards, such as quality control or new man-agement systems.

Furthermore, the vast majority of participants didnot believe that the proliferation of codes acted asa barrier to entry for suppliers aspiring to producefor buyers focused on CSR performance, hencerejecting part of the rationale for citing this as achallenge.

Although several anecdotes are raised frequentlyto illustrate an overburdened system of duplicativemonitoring visits, there is currently no way todetermine whether this is the exception or the rule.Most parties to the discussion, however, generallyacknowledge that the current system is not coordi-nated to achieve a planned result and that unnec-essary duplicative monitoring should be dealtwith.

2.3.2 Inefficiencies and ConfusionAs noted, consultations revealed that participantsbroadly questioned whether the plethora of codesin itself was a source of real inefficiencies and con-fusion, pointing instead to the application of codesas the source of the problem. Specifically, partici-pants in the consultation pointed to the following:

� Multiple Auditing: Some suppliers reporthaving been subjected to more than 30 to50 audits per year, and sometimes having beenmonitored by the same auditing company onbehalf of different buyers. Suppliers state thataudits divert management time and resources,disrupt workflow, and challenge planning pro-cesses. Most participants agreed that multiple



auditing was inefficient, although some Westernand local NGOs and buyers argued that thisproblem was overstated and that the potentialbenefits of multiple auditing (maximizing pres-sure, better total monitoring, and so forth) out-weighed the actual costs. It was also noted thatthe overall reliance on monitoring created a sys-tem in which the suppliers’ main objective is topass the audit, rather than address the substan-tive issues that are the focus of the audit. Manyworkers believed that better and more uniformmonitoring procedures would facilitate imple-mentation of codes.

� Auditing Procedures: Some suppliers claimedthat different auditing procedures are a sourceof inefficiency. Often, auditors are left to deter-mine methodologies, such as the use of docu-mentation, visual observation, and interview,and these may vary substantially between andwithin institutions. Also, some suppliers (andWestern stakeholders) believed that the qualityof auditing varied greatly among auditing orga-nizations, and even within such organizations.These issues are perceived to apply to a range ofmonitoring organizations, regardless of whetherbuyers’ personnel, commercial third parties, orcivil society organizations perform monitoringfunctions.

� Supplier Implementation: Different codesoften are backed by different implementationrequirements, through which suppliers are askedto demonstrate how they manage and implementthe standards contained in codes. Some of theserequirements relate to management systems;some relate to performance, and many combinethe two. ● Supplier Performance Requirements:

Many buyers in recent years have respondedto their own concerns and those expressedexternally by developing more detailed guid-ance on the specific meaning of code provi-sions. This should generally be consideredan important step toward the implementationof code provisions. At the same time, suppli-ers in particular note that these implementa-tion guidelines may often have differentprovisions on particular issues, such asdetails of health and safety provisions (forexample, the location of the first aid box andfire extinguishers), compensation of piece-rate workers, and so forth. Such variations can

raise the risk that one buyer could consider asupplier in compliance on one day, and thesame supplier could be determined noncom-pliant by another buyer on the next day. It isworth noting that although many parties raisethe oft-cited example of the supplier that isrequired to move fire extinguishers a few cen-timeters higher or lower depending on thebuyer and the auditor, others have challengedthe degree to which such “requirements” actu-ally are enforced and determinative of out-comes, or whether they are used to exaggeratethe weaknesses in the system.

● Supplier Management Requirements: Inaddition, suppliers are sometimes required tomaintain different types of documentation oftheir performance, and processes for imple-menting good environmental and social per-formance. Indeed, as some buyers seek to shiftfrom the top-down to a bottom-up approach,more of these process requirements may beestablished. There is a similar risk, cited againby suppliers, that inconsistencies in processrequirements will distort the investmentsmade in ensuring good conditions towardadministrative requirements which, if incon-sistent, will retard rather than promoteimprovements. This was a particular problemfor SMEs lacking the necessary managementsystems and capacities, although also a sourceof added costs for larger suppliers.

� Remediation: Buyers often have very differentapproaches to remediation. This too is possiblyless a consequence of the absolute number ofcodes than of differing means of applying codes.Given that the ultimate goal of codes and otherlabor and environmental requirements is toachieve performance improvements, the ques-tion of remediation (that is, what must be doneto address shortcomings in performance) shouldbe given prioritized attention in future effortsto improve the impact of codes. It should benoted that many buyers raised the issue of theirinstitutional need to make final decisions onwhether and on what terms they would workwith a particular supplier based on remediationefforts, and that these decisions tend to behighly individualized.

The question remains about the extent to which theidentified inefficiencies and confusion cause real

obstacles to implementation of CSR, as well as theextent to which this places unreasonable burdenson suppliers. Not surprisingly, this is an issue onwhich perspectives tend to vary between suppliersand buyers in particular. As such, a summary ofviews from each is presented below.

Suppliers’ PerspectivesThe assertion of suppliers that multiple codes area source of inefficiency and confusion would to alarge degree stem from the overall context inwhich social and environmental requirements havebeen developed, that is, from the fact that codes intheir view have been imposed on them with littleor no consultation. Given that different participa-tion groups expressed somewhat different per-spectives on these issues, an examination of someof these views may reveal valuable additionalnuances to the discussion:

� Comments suggested that most suppliers are yetto embrace fully the objective of implementingsocial and environmental standards. Apparelsuppliers in India acknowledged this, notingthat a change of mindset was needed to see amore proactive attitude toward CSR, whichindicates that additional costs stemming fromcode implementation also would be seen asunwanted. Some apparel suppliers confessedthat they skillfully had developed the art ofseeming to be in compliance without makingchanges. For example, prior to announcedaudits they would instruct employees to wearrequired protective equipment, the factorywould be swept clean, and so on.

� Many suppliers are still finding it hard to dealwith the “new” social and environmentalrequirements contained in the codes of conduct.For instance, according to apparel suppliers inChina and India, the overriding challenge is stillhow to deal with compliance provisions onovertime, and in many cases they also have toaddress inconsistent application of code inter-pretations of overtime requirements. On theother hand, buyers’ assertions that the “multiplecodes argument” is being used as a pretext forevading compliance may have some merit, not-ing that some apparel suppliers confessed that“compliance, except for overtime and compen-sation, was not a problem; it is only that we arenot paid for it.”

The above observations should not, however,invalidate the assertion made by suppliers that theimplementation of multiple codes does cause realinefficiency and confusion. On the contrary, theseinefficiencies are real, stemming at times frommultiple audits, different requirements concerningmanagement systems, the time and resourcesdevoted to comply with various requirements, andother issues. It is unclear whether the magnitude isof central importance in itself, or whether they arethe source of additional frictions in an alreadystrained relationship.

Buyers’ PerspectivesWhile many buyers also acknowledged the ineffi-ciencies arising from multiple codes, they did notsee this as a problem of the magnitude that suppli-ers did. Indeed, some buyers felt that duplicativemonitoring served the beneficial purpose of rein-forcing the message that suppliers needed to attendto these issues more carefully. Not surprisingly,buyers see a different set of inefficiencies in thesystem than do suppliers:

� Buyers consulted in the course of the study gen-erally acknowledged that the costs of monitoringare becoming increasingly high and in the longrun are not sustainable. This is particularly trueas some buyers have started to look beyond thefirst tier of suppliers, opening up the possibilityof monitoring many more suppliers. Accord-ingly, buyers are looking to solutions that wouldallow cost sharing, especially in this area, whichis seen as noncompetitive.14 Moreover, a numberof buyers would like to avoid duplication asmuch as suppliers, and in many cases have eitherhelped to launch or have expressed interest inmonitoring “cooperatives.” This is already tak-ing place not only via some of the multistake-holder initiatives but also on a more informalbasis between groups of buyers.

� Increasingly, buyers are recognizing that the tra-ditional approach to compliance is not generat-ing the desired results in terms of improved


14 One European buyer did note that while field staff assertfrequently and convincingly that buyers in practice are awareof each others’ suppliers, many headquarters staff continue tobelieve that sharing factory information risks the surrender ofbusiness sensitive information, and is therefore too risky.This clash of perceptions could present a barrier to furthersharing of monitoring information.


social and environmental standards. For obviousreasons, buyers are looking to solutions that willgive a better return on the investment.

� Some buyers also note that the external pressurethey face to protect their brands leads them tointerpret code guidelines individually, with thepotential idiosyncrasies that result.

Accordingly, while buyers by and large share sup-pliers’ concern that the application of codes of con-duct may generate some inefficiency and confusion,buyers have a slightly different focus, preferring tolook for ways to achieve similar or increased resultsthrough greater coordination of effort and invest-ment. A number of buyers, however, did argue thatthe suppliers’ claim that the duplication of codescaused inconsistent implementation practices oftenwas a pretext to evade compliance.

Stakeholders’ PerspectivesThe stakeholders surveyed in the study are adiverse group with different levels of experience,perspectives, and interests.

Taken as a whole, however, stakeholders agreedthat the inconsistent application of codes of con-duct was a source of inefficiency and confusion,although many NGOs remained skeptical aboutthe degree to which this was as real a problem asprofessed by suppliers and buyers. For instance,stakeholders in the United States, includingNGOs, trade unions, and representatives of mul-tistakeholder initiatives, asserted that this chal-lenge was “a bit of a red herring put forth bysuppliers and major brands.” This group believedthat the focus on this issue (unfortunately) tendedto distract attention from the more critical issuesfaced by workers, such as hazardous conditionsand discriminatory treatment. Likewise, a repre-sentative of one of the European multistakeholderinitiatives thought that the burdens caused bymultiple audits were exaggerated.

However, stakeholders did acknowledge that theproliferation of codes could be a significant prob-lem for SMEs, which often have such poor man-agement systems in place that it proves more costlyand difficult for them to comply with codes. In thisway, codes could act as a barrier to entry.

As to the question of confusion, stakeholders over-all agreed that suppliers are generally not confused,

but know perfectly well how to demonstrate com-pliance. Confusion, in the few cases where it doesexist, is not so much a result of the actual numberof codes, but rather stems from the fact that the pro-visions in many codes are simply too vague.

Workers’ PerspectivesWorkers generally did not express strong opinionson the extent to which multiple codes and their(inconsistent) application was a source of ineffi-ciencies and confusion. Given that the consulta-tions with workers demonstrated an overall lack ofawareness of codes and their impact, this is perhapsnot surprising. However, many workers believedthat implementation of codes of conduct would befacilitated by the development of more uniformand improved monitoring practices. Some workersalso noted that management seemed at times toopreoccupied with accommodating the differentrequirements of buyers.

2.3.3 Code Content ConvergenceIn the eyes of most participants, the labor contentof most codes restates the provisions of applicablelocal laws or, if higher, the principles stated in rel-evant ILO conventions. Many participants, includ-ing buyers, suppliers, and NGOs, dismissed thediscussion of duplicative code content referencing“the fact that most codes today are built upon theILO conventions.”15

A notable exception to this prevailing view was anintergovernmental organization well positioned tocomment on this issue. Referencing its ownresearch, it claimed that although code content wasoverlapping and most often did refer to ILO con-ventions, the coverage was insufficient and oftenfailed to take into account core labor standardssuch as freedom of association and the right to col-lective bargaining.16

15 Research recently undertaken by the Bank Group will bereleased shortly, and will address the question of whether amajority of codes converge around the core ILO conventions.16 According to representatives of multistakeholder initiatives,recently initiated discussions have indicated that the content ofa common code is not a source of contention. It is argued thata common code could be defined easily. Noting that the mul-tistakeholder initiative codes generally aspire to high stan-dards, this would not necessarily suggest that nonmembers ofthe multistakeholder initiatives would agree to such a code.

In the eyes of participants, code convergencewould not in itself guarantee greater uniformity oreffectiveness, since implementation practicestoday vary even among companies using identicalcodes. The fact that the major multistakeholderinitiatives have yet to mutually recognize each oth-ers’ systems would seem to support the view that“the devil is in the detail,” that is, in the imple-mentation and interpretation of code provisions.

It should be noted also that some participants,notably those in India and China, reported thatlocal laws are not always interpreted consistentlyeven by government officials, and that local lawsare considered in some cases to be “archaic” andin need of an overhaul.17

2.3.4 Code Convergence in the Field of Human Rights and EnvironmentIn the Terms of Reference to this study, the BankGroup presents the assumption that if code conver-gence in labor content does take place, referencingILO conventions, this would hold implications forconvergence in the field of human rights and theenvironment; that is, code convergence should beachieved by referencing international standards.

As noted elsewhere, consultations showed thatprovisions relating to the environment and humanrights beyond that of labor rights appear not toreceive much attention in codes of conduct in thetwo sectors surveyed. However, according tosome workers, certain environmental issues areaddressed in the agricultural sector, such as use ofpesticides. Similarly, human rights issues, apartfrom labor rights, are generally not part of codesof conduct for suppliers.

The observation that environmental issues wentlargely ignored throughout consultations mightreflect that so far there is less awareness, concern,and external pressure to address environmentalmatters than labor issues in global supply chains.However, this may also reflect particular industrycharacteristics, since environmental issues featuremore prominently in the supply chains of otherindustries, including the automotive industry.

Convergence on environmental principles in codesfor suppliers does not appear to be feasible, largelybecause of the lack of relevant international stan-dards designed to apply globally. The level ofdetail and specificity agreed in the ILO conven-tions cannot be found in any relevant environmen-tal convention or declaration. The principles citedin the United Nation (UN) Global Compact do notconstitute a sufficient basis for designing enforce-able standards, even though they may provideoverall guidance. None of the consulted partici-pants expressing a view on the subject believedthat it would be possible to develop an environ-mental code on a broader global level; they notedthat environmental provisions would be company-specific or, at the very least, industry-specific.Indeed a number of buyers—but also suppliers—believed that if environmental codes could bedeveloped it should be on an industrywide basisallowing for a substantial degree of local cus-tomization. However, most participants did notfeel qualified to comment on this issue.

In the field of human rights, the situation should inprinciple be similar to that of labor, given the exis-tence of the Universal Declaration of HumanRights (UDHR) and numerous human rights con-ventions, which provide an adequate and relevantbasis for such principles. However, consultationsuncovered a lack of knowledge of and interest inhuman rights issues related to supply chain apartfrom labor rights issues. Participants did not antic-ipate that human rights, beyond those of laborrights, would achieve a more prominent position incodes of conduct in global supply chains.

2.4 KEY CHALLENGE 2An Increasing Number of Buyers Are Recognizing That Traditional Top-Down CSR Strategies Are NotAchieving Improved CSR ImplementationAs noted in the previous section, most participantsbelieved that if real implementation of CSR stan-dards was to be achieved it would require newapproaches to implementation that were “outside”the present system of enforcing codes of conduct.In that light, an important initial qualification ofthe phrasing of Key Challenge 2 would seem to bethat not only buyers, but also suppliers, NGOs,


17 These comments appeared to argue for a lowering of legalrequirements in aspects of Chinese and Indian labor laws.


trade unions, and other stakeholders are seeing aneed for alternative and complementary approachesto CSR implementation.

2.4.1 Bottom-Up and Shared OwnershipIn the Terms of Reference, the Bank Group referredto assertions by buyers that the so-called top-downapproach to CSR implementation in global supplychains is not achieving improved CSR implementa-tion. In using the term “top-down” the Bank Groupimplies that new approaches to CSR implementa-tion would have to move in the direction of bottomup, that is, implementation strategies that to agreater extent rely on the positive engagement ofsuppliers, workers, and local stakeholders throughshared ownership.

In the Terms of Reference, the Bank Group pointsto three basic types of strategies that have beenemployed by some buyers to promote improvedimplementation:

� A focus on clarifying the business rationale togenerate bottom-up demand for CSR implemen-tation. This would appear to be based on anassumption that CSR implementation drivesbusiness benefits.

� A focus on capacity building at the supplierlevel, for management, workers, and stakehold-ers alike. This presupposes that suppliers,including their workers and stakeholders, do notpossess the skills and knowledge necessary tosecure implementation of social and environ-mental standards.

� A focus on the role of workers or other keystakeholders as guarantors of CSR implementa-tion, presuming that more fully empoweredworkers are key to ensuring implementation ofCSR standards.

The above proposed alternative and complemen-tary approaches to CSR implementation in globalsupply chains seem to rest on some importantassumptions. In the course of testing this overallchallenge, Key Challenge 2, we emphasized clari-fication of the following:

� Do participants overall agree that the so-calledtop-down approach is not generating the desiredoutcomes?

� In a similar way, it seems important to testwhether participants agree that suppliers broadly

speaking are lacking important skills that hinderthe implementation of social and environmentalstandards? And, if so, what kinds of skills aremissing?

� Do participants agree that more fully empow-ered workers are critical to the implementationof CSR standards?

2.4.2 Overall ObservationsOverall, participants from various perspectivesagreed that, whatever the historical or present ben-efits of a top-down approach, there were real lim-its to the value this approach would generate goingforward. However, consultations also broadlyshowed that in spite of the present concerns aboutthe top-down implementation model, it would andshould remain an element in the overall process ofimproving CSR workplace practices in developingcountries.

As noted above, a primary impetus for action toaddress conditions in global supply chains was aseries of episodes given great attention in the UnitedStates and Europe in the 1990s, and the resultingconcern expressed by buyers, stakeholders, con-sumers, and the media. There was no similar outcryin many of the exporting countries. Some partici-pants also pointed to the unwillingness or lack ofcapacity of governments in exporting countries toaddress issues, and that the tenuous existence of civilsociety in several developing countries also limitedthe development of locally based solutions. There-fore, there was greater initial energy both from com-mercial and noncommercial entities from the North,with the top-down approach being an outgrowth ofthis situation.

Notwithstanding the reasons the situation devel-oped as it did, several parties now see the top-downdynamic as having various negative features.Suppliers tend to see the top-down approach asproblematic because it does not involve them suf-ficiently in the development and implementationof codes. Buyers pointed to the fact that a top-down approach cannot and will not be sustainableover time. Workers noted that they were not awareof or involved in efforts to achieve better labor andenvironmental practices. And stakeholders havecome to lament the lack of indigenous roots for thesolutions. In all cases, it should be noted that thereare often fundamental differences in perceptions

between buyers and stakeholders depending onwhether they are based in the North or the South.

Apart from these real barriers to implementation ofbottom-up approaches, many participants alsopointed to other structural barriers, such as theactual business models including the transientnature of sourcing in the apparel sector, and thereticence of suppliers to embrace social and envi-ronmental compliance. In addition, some partici-pants, including buyers, emphasised the possiblelack of commitment to CSR among many buyersas a challenge, noting that the implementation ofbottom-up approaches required the commitmentof both financial and managerial resources as wellas a commitment to developing more long-termrelationships. Many workers expressed skepticismof the motives of buyers and management, notingthat implementation often was done without com-mitment and conviction.

Overall, there is a broad-based consensus thatimplementation efforts other than top-down effortshave to be pursued; however, most participantsseem still to be in the process of consideringviable, scalable, and sustainable approaches.There appeared to be a strong desire to move awayfrom top-down approaches, and continued ques-tioning about whether and how to do so.

Are Top-Down CSR Strategies AchievingSufficiently Improved CSR Implementation?The vast majority of participants recognized thatthe present system of enforcing codes of conductis not generating the desired level of implementa-tion of CSR standards at the level of suppliers.

The above conclusion should, however, be inter-preted carefully. The substantial majority of buy-ers, and also most of the NGOs and other civilsociety organizations consulted, believed that thepresent top-down system had achieved improvedCSR implementation, but that further real and sus-tainable improvements required new approaches.As one buyer put it: “The question is not whetheror not the top-down approach has achievedimproved CSR standards but whether it has doneso efficiently.” While suppliers were less ready toattribute credit to the present system—althoughthey did not discredit it—one Indian apparel sup-plier echoed by others professed that buyers’efforts in this area had achieved more in a few

years than the Indian labor inspectorates had in 30years. A number of suppliers in both India andHonduras acknowledged the buyer perspective bynoting that the supplier mindset had to change fun-damentally, seeing this as potentially the greatestbarrier to the enactment of bottom-up, sharedownership–driven approaches. In the words of aHonduran supplier: “Suppliers lack a culture ofcompliance.”

There is also the question of whether codes insertstandards from the outside, or from the top down.

While many suppliers did believe that codes wereimposed on them, they did not perceive codes asWestern-centric, noting that codes most oftenmerely restated local laws. Nor did suppliers per-ceive codes as a new barrier to trade, given thatsourcing—irrespective of individual suppliers’CSR performance—would take place with othersuppliers in the same country or region. However,some suppliers in both apparel and agriculture didbelieve that buyers were not sufficiently sensitive tolocal realities in their application of codes. Apparelsuppliers in China and India, referencing the chal-lenge of overtime, frequently mentioned this latterpoint. Stakeholders from the exporting countriesexpressed similar concerns, and the Kenyan stake-holders specifically cited the “unreasonable” childlabor standards in many codes as an example.

Is Top-Down Necessary?While noting that this was the prevailing view,participants still had mixed views of the relevanceand appropriateness of the top-down approach.18

Suppliers in particular, and some NGOs and tradeunions from sourcing countries, expressed thegreatest concerns about the top-down approach. Anumber of suppliers and some stakeholders fromsourcing countries complained that codes werebeing imposed, that insufficient consultation hadtaken place, and that the buyer–supplier relation-ship was characterized by a lack of equity. Somebelieved that codes should be negotiated bottomup, noting that this was the only way to secure a


18 One intergovernmental organization believed that a greatmany ongoing activities contradicted the generalized descrip-tion of the top-down approach. Other participants, who in gen-eral did not reference ongoing activities beyond that of smallpilot projects, however, did not confirm this observation.


sense of shared ownership. Unions, international aswell as local, believed that a bottom-up approach,characterized by genuine freedom of association thatallows workers to organize and bargain collectively,is the only way to improve working conditions.

Many of these complaints by suppliers appeared tostem from an overall sense of powerlessness that isunderpinned by a perception that suppliers areasked to shoulder the costs of compliance, whereasbuyers receive the benefits. First, there is a generalsense from most suppliers that they lack trust in themotives of buyers for implementing CSR standardsin their supply chains. Second, code-of-conductrequirements have been developed at the same timethat suppliers have faced substantially increasedpressures to lower their prices and speed theirdelivery of goods.19 This is closely linked to theobservation by all suppliers (and acknowledgedalso by a substantial number of buyers’ representa-tives and many NGOs) that buyers send mixedmessages about the importance of CSR vis-à-visother buying requirements such as price and deliv-ery. This latter issue is further explored in the dis-cussion of Key Challenge 3, as well as chapter 3 ofthis report. In addition, given that supplier–buyerrelationships often shift substantially, and thatmany buyers have not yet embraced CSR in a seri-ous manner, suppliers’ unwillingness to embraceCSR fully themselves can be seen as a response tothe fact that the market does not yet send a consis-tent message about the importance of CSR.

The majority of buyers and NGOs tended to take amore balanced view, asserting that the top-downapproach had been necessary, and would remain sofor some period of time, while they also expressstrong interest in devolving responsibility andauthority for addressing social and environmentalissues to suppliers themselves. This general obser-vation was justified by referring to the fact thatCSR compliance was driven by buyers as aresponse to their own buyers’ pressure (that is, con-sumers and retailers), and because most suppliersstill did not embrace social and environmentalstandards, and many were operating in violation ofapplicable laws, change would not likely ensue

without top-down pressure. Indeed, some buyersnoted that so long as their codes mainly reflectedand restated local laws, they would not engage inconsultations on the codes’ content.

Workers generally believed that some top-downpressure was necessary to ensure implementationof codes, while noting that implementation wouldbe much more efficient if it involved more workersand workers’ perspectives and experiences.

The views expressed by most participants wouldseem to confirm that the top-down approach hasbeen important in making initial progress, and yetis unsustainable in the long run as a stand-alonestrategy for implementation of social and environ-mental standards. Indeed, this is an area in whichbuyers, suppliers, and stakeholders are in agree-ment, wanting to see local approaches elevated togreater importance in coming years. However, it isunrealistic to assume that suppliers, in particular inindustries such as apparel that are characterized byshort-term, shifting relationships, would take theinitiative to implement CSR standards on theirown. The fact that this has not occurred yet lendsweight to this argument. The top-down approachwill remain a prominent feature even in the yearsto come, and even as most parties to this debateseek more bottom-up solutions.

2.4.3 Lack of Local Capacity as a Barrier Many buyers and NGOs contended that the reasonfor top-down approaches is the lack of capacity orwill to adopt solutions locally. More importantly,however, few suppliers acknowledged the need forcapacity building at the level of management andmiddle management. They did not see (managerial)skill deficits as a barrier to implementation, butrather turned the attention to the need for capacitybuilding at the level of local government. Suppliersin fact opined that the lack of direct communica-tion/consultation with buyers was a barrier toimplementation, noting specifically that the use ofthird-party monitors risked externalizing part of thebuyer–supplier relationship. In general, the fact thatfew parties came forward with details about how toincrease capacity may reflect a barrier in itself.Buyers also expressed concerns about the degree towhich they could be directly involved in capacitybuilding across their entire supply chains.

19 In consultations in China and Hong Kong, commercial par-ties noted that prices have been falling in absolute terms inrecent years in the apparel industry, and numerous agricul-tural commodities have faced similar deflationary pressures.

Limitations to the Bottom-up ApproachAlthough consultations showed a general consen-sus on the need for a combined approach to imple-mentation, they also evidenced two questionableassumptions of a structural nature inherent in thisthinking.

Echoing the view of many buyers and WesternNGOs, one international organization argued thatthe top-down approach was inevitable in industriesor supply chains with short-term, shifting relation-ships. In these industries it was impossible toexpect buyers to commit to more shared-owner-ship-type approaches.

In addition, greater involvement of buyers in bot-tom-up approaches would also seem to rely on thequestionable assumption that buyers are truly com-mitted to implementing sustainable CSR practices inglobal supply chains, even though such approachesmay be more costly and time-consuming. This pointis worth considering given that the study involved adisproportionately high number of CSR-receptivebuyers, and the general community of buyers maynot adopt such approaches as readily.

Others noted the lack of incentives that currentlyexist for local governments to enforce local laws.As the system currently works, governments mayperceive an advantage in lax enforcement becausethis allows them to attract foreign investment fromboth companies that do and do not care about theseissues; relying on those companies that do care toenforce provisions on their own.

Finally, as noted in the Terms of Reference, one ofthe factors inhibiting local approaches is the gen-eral dearth of service providers from civil society,the commercial sector, academia, and public insti-tutions at the local level.

Worker Education and EmpowermentMany participants in the survey noted that work-ers, and workers representatives, had not been partof the solutions, and that this was one importantaspect of the top-down barrier. This question hasmany dimensions: (1) many codes were developedwith little involvement by workers; (2) tradeunions often operate in environments in whichtheir actions are sharply curbed by governmentand business; (3) the roles of NGOs and tradeunions with respect to workers are frequently sub-

jected to different and often irreconcilable views;and (4) in an increasingly feminized and informalwork force, questions are sometimes raised aboutthe unions’ ability to represent workers fully andfairly. In addition, some participants, from bothbuyers and stakeholders, noted the substantialcosts of worker education, at least as it has beenundertaken to date in pilot projects and throughmultistakeholder initiatives.

Some buyers, suppliers, and stakeholders alsonoted barriers in specific contexts: the oversupplyof labor and reliance on migrant labor in China,and the presence of migrant labor and the impor-tance of the informal sector in India.

Most unions strongly emphasised that codesshould not become a substitute for collective bar-gaining, noting that codes were welcomed only ifthey promoted union rights including creating aspace for local consultation. The majority ofunions were firmly opposed to seeing NGOs in therole of training and empowerment of workers;even in situations where local unions were unableto do their job. Although some international unionfederations acknowledged that local unions did notalways represent vulnerable groups, such aswomen workers and migrant workers, the alterna-tive was not to bypass unions but rather to workwith unions to make them better.

NGOs, on the other hand, remained skepticalabout the ability of some local unions to take onthe responsibility of training and engaging withcompanies, noting that some unions were caughtup in political strife or corruption. Both NGOs andunions agreed that commercial service providersshould not carry out these activities nor shouldmultinational companies sponsor their activities inthis field.

Workers, for their part, presented mixed perspec-tives on the role of unions; some showed a lack offaith in unions, noting that they were too politicizedor corrupt. Others saw the right to form unions andengage in collective bargaining as a central aspect ofcodes, second only to provisions on health andsafety. As noted elsewhere, consultations with work-ers showed a general lack of knowledge of codes,reinforcing the view expressed by buyers and stake-holders that workers’ needs and potential are notadequately addressed.



2.5 KEY CHALLENGE 3Insufficient Understanding of the Business CaseThe business case for CSR in general is and willcontinue to be widely debated. This also holds truefor implementation of good social and environ-mental practices in global supply chains.

As phrased, Key Challenge 3 and its underpinningassumptions imply that implementation of goodsocial and environmental practice by suppliersdoes generate business benefits. The basic busi-ness case is generally understood to have twomain elements:

� Compliance with social and environmental stan-dards will help suppliers maintain existing busi-ness and secure new business. Suppliers risklosing business if they show an unwillingness tomove toward compliance.

� Compliance with social and environmental stan-dards generates business benefits through, interalia, lower rates of absenteeism, higher produc-tivity, and more satisfied workers.

However, the essence of Key Challenge 3 is whethersuppliers acknowledge that the business case exists.This is the question that formed the basis for consul-tations on this barrier.

2.5.1 Overall ObservationsConsultations revealed considerable skepticismamong suppliers about whether the business caseactually exists. Furthermore, given that some buyersthemselves do not unequivocally recognize the exis-tence of the business case (for suppliers), suppliersmay not acknowledge or act upon the business casefor CSR for some time to come. Therefore, the mostthat can be concluded is that the business caseremains unproved rather than disproved.

Accordingly, Key Challenge 3 would seem to be asignificant barrier to further adoption of CSR prac-tices by suppliers.

All participants agree that the business rationale—and how it is perceived and understood—plays animportant role in determining the willingness andmotivation of suppliers to undertake investments inCSR practices. This came out explicitly when dis-cussing Key Challenge 3 as well as implicitly when

discussing, not least with suppliers, other key chal-lenges. Stakeholders in general held the view thatthis challenge was the most important of the threeidentified by the Bank Group.

Suppliers, buyers, and stakeholders alike believethat the business case for investing in CSR is nota simple one-size-fits-all question. Indeed, mostparticipants seem to agree that investing in cer-tain elements of CSR does translate into (long-term) business benefits, whereas investments inother CSR aspects offer a negative or at best aneutral return on investment. Participants alsoheld mixed views on whether good CSR perfor-mance helped suppliers maintain or secure busi-ness. Suppliers in particular did not see a directlink between CSR performance and obtaining orkeeping contracts, except in a handful of cases inwhich buyers were genuinely involved with CSRpractices of suppliers.

Many participants also pointed to the nature ofsupply chains as a factor that sometimes sharplylimits the realization of business benefits frominvestments in social and environmental perfor-mance. In the apparel industry, the most frequentmodel is of buyers shifting orders betweennumerous suppliers, often maintaining only short-term relationships. Although some buyers con-tested this view, noting that supply chains werenot as transient as frequently claimed, there issubstantial evidence that many suppliers do notsee the advantage in such investments when theyhave no guarantee of ongoing business from buy-ers. Similarly, in agriculture, the fact that muchsourcing takes place via auctions or wholesalersalso tended to make the business case less appar-ent to the individual supplier.

2.5.2 The Business Case for CSR ImplementationOverall, participants questioned the phrasing ofKey Challenge 3, although most agreed that thebusiness case played an important role in deter-mining the willingness and motivation of suppliersto undertake CSR investments. Some suppliers inChina and Honduras believed that the phrasing wassomewhat patronizing, whereas others implicitlynoted that not only suppliers, but also others(including buyers), failed to understand the possi-ble business case for CSR.

Does CSR Implementation Generate Business Benefits?Consultations did not reveal a clear picture of thepossible business benefits associated with CSRpractices.

Among suppliers, views varied substantially con-cerning the existence of the business case. Theviews presented by the suppliers consulted demon-strate the range of opinions on this subject. Themajority of apparel suppliers in Honduras andChina rejected the idea that CSR implementationwould produce any business benefits. They arguedthat if business benefits were present, they wouldalready have implemented such standards. Indianapparel suppliers took a more balanced view, not-ing that selected aspects of CSR practices, mostnotably health and safety practices, held the poten-tial for business benefit. Agricultural suppliers inKenya and India noted that good working condi-tions were essential to retaining the work force aswell as its productivity. Nonetheless, this groupsaw codes of conduct as placing requirementsmuch beyond what could generate any businessbenefits.

Buyers also had mixed opinions on whether thebenefits of addressing CSR were either present orwell understood. Opinions ranged from not seeingany implications for business, to seeing themmostly through anecdotal evidence and pilot pro-jects, to seeing growing acceptance by some sup-pliers that benefits do exist. Some buyers,however, professed that CSR actually could makesuppliers less competitive, because of costsincurred in improving social and environmentalperformance. Many buyers’ representatives notedthat there was no existing methodology for demon-strating the business case in a comprehensive andmethodologically rigorous manner, and manyquestioned whether such a framework could bedeveloped and made useful.

Stakeholders took a mixed position, with the divi-sion of opinion not following any clear geographicor institutional pattern. Approximately half of thestakeholders believed that suppliers (and buyers)have insufficient understanding of the businessrationale and believed that greater clarificationwould increase the willingness to undertake therequired investments. Some added that given tightmargins many suppliers did not have the opportu-

nity to explore the potential benefits. The otherhalf of stakeholders questioned whether the cost ofinvestment outweighed the benefits, noting theissue was less one of awareness and more the lackof actual incentives. In general, stakeholders didsee some business benefits associated with certainissues, such as health and safety and reasonableworking hours (higher productivity, fewer prod-ucts returned, less absenteeism, and so on),whereas it was much more questionable if compli-ance with other social and environmental stan-dards translated into business benefits.

Do Buyers Reward CSR Compliance?Although the vast majority of participantsaccepted that CSR had become part of the con-tractual relationship between buyers and sellers,much less agreement existed on whether suppliers’good CSR performance translated into new ormore stable business. The majority of participants,including most buyers, acknowledged that unre-solved tensions among price, quality, and deliverytime on the one hand, and CSR requirements onthe other risked undermining the credibility of thebusiness case.

In general, suppliers argued that their CSR perfor-mance did not have a significant impact on theirrelationships with buyers. In their view, compli-ance and good CSR performance did not result inlonger or more committed buyer relationships, nordid it provide any real advantage in the process ofsecuring additional business. This was furtherexacerbated by the unresolved tensions betweenproduct requirements and CSR requirements,which all suppliers saw as a pertinent issue.

The perspective of buyers was less clear on thisissue, although for obvious reasons buyers arguethat CSR performance is an important element ofthe contractual relationship. Nonetheless, manybuyers acknowledged that their organizations sendmixed messages about the balance between com-mercial and CSR requirements. Headquarters rep-resentatives in the United States and Europe mostoften voiced this view, whereas several localbuyers’ representatives in China and India oftenbelieved that suppliers used this argument as a pre-text for evading CSR compliance. Many buyersconsulted also claimed that the vast number ofbuyers not committed to CSR further undermined



the business case for CSR and their own efforts todemonstrate the benefits.

Stakeholders generally agreed that buyers sendmixed message about the importance of CSR versuscommercial requirements. However, many stake-holders drew attention to the inherent barriers in thepresent business model in the apparel industry thatrelies heavily on shifting supply chains and short-term shareholder returns. Constant demand forlower prices and new product lines keeps pressureon production and distracts from social and envi-ronmental concerns. Stakeholders noted that CSRinvestments were long term, whereas the presentbusiness model forced suppliers to think short term.Buyers acknowledged this conflict between long-term benefits and short-term thinking although theysaw the short-term management of suppliers less asa result of the business model and more as a conse-quence of suppliers’ inability to plan long term.

All participants agreed that buyers should work toovercome the unresolved tensions, for example, byintegrating CSR within sourcing practices andbusiness policies. Many stakeholders, however,were skeptical that this would be sufficient toaddress the tension, in light of the larger structuralflaws in the existing business model.

2.6 OTHER KEY CHALLENGESThroughout the consultations, participants raised anumber of other issues and challenges that theybelieved should form part of the overall analysis ofkey barriers to improved implementation of CSRpractices at the level of suppliers.

Stakeholders most frequently raised other chal-lenges to be addressed. However, buyers—and toa lesser extent suppliers—also pointed to key chal-lenges outside the Terms of Reference. As notedelsewhere, many NGOs agreed that the three keychallenges identified by the Bank represent themain barriers to implementation when consideredin a more immediate perspective of the buyer–sup-plier relationship. However, when turning to thewider and longer perspective, the NGOs believedother issues had to be addressed within a broaderframework.

In general, many participants made the observationthat real and sustained implementation of CSR

practices in global supply chains requires actionsbeyond those taken at the micro business level. Inparticular, a number of participants, including buy-ers and stakeholders, pointed to broader issues, suchas the international trading regime, the internationalfinancial system, the behavior of consumers, andthe present business model in many industries.Some of these issues are further explored below,although we note that a good number of them arediscussed at only a superficial level and they remainoutside the scope of the present study.

2.6.1 Other Key Challenges at the Micro LevelLack of Buyer CommitmentMany stakeholders expressed the view that onefundamental barrier is the lack of serious commit-ment to CSR practices from the business commu-nity. The lack of commitment was exposed in twomarked ways.

� First and foremost, many multinational corpora-tions were considered by stakeholders to be nego-tiating with government and local authority witha view to be (partly) exempted from governmentregulation in several areas, including taxation, theenvironment, and labor standards. Unions in par-ticular argued that many multinational corpora-tions refuse to take part in employer organizationsand do not participate in the normal tripartitestructures, thereby undermining these organiza-tions’ credibility and effectiveness.

� Second, a number of stakeholders—and alsobuyers—noted that the problem of free riderswas a serious issue, pointing to the vast numberof companies that still did not embrace CSR.This further contributes to the syndrome of send-ing mixed signals to suppliers, undermines theefforts of CSR-progressive buyers, and rendersthe entire business community vulnerable tocriticism. Interestingly, a number of buyersobserved that some peers were directly under-mining the credibility of the more committedpart of the business community by not “walkingthe talk.” However, negative peer pressure is notonly an issue among buyers. Several NGOsdrew attention to the similar dynamic, whichthey believe persists among suppliers, particu-larly in export processing zones.

Reliance on MonitoringSuppliers in particular believed that the use of third-party monitors acted as barrier between buyers andsuppliers, leaving suppliers no opportunity forengaging with buyers on more difficult complianceissues. Throughout the consultations, reference wasmade to the overall reliance on monitoring as amechanism for achieving change. Concerns wereexpressed about:

� The proficiency and credibility of monitoring. � The degree of resources invested in what is some-

times no more than a “cat and mouse” game thatinserts or reinforces suspicion between buyersand suppliers.

� The failure of monitoring to address qualitativelabor issues or achieve effective means of engag-ing in dialogue with workers.

� The “excuse” monitoring provides for govern-ments not to invest in enforcement efforts.

Although most participants also recognized thevalue of monitoring, there was a broad view thatmonitoring as currently implemented does notmake a sufficient contribution to improved socialand environmental conditions.

Stakeholder ResponsibilityA number of stakeholders, including representa-tives of unions and intergovernmental organiza-tions, argued that some NGOs reinforce some of theless useful aspects of the current system. In particu-lar, by not being sensitive to the long-term nature ofCSR, stakeholder campaigns have sometimes ledcompanies to cut ties with noncompliant suppliers,resulting in negative consequences for workers andcommunities. In recent years the intent of such cam-paigns has tended away from the severing of com-mercial relationships for precisely this reason.

In addition, some stakeholders as well as buyersexpressed the view that NGOs should devote lessattention to the small group of high-profile buyerswho are making great efforts to implement CSR andyet remain at the center of NGO criticism. It wassuggested that a better focus of energy and attentionwould be on the vast of number of companies thatare less active. A number of buyers noted that thecontinued criticism of what were generally consid-ered “leading” CSR companies could have the unin-tended effect of discouraging other buyers fromaddressing CSR practices in their supply chains.

Code CoverageThis study only addresses implementation of CSRpractices at the level of first-tier suppliers in globalsupply chains. However, a number of stakeholdersnoted that the study should go beyond the firstlevel to include subcontractors as well as homeworkers. This issue was also raised in consulta-tions with buyers, who professed that this was analmost insurmountable challenge, and that lookingtoo far down supply chains could itself create abarrier to implementation of CSR.20

Stakeholders also noted the challenge of extendingthe coverage of codes to include the informal sec-tor, the principal economic dynamic in many devel-oping countries. Finally, stakeholders emphasisedthe need to make CSR more accessible to SMEs thathave more limited capacities and narrower profitmargins than other suppliers.

2.6.2 Other Key Challenges at the Macro LevelAs noted above, throughout consultations manyparticipants pointed to broader and more long-term challenges related to the overall environmentin which CSR practices are implemented. Some ofthese are outlined below.

Lack of Consumer CommitmentA vast number of participants, buyers, stakehold-ers, and suppliers alike pointed to the lack of con-sumer commitment to CSR as a key barrier toimplementation. There is widespread mistrust ofpolling data suggesting that consumers will payextra for products created in accordance with goodsocial and environmental practices. This is furthercorroborated by the price pressure many buyersfeel coming from low-cost retailers, whom theycriticize for failing to address CSR practices asfully among their suppliers. The lack of faith manyhave in the commitment of consumers helps toundermine the business case.


20 Many buyer codes of conduct cover subcontractors andhome workers typically by requiring suppliers to ensure thatsubcontractors are compliant with code provisions. Rela-tively few buyers, however, have started to enforce codesbeyond the first level of suppliers through, for example,monitoring.


The International Trade RegimeA number of stakeholders observed that the presentinternational trade regime acts as an important bar-rier to implementation of social and environmentalstandards in global supply chains. In the eyes ofsome stakeholders, World Trade Organization(WTO) rules are inconsistent in that they allowfocus on the impact of products on consumers, butnot at the point of production. This makes it even-tually more difficult to implement public procure-ment policies that favor products and servicesmanufactured and delivered in a socially and envi-ronmentally responsible manner.

The Present Business ModelIn most consultations the question of the presentbusiness model in supply chains was raised as akey issue; however, not all agreed that the analysiswas black and white.

As noted previously, the business model of theapparel sector, with short-term, shifting buyer–sup-plier relationships, was perceived as a major barrierto improved implementation of CSR practices. Anumber of stakeholders, suppliers, and buyersexplicitly and implicitly noted that the businessmodel did not provide sufficient incentives andstructures to allow for a commitment to CSR beyondthe existing implementation system (monitoring).Whereas CSR implementation generally is seen aslong term, business relationships often are shortterm, margins are small, and suppliers too small (andfinancially squeezed) to take up CSR seriously.Many saw these structural characteristics of theapparel sector as being further reinforced by theadvent of Internet-based auctions, the increasedpressure on brand retailers to launch multiple col-lections every year, and the competition from low-cost retailers.

However, a small number of buyers did not agreefully with this analysis, noting in particular that theydid not see their prevailing business relationshipsrelying on short-term supplier links. Thus, in theapparel sector the overall buyer–supplier relation-ship may develop simultaneously in several differ-ent directions, possibly with an overall emphasis ontransient relationships.

Other buyers noted that although the above descrip-tion may generally fit the apparel sector—and

possibly parts of the agricultural sector—thesame pattern was not evident in other industriessuch as the shoe industry and similarly special-ized industries. In these industries buyers andsuppliers were often linked over the long run,becoming mutually dependent. This providedgreater incentives and opportunities for address-ing CSR through the relationship.

The above observations were also made in respectof the agricultural sector, noting that often buyersand suppliers interacted only via auctions orwholesalers. This tends to make implementation ofCSR practices more difficult. Exceptions do exist,however. A number of buyers in certain subsectors,such as tea and coffee, have developed relation-ships directly with the larger plantations and evensmaller growers.

NGOs, particularly those involved in campaigning,put the question of the business model in a widerperspective, noting that the business case tends toapply more to companies concerned with brandimage. In contrast, those producing productsdirectly for other companies rather than the public(which represents the vast majority of business)have less motivation and are less susceptible toNGO pressure.

In sum, while anecdotal evidence and much man-agement literature today would seem to suggest anoverall trend toward buyers reducing their supplybase and developing longer-term relations with asmaller number of suppliers, the other picture, thatof more transient relationships, also holds true. Inview of the results of these consultations, there isno doubt that the business model does indeed playa major role in providing a structural frameworkfor addressing CSR; however, it may be an enablingas well as an inhibiting progress.

Barriers to Local Public ActionSome also cited a complex mix of perceptions con-cerning the role of local governments, often focus-ing on whether and how they could and shouldengage in collaborative work with buyers and otherinstitutions outside their borders. Consultationsrevealed mixed perceptions of the appropriatenessof certain forms of public–private partnerships.

Suppliers rejected outright the idea that buyers andmonitors working on their behalf should work more

closely with local labor inspectorates, arguing thatthe latter in most instances were both inefficientand corrupt. In addition, some suppliers in Hon-duras saw such collaboration as “imperialistic” inthat local government could be perceived as“working for” foreign companies. Ironically, how-ever, some suppliers argued that if only buyersexerted as much pressure on governments as theyexerted on suppliers, implementation of CSR prac-tices would proceed more efficiently.

Likewise, many stakeholders challenged the ideaof buyers working with or supporting local gov-

ernment, asserting that governments should focuson enforcing their own public laws rather thanspending resources on the development andenforcement of private law.

Buyers, for their part, did not make a strong call forworking with government; indeed, some buyers sawa need for shifting the buyer–supplier relation-ship in the field of CSR to a supplier–govern-ment relationship, maintaining that the ultimateresponsibility for promoting (and enforcing)CSR practices in the workplace belonged to government.


This chapter outlines potential options thatwould help contribute to the achievement of

greater social and environmental performance inglobal supply chains.

The options presented here have been developedon the basis of the input received from the partici-pants in the consultations described above. Theyalso have been based on review and analysis by theproject team, taking into account the various ideaspresented by those who were consulted during thestudy, the project team’s assessment of develop-ments in the field, and consideration of the assess-ment criteria established in the Terms of Referenceand assessment criteria that arose in the course ofthe consultations. As requested in the Terms ofReference, these options are presented in light ofthe barriers described in the previous chapter.They also address issues not explicitly raisedthrough the three key challenges, in recognition ofthe views of some participants that the barriers out-lined in the Terms of Reference did not address themost critical issues in the field.

In all project consultations, participants wereasked what changes they would recommend toachieve the commonly held goal of improvingconditions for promoting CSR in global supplychains. It is important to note that in many casesparticipants presented suggestions that called onother parties to adjust their approaches to socialand environmental issues in supply chains (forexample, buyers looked to suppliers, suppliers tobuyers, stakeholders to buyers...), rather than sug-gesting changes to their own approaches.21 The

overall results of the survey indicate, however,that for truly sustainable progress to be made allparties will need to adjust their approaches andreconsider perspectives that in some cases arestrongly held. In addition, the steps outlinedbelow seek to insert a greater appreciation of theneed to develop approaches in the context of theoverall set of efforts, rather than replicating theoften-isolated decisionmaking and policy devel-opment that has marked the first 10 years or so ofwork in this area.

These options are presented below with recogni-tion and respect for the steps taken in recent years,and also reflecting the widely held view that thesystem for addressing social and environmentalissues in supply chains may well have reached thelimits of its effectiveness. If implemented, theoptions presented have the potential to contributeboth to a deepening of the progress made to date,as well as to the establishment of new frameworksthat will make existing work more effective andsustainable, and new initiatives that will buildupon the experience gained in recent years.

3.1 SUMMARY OF OPTIONSIn presenting these broad categories of options, itis essential to note that each of the initiatives sug-gested is likely to be more successful if undertakenwith full regard for other steps than if they areundertaken in isolation. Under the best circum-stances, there would be a coherent framework thatinvolves efforts to blend:

Options for Future Progress3

33

21 Two notable exceptions to this were buyers, many of whomacknowledged the inherent tension and mixed messagessometimes sent concerning commercial, social, and environ-mental concerns, and Northern stakeholders, many of whom

acknowledged that the strategy of focusing most attention onthe same small number of companies, which are also amongthe most active in this work, may be proving counterproduc-tive in some ways.

� Public sector commitment to create an environ-ment in which local laws are effectively andfairly enforced.

� Buyers’ efforts to clearly and consistently workin partnership with suppliers to achieve betterperformance against social and environmentalprinciples.

� Engagement with civil society organizations,including trade unions, to seek practical solu-tions consistent with international principles.

� Dialogue with and engagement of workers andtheir representatives in pursuit of these goals.

Such an approach would reflect a necessary andnatural maturation process as the first generationof efforts, often unconnected or inconsistent toaddress a complex set of global issues, evolvestoward a more systematic approach.

The study also has revealed characteristics of suc-cessful approaches that should be considered tohelp ensure the success of future efforts, including:

� Collaboration between interested parties, orlocal “ownership.”

� An effort to balance the ongoing need for inno-vation and experimentation with the desire toachieve scalability.

� A renewed effort to identify ways that privateand civil society efforts draw upon the potentialfor government involvement.

It is striking that, in the course of the study, sub-stantially less time was focused on activities thathave been at the forefront of efforts to date, espe-cially monitoring. Given that many of the mostknowledgeable observers of the issues nowacknowledge that the next generation of effortsshould move “beyond monitoring,” one couldconclude that currently 80 percent of time,resources, and thought are devoted to a subject thatmay reflect only 20 percent of the potential forprogress. While few of those who participated inthe consultations predicted or advocated the end ofmonitoring, there appears to be a rough consensusthat monitoring needs to evolve and that otheractivities may hold the greatest potential forprogress.

The options are arranged around the followingbroad categories, which are presented below witha brief initial summary:

� Public Sector Engagement: Real, systemicprogress will not happen unless governmentsget involved more vitally. Virtually all the par-ties consulted, including companies, NGOs, andtrade unions, called on governments to enforcetheir laws more widely and effectively. Agreater commitment to the enforcement of exist-ing standards, to the degree they are consistentwith international norms, is viewed widely ashaving value in itself. In addition it would sup-port the efforts of private sector actors and non-commercial organizations to promote bettersocial and environmental practices. The optionsmake note of broader policy questions that,while beyond the scope of this particular study,were identified by many who were consulted ashaving meaningful impact on the issues at thecore of the study.

� Standards and Harmonization: This issuereceived significant attention in the course ofconsultations, and participants generally viewedharmonization as a critically important goal.While some, especially suppliers, asserted theirdesire for a universally applicable base code ofconduct, the investment needed to refine the rel-atively small differences present in today’scodes may prove unwise. An effort to create asingle global framework risks getting boggeddown in extensive technical and political ques-tions. Instead, more effective steps toward har-monization can be taken through initiatives topromote comprehensive approaches at thenational and industry level. To the degree thatopportunities also exist for the harmonizationand improvement of approaches to implementa-tion of codes and of social and environmentalmonitoring and verification, these may presentthe potential for substantial progress, becausethese are the areas where the multiplicity ofapproaches seems to create the greatest tensionand confusion. A different challenge emergesconcerning environmental issues, where estab-lishment of broadly agreed principles is needed,as opposed to the harmonization of existingstandards concerning labor.

� Capacity Building: The options presentedreflect the broadly held view that capacity build-ing remains a critical ingredient in making bothcurrent and future steps more effective. In partic-ular, we present options that focus on the needs


Options for Future Progress 35

and opportunities related to capacity building forworkers, suppliers, civil society, and social audi-tors. The options suggest a focus on social infras-tructure that will deliver value not only in termsof better performance on social and environmen-tal principles, but also in terms of building socialinfrastructure that is better able to support andcontribute to development goals.

� Worker Education and Empowerment: Fur-ther progress will be made by providing moreand better education to workers concerning theirrights, and strengthening the protection of thoserights. This should take place through such meansas access to public mechanisms for redress ofproblems, participation in representative tradeunions, dialogue with local civil society organi-zations, and participation in private efforts toimplement codes of conduct.

� Research: There appear to be discrete areas inwhich additional research would make a sub-stantial contribution toward future progress. Asnoted above, there is a lack of consensus, andeven a lack of common reference points, aboutwhether the “business case” for CSR in supplychains exists. Additional research about thecosts and benefits of attending to social andenvironmental principles more fully would helpilluminate this oft-cited but poorly understoodaspect of the broader debate. Any such researchshould take care to distinguish between the busi-ness rationale for suppliers and buyers, whichdiverges in some significant ways. Research inthis area would be most valuable, especially tothe extent it looks at the business case from thesuppliers’ perspective in exporting countries, toensure maximum relevance and uptake of thefindings. In addition, the consultations illus-trated the need to build greater understanding ofhow to achieve worker empowerment in themultiple operating environments to whichapparel and agriculture supply chains extend. Inconducting such research, it would be valuableto more fully illuminate the specific problemsfaced by different types of workers (for exam-ple, seasonal, migrant, and home workers) sothat all parties to this issue can take action con-sistent with the experiences and perspectives ofthese different groups. Finally, research may beable to help promote greater inclusion of envi-ronmental and human rights issues into CSR

efforts in global supply chains, because the levelof understanding and commitment is currentlyrelatively low.

� Removing Economic Barriers to CSR: Insome cases, note was taken of structural eco-nomic barriers to the wider adoption of CSR insupply chains. To be successful, the options pre-sented will need to address, or at least be devel-oped with some regard for, these structuralbarriers. Some cited the very nature of supplychains themselves, which, especially in theapparel industry, may contain inherent disincen-tives to the adoption of good practice. Numerousparties cited the lack of a level playing field,which means that companies at both the buyerand supplier level face de facto penalties foradopting practices that transcend significantlythose undertaken by competitors. In addition,buyers should address the mixed messages andincentives they send to suppliers, who respondto compliance staff promoting adoption of goodlabor conditions, and also merchandisers whooften demand lower prices, faster deliveries, andshorter lead times.

3.2 OVERALL OBSERVATIONSIn presenting these options for consideration, sev-eral overarching points provide valuable context,including the following:

� No single “answer” emerged from the study, theperspectives received, or the subsequent analy-sis. Unlike the early to mid-1990s, when numer-ous parties coalesced around monitoring as theprimary means of addressing labor issues, thenext generation of initiatives is likely to draw ona variety of efforts that, taken together, can makea substantial contribution toward the goals at theheart of this study.

� Environmental issues, although placed on equalfooting with labor and social issues in the Termsof Reference, went largely ignored during theconsultations. There remains less awareness,concern, and external pressure to address envi-ronmental matters than there is to address laborissues. Greater parity between these issues isneeded. Furthermore, virtually no attention wasgiven to human rights issues other than laborrights, even though the overall human rights

climate in many locations is a critical factordetermining whether and how labor rights arerespected.

� Similarly, significantly greater attention wasgiven to issues in the apparel industry, asopposed to the agriculture industry. In addition,the input received concerning the agricultureindustry also points to the fact that agriculture isnot a single industry but rather a collection ofseveral commodity-driven industries that havedistinct structures and supply chains. Achievinggeneralized solutions across such subindustrieswith diverse economic and social structuresmay not be easily done.

� Monitoring of codes of conduct, a subject thathas received intense attention in recent years,was not at the center of our discussions. Instead,participants tended to focus on other issues,which they believed to hold the key to futureprogress. When monitoring was discussed, thefocus was more on education and less on polic-ing. Although few parties suggested that privatemonitoring would disappear, there was anunderstanding—at least on an implicit level—that monitoring should and would be deempha-sised in the near term.

� The numerous multistakeholder initiatives inplace received relatively little attention, althoughthey were considered by some to be an importantpart of future solutions, in particular in the area ofharmonization and standardisation.

� The question of whether and how diffuse supplychains themselves influence the achievement ofCSR goals is central to the question of barriersand options.

� The perspectives of those who were consultedvaried by location. There are considerable dif-ferences in the relative positions of the publicsector, the private sector, and stakeholders ineach of the countries involved in the survey.While the implicit goal of this project and manyefforts in the field is to develop options that canbe developed globally, these solutions will needto take local factors into account if they are tohave the desired impact. In some cases, specificchallenges also vary from location to location,and addressing these issues might bring theseviews into greater harmony.

� Some observers worried that the move towardstrengthened social and environmental require-ments would disadvantage the SMEs that are

needed to generate greater economic growth inthe developing economies.

� A small number of those consulted, especiallytrade unions, retain considerable skepticismabout whether codes of conduct themselves area useful framework for furthering good socialand environmental practice in global supplychains. In their view, strengthening worker rep-resentation, and removing public and privatesector barriers to the exercise of freedom ofassociation and collective bargaining, can makegreater progress.

� It is important to note that there is still some-thing less than a critical mass of buyers who arestrongly engaged in these issues. Our consulta-tions involved a selected group of the moreactive buyers, some of whom cautioned againstthe adoption of guidelines and options thatcould raise the cost of entry for newly activeparties, thereby missing the opportunity toengage more companies in CSR practices.

� Few buyers appear to see efforts on these issuesas areas where competitive concerns presentsignificant barriers to forward action. Indeed,many buyers noted that commercial concernsmight now be driving them more forcefullytoward collaboration, as the costs and benefitsof acting in isolation are becoming clearer.

3.3 PROPOSED OPTIONS In presenting potential options, it is critical to clar-ify the question that is being presented by thisstudy. If the question were presented simply as“How can codes of conduct be made to work bet-ter?” this would lead to a certain set of answers.The more relevant question is that which the Bankpresented: “How can CSR (that is, labor, humanrights, and environmental principles) be more fullyimplemented in global supply chains?”

This question is more comprehensive, and incor-porates the opinion of many who were consultedfor this study, who expressed the view that codesof conduct are a means to the end of achievinggood social and environmental practice, not anend in itself. Based on this question, it is hopedthat the options address ways to make codes ofconduct more effective, and also identify otherpossibilities to maximize and coordinate therespective contributions of government, the pri-



vate sector, workers and their representatives, andcivil society, on the basis of the unique contribu-tions each is best able to make. Codes of conduct,and efforts to monitor and verify performanceagainst codes, remain important. The study, how-ever, suggests that greater priority should beplaced on the development of coherent frame-works, with local ownership, that facilitate theapplication of codes of conduct. It should do so inthe context of public sector engagement, workereducation and empowerment, engagement withcivil society organizations, and other means ofachieving progress.

Although the goal of maximizing complianceremains critical, it is also worth considering thevalue of developmental approaches suggested bysome, notably stakeholder groups. Indeed, someorganizations and individuals consulted for thisproject questioned the very notion that “compli-ance” was the proper framework for addressingthe social and environmental questions presentedhere. Some are of the opinion that the creation ofa binary model of “pass/fail compliance” distortsefforts to develop better practice over time. It doesnot appear to be feasible or desirable to removealtogether the compliance dimension, especiallywhere core labor rights are currently unenforced.However, the options presented here seek toreflect a consistent and deliberate shift away froma compliance-only model, and toward alternativemodels that may have greater and more sustain-able potential, such as that undertaken in partner-ship via the International Cocoa Initiative, orthrough the Global Alliance for Workers andCommunities.

3.3.1 The Assessment Criteria The options were developed in light of the criteriapresented by the Bank, and those developedthrough the course of conducting the study. Thecriteria were as follows:

� The likelihood of adoption and possible con-straints that could inhibit adoption of the pro-posed option.

� The risk of lowered standards. � The feasibility of necessary investments, and

likelihood that different stakeholders wouldmake needed investments of time and resources.

� The feasibility of implementation, including theroles that would be required of relevant stake-holders.

� Possible implications for public sector roles,including industrial country donors and devel-oping country governments.

In the course of the discussions, additional criteriawere developed both by the project team and thosewho were consulted. The first, the impact of pro-posed solutions, is arguably implicit in the othercriteria; however, several people who were con-sulted noted that it should be made explicit. Inaddition, the degree to which proposed optionsreinforce other initiatives is also important. Forexample, government initiatives have the benefitnot only of their own independent impact, but alsoin the creation of a context in which other initia-tives undertaken by civil society and the privatesector can flourish.

These criteria have not been applied mechanically,but have instead been used to make a qualitativeassessment of the degree to which the optionscould and would be implemented widely, and thedegree to which they would achieve intendedresults. In some cases, it appears that further studyis needed to determine the practicability of imple-menting various options.

3.4 PUBLIC SECTOR ENGAGEMENT The Terms of Reference of this study did not seekinput on the role of governments, because the Bankhad envisaged that to be the focus of a later researchproject. Notwithstanding, the parties consulted feltcompelled to voice their opinions on the subject.Their statements reflected strong agreement for thebasic principle that governments should enforcelocal laws concerning social and environmentalmatters more fully and effectively. While it is likelythat different groups have differing motivations forthe common assertion that governments can use-fully enhance their role in these issues, the fact thatthe view is so widely shared has great significance.It is also noteworthy that many parties believed thattheir own individual efforts would be more effec-tive in an environment in which governments tooka more active and visible role.

In addition to the support by suppliers, buyers, andstakeholders, the fact that workers interviewed for

this project did not seem familiar with codes ofconduct suggests that a renewed focus on theenforcement of local laws could engage workersmore fully in the process. While some of thoseconsulted for the survey expressed skepticismthat the public sector in some locations would actmore forcefully to enforce existing standards, thiswas viewed as a hurdle to address rather than areason not to seek an expanded role for the pub-lic sector.

The question of how governments can engagemore fully was not discussed extensively in mostconvenings, again because of recognition that thiswill be the subject of subsequent work. In generalterms, most parties simply focused on the need toensure that local laws were enforced more fully.More attention was given to the need to interpretlaws consistently than to the need to change laws,with the exception of the sentiment expressedamong some buyers based in exporting countries,as well as some suppliers, who argued for thereduction of “unrealistic” legal obligations. Inaddition, it is important to note that it may be coun-terproductive to ask governments to assumeresponsibilities that are more naturally and effi-ciently carried out by commercial actors.

The Bank has developed a framework includingfour different types of actions within the sphere ofgovernment as it relates to issues such as those thatare the subject of this study (that is, mandating,endorsing, partnering, and facilitating). This frame-work provides a useful way to analyze options forstate action.22

Accordingly, while additional work is needed todevelop an approach to this question, it is clear thatthis is a high priority for the broad range of partiesconsulted for this project.23

3.4.1 Host Government ActionsThe following steps could be taken to enhance theinfluence of host country governments’ attentionto CSR issues:

� Host country governments may promote tradeand investment—especially sustainable tradeand investment—by the more thorough imple-mentation of their laws.

� Reconsideration of provisions that allow exportprocessing zones to operate without applicationof legal obligations applicable elsewhere. With-out reviewing or conducting economic analysesof whether such zones contribute to economicdevelopment, the broadly stated desire to main-tain consistent standards suggests that the main-tenance of production zones where basic laborand environmental standards do not apply iscontrary to this goal.

� As noted below, host country governments canmake a substantial contribution to the goals out-lined here by helping to catalyze local multi-stakeholder initiatives.

� Host country governments, in seeking to allo-cate available resources to the enforcement oftheir laws, can create tools and incentives forprivate actors to increase their commitment toenforcing applicable standards. Governmentscan combine increased efforts to monitor legalcompliance with programs similar to those cre-ated by the U.S. Occupational Safety and HealthAdministration to promote business’ ownimplementation of such efforts. This program isnoteworthy in that it also makes available thesame information to civil society organizations,trade unions, workers, and community groupsto facilitate community policing. Other effortsthat provide technical assistance to employers,workers, and others to self-police allow govern-ments to allocate enforcement resources to theworksites where they are most needed.

� Establishment of dispute resolution mechanisms,such as that undertaken by the Costa Rican gov-ernment, which has established a tribunal to hearenvironmental disputes. It was suggested bysome stakeholder groups that this model illus-trates how public and private efforts can reinforceone another. Some noted that such exercisesserve the dual purposes of solving problems andalso creating political will to prevent disputes. It


22 This framework is elaborated in the report “Public SectorRoles in Strengthening Corporate Social Responsibility—ABaseline Study,” developed for the Bank Group by the Inter-national Institute for Environment and Development, Octo-ber 2002.23 In calling on governments to play a more active role, therewas little suggestion that any of the other parties should dis-regard or reduce their efforts to address the questions involvedin this study. On the contrary, public sector action is widelyviewed as a predicate for effective action by others.


is also noted that these mediation systems arepresent in many countries, and that they do notalways function effectively or efficiently. Areview of how to make existing systems functionbetter may also be a useful investment.

3.4.2 Home Country GovernmentsIn addition, the following steps could be taken byor with home country governments to enhancethe effectiveness of codes of conduct and otherefforts to ensure implementation of social andenvironmental practices. These steps have beendeveloped with consideration of the four ele-ments of public sector action on CSR developedby the Bank Group:

� Governments have in recent years played a crit-ical role in the establishment of multistakeholderprocesses, and this catalyzing role could bereplicated and applied to other efforts. Both theFair Labor Association (FLA) and the EthicalTraining Initiative (ETI) resulted from govern-ment initiatives in the United States and UnitedKingdom, respectively, and the European Com-mission also has sought to support similar effortsfinancially. Governments could similarly play arole in launching or supporting the multistake-holder national initiatives described above.

� Capacity building by international institutions(for example, the ILO) and home country gov-ernments of buyers (for example, OECD nations)to strengthen and create incentives for localenforcement of laws (as discussed above).

� Governments also have the opportunity to influ-ence the debate by incorporating social and envi-ronmental provisions in public procurementpractices. There have been some initial efforts inthis regard, in UN agencies and in various juris-dictions in the United States and EuropeanUnion (EU).

� As noted below, bilateral and other trade agree-ments involving home country governmentshave incorporated provisions related to laborand environmental issues that can help to pro-mote good practice. Such an approach, however,may have other consequences.

� OECD member states have used the platform ofnational contact points to facilitate dialogueconcerning a range of social and environmentalissues, among others, with the private sector,and this could be extended.

3.4.3 Broader Policy IssuesSeveral participants in the consultations raisedpolicy questions related to the study topics. Whilethese questions were not included in the Terms ofReference, they reflect the policy questions orconcerns of some—especially Northern stake-holder groups—who provided input through theconsultations.

� Several participants stated the need to havesocial and environmental provisions includedin multilateral trade agreements and morewidely included in bilateral agreements. At thevery least, those supporting this approachsought the removal of trade agreements thatconsider such provisions to be anticompeti-tive, and the further inclusion of social andenvironmental considerations in multilateralfunding and lending practices.

� It was also suggested that local governments couldundertake more vigorous and consistent review offacilities’ export licenses, tied to exporters’ com-pliance with national laws. This would be one stepto create market incentives and penalties promot-ing greater compliance with environmental andsocial standards.

� Some focused attention for binding internationalprovisions on corporate accountability, citingspecifically the Draft UN Norms on HumanRights Principles and Responsibilities forTransnational Corporations and Other BusinessEnterprises, which were seen as a mechanismfor the possible harmonization of standards.

� It was suggested by some buyers that homecountry legal provisions requiring that importsmeet existing social and environmental stan-dards would help to create a level playing fieldamong buyers. It could prevent or severelyrestrict the “free rider” syndrome in which a rel-atively small number of higher-profile compa-nies undertake substantial efforts and othercompanies escape scrutiny and cost. Asia-basedrepresentatives of buyers’ firms, among others,proposed this.

In addition, the general view meets most of the cri-teria against which options are being assessed.Government action has the benefit of rationalizingmarket forces by creating a “level playing field”; itspreads costs across the breadth of society, pro-vides a formal and public means of recourse when

standards are not met, creates an environment inwhich other initiatives can be tried and can suc-ceed, and should avoid the lowering of standards.

3.5 STANDARDS AND HARMONIZATIONOne of the main areas of focus for this study waswhether substantial confusion and barriers had beencreated by the proliferation of codes of conduct inthe past 10 years. While differing views wereexpressed on this question, the prevailing viewappears to be that the greatest differences exist inthe application of codes as opposed to the basiccontent of the codes themselves. Among the diverserange of parties consulted in the course of this pro-ject, there was a rough consensus around the ideathat most codes embraced applicable laws, withILO conventions being applied where applicablelaws were inconsistent with ILO conventions.24

3.5.1 A Universal Base Code?The proposal by some that a universal base codeshould be established is not included in the optionspresented. The broadly held opinion among thoseconsulted for this study is that the number or con-tent of standards is far less critical to furtherprogress than is the consistent enforcement ofexisting standards. It was not clear either from thedirect comments received from study participants,or subsequent analysis, that the substantial invest-ment needed to develop a common base codewould result in corresponding benefits.

Many of those consulted took note of the efforts ofmultistakeholder initiatives to harmonize theirapproaches to standard setting and enforcement.Specifically, there have been discussions in thepast several months among the Clean ClothesCampaign (CCC), ETI, FLA, Fairwear Foundation(FWF), Social Accountability International (SAI),and the Worker Rights Consortium (WRC) to con-sider how their various initiatives might collabo-rate. Similarly, in the field of agriculture, therehave been efforts under the auspices of SocialAccountability in Sustainable Agriculture (SASA)

to develop guidelines for social auditing and stan-dard setting in sustainable agriculture; examine theimpact on and responsibilities of supply chain actorswith respect to certification of social justice issues inagriculture; address the particular needs of small-holder producers in the development of social guide-lines for sustainable agriculture; and explore thepossibilities of mutual promotion of complementarysystems. These efforts may well yield valuableresults, and yet the broad consensus in the consulta-tions appeared to be that while this work should con-tinue and be supported, additional efforts to achievegreater harmonization or progress through othermeans also would add substantial value.

Several views presented in the consultations pointin this direction, in addition to the finding pre-sented above that the proliferation of codes in itselfhas not led to great confusion, or that the confusionpresented is not the primary barrier to progress.This is for several reasons:

� First, while many suppliers who were consultedexpressed the desire to see greater harmoniza-tion of standards and the application of stan-dards, some buyers believed that this was a “redherring,” and believed that any duplication ofeffort would fade away quickly once suppliersdemonstrated a greater willingness and abilityto comply with local legal standards.

� Second, even with a common base code, theoverwhelming likelihood that national law(wherever consistent with ILO conventions)would remain the prevailing standard, meansthat without greater clarity on the meaning oflocal law, substantial interpretation wouldremain necessary.

� Third, neither the consultations nor the subse-quent analysis suggested that there is a likelybasis for addressing environmental issues in abase code.

� Fourth, as stated above, the process of develop-ing a global base code that would earn the sup-port of all relevant parties would likely beextremely time intensive. Experience to date ofthe time needed to develop multistakeholdercodes with broad applicability reinforces thisview. It may be more productive to focus time,energy, and resources on other efforts less tiedto codes and monitoring.

� Fifth, if application is the primary question, itwould be advantageous to focus attention on


24 While frequent note was taken of the fact that freedom ofassociation and collective bargaining were not possible inChina, harmonization of codes was not seen as the mosteffective means to address this issue.


industry-specific guidelines, to ensure that vari-ations in work force, industrial process, and sup-ply chains are taken into account fully.

� Finally, many participants, especially those inthe stakeholder community, expressed the viewthat the broadest possible efforts to harmonizestandards would achieve this goal only at theexpense of reaching a lowest common denom-inator standard, which would be directlyinconsistent with one of the assessment crite-ria presented by the Bank.

For these reasons, the options presented propose agreater focus on the development of more effectiveand sustainable means of ensuring application ofexisting standards, rather than a major investmentin the development of a single code.

3.5.2 Harmonizing and Strengthening the Application of StandardsWhile a common base code does not appear to bethe highest priority for action, there is substantialinterest in finding other ways to harmonizeapproaches, as well as significant opportunities toachieve more substantial results through harmo-nization and collaboration.

There are opportunities for coordinated efforts toaddress a range of fundamental needs in the field,including:

� Implementation guidelines.� Training and education of suppliers.� Monitoring procedures.� Information sharing.� Improvements.

Each of these categories will be familiar to thosewho have followed the debate over CSR in supplychains in recent years. This section of the reportfocuses on how to blend the ingredients of theexisting system to develop more sustainable andmeaningful solutions. To accomplish these goals,it is proposed that collaborative initiatives beundertaken at the national level, the industry level,and the pilot level over the next three years. Thesesteps do not depend on a “grand master agree-ment” being developed; however, it is likely thatthey could feed the learning on collaborationneeded to make such progress possible in futureyears.

3.5.3 Environmental Standards and PracticesThe relative inattention to environmental standardsby many of the most active participants in the debateconcerning supply chain practices merits attention.The challenge here is not to harmonize existing prin-ciples, but rather to generate additional action on thesubject. Steps that are of value include: (1) compa-nies could and should include environment moreexplicitly in their codes of conduct and begin tomonitor against these provisions; (2) multistake-holder initiatives should also add environmentalprovisions and begin to engage with environmentalorganizations as part of their coalitions; (3) homegovernments, which already engage in substantialfunding of environmental improvements in aidpackages, should target consumer product supplychains for this work; (4) workers should be educatedin environmental risks, about which they may beeven less aware than labor issues, and (5) identifica-tion of environmental issues that could be addressedmore effectively in industry-specific contexts.

3.5.4 National InitiativesIn terms of harmonization, the practitioners andobservers consulted for the project spoke loudlyand frequently about the value of greater clarityof standards as applied. Several buyers, suppli-ers, and stakeholders alike noted that standards areapplied within the context of specific industriesand specific jurisdictions, rather than throughglobal arrangements.

As a result, pilot projects to establish implementa-tion guidelines in distinct locations, for example, inspecific country contexts, appear to hold consider-able promise. Such efforts have the advantage of(1) engaging local stakeholders (not least localpublic officials) working within a common legalframework; (2) reducing the time and effort neededto establish agreement concerning base standards;(3) creating a level playing field for suppliers; and(4) creating business advantage by building afavorable climate for inward investment based ongreater assurance that social and environmentalconcerns important to consumers and others in theNorth are being addressed seriously.

While the precise shape of such initiatives mightvary, the basic contours would involve the estab-

lishment of local multistakeholder processes toestablish and implement a comprehensive localeffort to enable the achievement of good social andenvironmental practices in factories exportingfrom the given country. As one Hong Kong–basedstakeholder group noted in the convening for thisproject, the best solutions in this area to datehave been the result of “localized actions andnegotiations.”

Participants in such an initiative likely wouldinclude local government officials, notably laborand environment ministries; suppliers, possiblyrepresented through employers’ organizations;relevant trade unions or confederations; andknowledgeable NGOs. In addition, it would beimportant to ensure connection to the export mar-kets that are critical to the development of theindustries in question.

This role could be supported by home country gov-ernments and the main multistakeholder initiativesthat have developed in Europe and the United Statesin recent years.25 In particular, the engagement ofthe multistakeholder initiatives in such pilots couldhelp to facilitate the ultimate development ofbroader global solutions and harmonization of theirwork. In addition, it would be valuable to engagebuyers in some way with such initiatives, in aneffort to ensure that commercial opportunities resultfrom the investments made in such initiatives.

The selection of countries for such an initiativewould depend on the willingness and availabilityof the types of parties described above to partici-pate. It is anticipated that up to four countries,focusing on an individual industry of relevance tothat country, could pilot such a process over a two-year period, and that the lessons learned from suchpilots would then be applied to a process withwider application.

The basic elements of such an initiative couldinclude the following:

� Implementation Guidelines: A national initia-tive would begin to develop what would amountto a “user’s guide” to local labor and environ-mental laws. This would accomplish two goals.

● First, a formal process would reduce, if noteliminate, questions concerning the interpre-tation of local legal provisions. In consulta-tions for this project, several participantsnoted that there was considerable confusionover the meaning of local laws, and this needsto be addressed regardless of the options ulti-mately pursued.

● Second, the process of engaging differentstakeholders in this process would establish arecognized “roadmap” for all parties wishingto see these principles applied more fully andconsistently. This proposal is made in fullrecognition of the fact that such a processmay be contentious, time consuming, and thatit will not lead to clear resolution of all issues.Regardless, if all parties needing to under-stand the basis for social and environmentalpractice achieve substantially greater clarityas a result, performance would almost cer-tainly improve.

� Training and Education of Suppliers: As aresult of the process of clarifying implementa-tion guidelines, suppliers could be providedwith training and education with significantlygreater definition than has been provided todate. Training efforts to date occur in a highlydecentralized manner, involving trade associa-tions, monitoring organizations, buyers’ com-pliance staff, NGOs, and others. One of theorganizations in the project consortium has beeninformed numerous times by suppliers that theyare willing to apply standards as defined, butthat they do not receive sufficient guidance onwhat such standards are. Ideally, the develop-ment of such training would occur simultane-ously with the development and delivery oftechnical assistance to suppliers, to assist themin the process of implementing people, process,and environmental management procedures.

� Monitoring and Verification Procedures:This should help to build local capacity for lawenforcement, with this being the ultimate objec-tive over time, with self-policing, governmentenforcement, and verification by companies,commercial providers workers’ representatives,and NGOs. This process also would have thebenefit of establishing common frameworks formonitoring and verification of compliance withexisting standards. The virtue of engaging the


25 For illustrative purposes, these include the ETI, FLA, andSAI, as each are characterized by broad involvement of busi-nesses and various stakeholder groups.


public sector in such a process is that it couldlead to an enhanced role for public sectorenforcement of local laws, consistent with thenearly universal call for such steps during pro-ject consultations. In addition, a process thatleads to more consistent understanding of howprivate monitoring (whether performed by buy-ers, commercial service providers, or civil soci-ety organizations) should be undertaken wouldaddress one of the concerns stated forcefully andoften by suppliers consulted: that such monitorsare one of the sources of confusion because ofthe inconsistent procedures and interpretationsapplied in their work.

� Information Sharing: A country pilot couldhave the further advantage of providing a com-mon information network with data about sup-pliers’ performance. Such a mechanism wouldrespond to essential needs stated during the con-sultation process by both suppliers and buyers.For suppliers, a data network that made avail-able information on the frequency and result ofmonitoring and verification activities woulddecrease the likelihood that they would be sub-jected to unnecessary monitoring visits. For buy-ers, this would create a more transparent processthat would allow them to deploy their resourcesmore carefully and usefully, and reward sup-pliers that achieve good practice. Buyers, whowould receive the benefit of information gath-ered by others, and who also would benefitfrom the reduction in duplicative factory visits,could support such a system financially, at leastin part.26

� Improvements: Based on consultations con-ducted for this study, there is also a desire on thepart of suppliers to harmonize the approachtaken to achieving improvements identified asnecessary through the monitoring process. Manysuppliers identified the remediation process asone part of the process where buyers and moni-tors often send inconsistent messages. The devel-opment of implementation guidelines either couldinclude remediation guidelines, or be used as amechanism for clarifying expectations about

how to address particular shortcomings. Thefocus of making improvements should be onefforts to build capacity to maintain good work-ing and environmental conditions, and coulddraw upon emerging local networks to supportsuch efforts, as well as of multiple buyers work-ing with shared suppliers.

There is ample evidence from existing and nascentprojects that such an approach can be effective. Dur-ing the course of the project, several examples werecited of useful country-level projects with some orall of the attributes suggested here, including:

� Cambodia: Several observers have cited thebenefits to the local apparel industry—and toapparel industry workers—of the bilateral tradeagreement between the United States and Cam-bodia that has included training and education,and also monitoring of workplace conditions,under the auspices of the ILO.

� Vietnam: SAI has recently undertaken a pilotproject to train export factories with a view totheir achieving performance consistent withlocal laws and the international provisionsreflected in the SA8000 code of conduct. Thisproject is also being operated on a multistake-holder basis, with a Vietnam advisory board, andinvolves a research function as well.

� Morocco: Employers have consolidated variouscodes of conduct into an “ethical charter”thereby strengthening local ownership of codeimplementation. This effort, cited by an interna-tional organization, was seen to have certainweaknesses, namely the lack of reference tofreedom of association. Currently, considerationis being given to involving local NGOs in theprocess as well, and to broadening out referenceto include freedom of association and all issuestypically contained in codes.

� Sri Lanka: The ILO Management and Corpo-rate Citizenship Programme has established amultisupplier training program for the develop-ment of local managers’ capacity in the areascovered by the ILO Declaration on Fundamen-tal Principles and Rights at Work as well as qual-ity and productivity—supporting the businesscase for good labor practices at the factory level.The program has involved 10 to 12 factories fora six-month training and factory-level consult-ing/improvement program.

26 In proposing information sharing, it is important to note thatsome such efforts have been considered and developed inrecent years, and that there may be legal and competitive issuesto address in making any such system work effectively.

The creation of a small number of national initia-tives would make a major contribution not only tothe achievement of CSR in the factories and farmsof suppliers in the countries involved in suchefforts, but also to the global understanding abouthow best to make progress. To the degree that oneaccepts the principle that the ultimate creation of asingle approach to this set of issues will result fromthe coming together of separate streams, it isimportant to seed the creation of comprehensivedemonstration projects that can be replicated orbrought to scale. The national initiatives describedhere are believed to hold that potential.

3.5.5 Industry-Specific InitiativesThe research conducted as part of this study alsopoints in the direction of supporting industry-spe-cific initiatives.

The features of such approaches may be quite sim-ilar—possibly identical—to those described in thesection above concerning national initiatives, andtherefore these are not repeated here. It is likelythat industry groups that cut across national linescan take these initiatives. Note also that “industryinitiatives” need to involve not only industry asso-ciations, and indeed some of the examples citedbelow are multistakeholder initiatives. It is alsohoped that the industry approaches currently beingtaken can to a greater extent evolve to include localindustry groups more fully, as opposed to the cur-rent situation, in which Northern buyers drivemany of these initiatives. Indeed, this report makesthe basic argument that for wider national andindustry initiatives to become truly successful andsustainable they need to rely to a great extent onlocal capacities and resources in the exportingcountry.

The opportunities presented by industry approachesinclude:

� A degree of focus unavailable through othermeans.

� The ability to address the business case through theachievement of common standards and practices.

� The ability to engage in a coherent way withpublic sector, civil society, and workers’ repre-sentatives.

� The ability to fully integrate social and environ-mental concerns into business operations.

The risks associated with industry initiativesinclude the potential for not engaging with civilsociety; the lack of credibility possibly associatedwith industry-led initiatives, and the track recordof some industry initiatives of not fully embracinginternational standards on all issues, notably free-dom of association and collective bargaining.Given that nearly any sort of initiative presentsrisks and opportunities, these issues are bestapplied as important considerations rather thanbarriers to action.

In considering possible new industry initiatives, itshould be noted that in the time since the first codesof conduct were developed, several new initiativeshave been launched, and these newer initiativesmay well provide useful models or learning experi-ences that should be reviewed carefully. Variousexamples, including the Global Reporting Initiative(GRI), the Kimberley Process on conflict diamonds,the Voluntary Principles on security and humanrights in the energy industry, the Equator Principlesconcerning lending practices’ impact in social andenvironmental performance, and others, have comeabout since many of the individual and multistake-holder initiatives on supply chain were begun, andthe next generation of supply chain efforts wouldalmost certainly be enhanced by a review of subse-quent developments. These initiatives take a rangeof approaches, including reporting; certification,and collaborative learning, and elements of theseinitiatives and others may well be useful platformsto consider.

In reviewing existing industry initiatives and con-sidering potential new industry initiatives, the fol-lowing characteristics appear to be important inensuring the success of such efforts.

� Critical mass is important to ensure that there isno “free rider” problem and that no economicadvantage accrues to those who do not partici-pate.

� Collaborative industry efforts to address socialand environmental issues that involve a stake-holder dimension would seem to be more effec-tive and credible than those that do not.

� There must be adherence to prevailing standardsconsistent with international principles. Anyinitiative that is viewed as having the purpose orimpact of lowering standards will be neithereffective nor credible.



� In addition, industry initiatives, to be fully effec-tive, will include a capacity-building element.The reason for this is that evolution toward“local ownership” of any and all initiatives isessential for long-term success.

In the past year, several industry initiatives havebeen developed that have varying degrees ofpromise, and which might serve as useful modelsif developed further themselves or adapted by dif-ferent groups. The following is a short, illustrativelist27 of industry initiatives that are instructive interms of possible steps forward in this area:

� Better Banana Project: This initiative, operatedby the Rainforest Alliance and its partners inthe Sustainable Agriculture Network, developsguidelines through a transparent and participatoryprocess that involves numerous stakeholders,including scientists, conservationists, communityleaders, industry members, government agencies,research institutions, consumers, and farmersthemselves. The Rainforest Alliance certifies cof-fee, banana, cocoa, orange, and cut flower andfern farms according to environmental and socialstandards. As of 2002, 474 farms and coopera-tives in Brazil, Costa Rica, Colombia, Ecuador, ElSalvador, Guatemala, Hawaii, Honduras, Mex-ico, Nicaragua, Panama, and the Philippines havebeen certified. This initiative is one of the fewcited in this report that includes substantial ele-ments both of social and environmental criteria.

� Foreign Trade Association of the GermanRetail Trade (AVE): This system is based onthe SA8000 code and relies upon monitors cer-tified by SAI. This initiative is unique in that inaddition to addressing labor issues, it alsoincludes attention to a set of environmental fac-tors, something that is often excluded from theinitiatives described here. The AVE initiative isfurther unique in its dimension of providingdevelopment assistance to suppliers judged toneed such help. This assistance is supported inlarge part through the German Ministry of Eco-nomic Cooperation and Development (BMZ),working with a stakeholder council and seeking

to build local, broad-based technical support net-works. This combination of both a complianceand development approach is consistent with theapproach suggested in this report.

� French Retailers (FCD) [Federation desEntreprises du Commerce et de la Distribu-tion] Initiative: Twelve major French retailershave instigated a process through which factoryaudit results can be shared through a databasethat all participating companies can access. Thistoo presents a model that is straightforward in itsoperation and which offers enhanced possibilityof reducing duplication; enhancing the businesscase for suppliers because multiple clients orpotential clients will see the results of the auditsof their factories. It is also a process that couldlead over time to the development of a commonapproach to the definition of standards, asdescribed above in the national initiatives section.

� International Cocoa Initiative: This initiativebrings together several industry associationswith NGOs and the international trade unionIUF [International Union of Food, Agricultural,Hotel, Restaurant, Catering, Tobacco and AlliedWorkers’ Association] to (1) support field pro-jects and act as a clearinghouse for best practicesthat help eliminate abusive child and forcedlabor in the growing of cocoa; (2) develop a jointaction program of research, information exchange,and action against abusive child and forcedlabor practices through the enforcement ofinternationally recognized standards in thegrowing of cocoa; and (3) help determine themost appropriate, practical, and independentmeans of monitoring and public reporting incompliance with these labor standards. The ILOserves as an adviser to this project.

� International Council of Toy Industries(ICTI): In 2003 this industry group has launchedan effort to create a common monitoring proto-col for factories in China producing toys forexport. This initiative is based on the notion thatconsistent monitoring processes will help todrive greater consistency in performance andassessment. One Hong Kong–based stakeholdercited this as a “potentially positive” examplebecause the harmonization of monitoring will“mean fewer auditors have to be hired and thatwill reduce the involvement of the monitoringindustry.”

27 As noted elsewhere, this list is for illustrative purposesonly, and is not intended to constitute an endorsement, or todiminish the value of other initiatives.

� Kenya Flower Council (KFC): This initiativehas developed a strong code of practice thatincludes rigorous environmental provisions.The KFC has noted in its website its view of thebenefits of undertaking locally based industrycodes, making the following points: “(1) Indige-nous codes such as that developed by KFC notonly audit against ethical and environmental cri-teria but also spread best procedural and man-agerial practices and help producers reducecosts; (2) Growers, supermarkets and con-sumers would gain nothing if a price increasedesigned to compensate growers for their com-pliance costs caused a substantial decline insales; (3) It may be counterproductive if codesquantify wage levels: KFC’s stipulation that itsmembers should merely pay workers above thelegal minimum wage has led workers to earnthree times the national minimum, and (4) It isnot right or just that buyers in the UK shouldbear no costs associated with code of practicecompliance.”

These examples are not cited as models that arewithout the need to expand, adapt, or improve. Theydo, however, illustrate several of the advantages ofindustry initiatives, and some of the ways that theycan evolve, as each of these efforts is different. Insome cases, the very laws themselves differ accord-ing to industrial sector—in several jurisdictions, dif-ferent laws sometimes govern agricultural work andfactory-based work. In addition, the application ofstandards is often quite different depending on theproduction processes in place; this is true betweenthe apparel, toy, and agriculture sectors and, inmany cases, this is true even within these sectors.The nature of the work forces present in these indus-tries also can be quite different, with agriculturerelying more often on a migrant or seasonal workforce than other industries. In some industries, thereis great dependence on certain locations for sourc-ing, as is the case with toys and China, while otherindustries, such as apparel, are more dispersed geo-graphically. One of the signal advantages, therefore,of industry-specific approaches, is that they can betailored to the prevailing work force, standards, andlocations.

To achieve the goal of broad-based, locally man-aged industry initiatives, it is likely that supportfrom donor agencies will be needed. At the same

time, it is important that these and other initiativesdemonstrate their financial viability over a reason-able period of time.

3.5.6 Discrete InitiativesWhile the focus in the convenings and subsequentanalysis was on systemic changes and improve-ments, there are also several discrete steps thatcould be taken to improve social and environmen-tal performance in supply chains. Some of thesesteps involve actions that have not become part ofthe fabric of efforts to influence supply chains, andsome involve the adaptation and replication ofefforts undertaken in limited circumstances.

In overall terms, there is a clear need to considerenvironmental issues more fully. In the apparel andagriculture industries, various chemicals may pre-sent risks to workers and communities; water qual-ity and availability also are affected, and migrationpatterns tied to apparel and agricultural employ-ment also impact environmental quality. These top-ics received little or no attention in the conveningsfor this study, and are generally understood not toreceive the same attention as labor issues. Toachieve the goals stated in the Terms of Reference,increased attention to these issues is needed.

In addition to the proposed examples of compre-hensive national and industry initiatives describedabove, the consultations for this study revealednumerous illustrations of good practice that couldbe referenced, adapted, or adopted by others seek-ing to identify improved ways to achieve CSRperformance in their supply chains. While anexhaustive survey is beyond the scope of this studyand report, we cite selected examples below tohelp build an understanding of the kinds of stepsthat can contribute to the objectives stated by theBank.28 Most of the examples cited below have incommon the involvement of multiple stakeholdergroups, and do not rely solely on a compliancemodel, but rather seek to adopt some combinationof skill building and verification of performance.

� Global Alliance: This partnership between com-panies and NGOs has undertaken widespread


28 In citing these examples, the authors of this study do notintend to suggest any endorsement of such efforts. Nor do theauthors intend to diminish the accomplishments associatedwith other initiatives not mentioned here.


interviews of workers to develop needs assess-ments. As described by the Global Alliance, thefirst step in that process is to ask workers them-selves about their needs and aspirations—througha process of in-depth interviews, focus groups,and surveys. The Global Alliance selects inde-pendent, in-country, and university-based organi-zations to conduct these needs assessments. Thefindings of that assessment process are then usedto design and deliver programs and expandedopportunities that respond to workers’ needs.

� FLA in Central America: This multistake-holder initiative seeks to respond to widespreadreports of systematic discrimination and black-listing in Central American factories. In cooper-ation with FLA participating companies, NGOs,and universities, the FLA will work with suppli-ers to improve their capacity to institute goodpractice regarding hiring, firing, discipline, andgrievance procedures in El Salvador, Guatemala,and Honduras.

� Union Election in China: Reebok helped tofacilitate a free election for union representa-tives, with independent observers, in a Chinesefactory producing its products under contractwith a supplier.

� Impactt Work Hours Study: A group of buyersin cooperation with local Chinese organizationshas initiated a pilot project to improve workingconditions in a handful of apparel factories inChina. The project focuses on working hours as akey issue and has provided productivity consul-tancy, human resources training, and communi-cation workshops to improve performance.

� Collaboration between Buyers through Infor-mal Networks: In China and India in particular,note was taken in the consultations of freeform buyers’ networks that have served to spurcollaboration.

� IKEA and Transportation Chain: Ikea hasbegun work to extend its definition of supplychain to include the transport of products frompoint of manufacture to point of sale. This effortrepresents one of the first expansions of the def-inition of supply chain in recent years.

3.6 CAPACITY BUILDINGConsistent with the view that all parties involved insupply chains have the opportunity and obligation

to promote the wider application of CSR, manyparticipants noted the need for capacity building onan across-the-board basis. It should be noted thatsuppliers did not widely recognize the need forskill development, although the desire to enhancethe skills of suppliers to address these issues effec-tively was widely raised by other participants in thedialogues. The need for capacity building is thor-oughly understandable given that what is called forin this report is a more complete approach to theimplementation of social and environmental stan-dards on the part of suppliers, the majority of whichare SMEs in developing economies.

In outlining possible areas of action to promotecapacity building, there remains the need to con-duct a thorough analysis of needs—areas wherethere is the greatest receptiveness to capacity build-ing and identification of appropriate and availableresources—and then a subsequent matching ofneeds and resources to achieve better social, envi-ronmental, and economic performance.

Based on the perspectives presented, and the sub-sequent analysis, the following efforts appearlikely to make the greatest difference:

� Host Country Governments: Consistent withthe broadly stated desire to see governmentsplay a more forceful role in enforcing their ownlaws, technical assistance from public and inter-national organizations to host country govern-ments to build greater capacity for enforcementof labor and environmental principles in a man-ner that is tied to increased foreign investment iscritically needed. The ILO may have a particu-lar role to play in this regard with respect to laborissues, given both its tripartite nature and the factthat it can access those with knowledge of pub-lic labor law enforcement. Governments ofcountries importing significant apparel and agri-culture products and commodities can play arole in providing not only technical assistance,but also in influencing policy to create an envi-ronment in which enforcement of social andenvironmental provisions is at the core of devel-opment strategies.

� Workers: Awareness raising and skill develop-ment is needed to strengthen workers’ ability todefend their interests and seek redress wheretheir rights are not respected. This work shouldbe carried out through workers’ representatives,

civil society organizations, tripartite institu-tions, and multistakeholder initiatives. In addi-tion, there is an increasing desire among someto see additional collaboration between compa-nies and workers’ representatives. This has beenstated most strongly by trade unions, but hasalso been noted by some of the buyers consultedduring the project. (See additional commentsbelow specifically about the education andempowerment of workers.)

� Suppliers: Suppliers would benefit from addi-tional training in human resource and environ-mental management. It was noted throughout theconsultations that capacity building is especiallyneeded at the line manager or floor supervisorlevel. Development agencies, academic institu-tions, business organizations, and stakeholdergroups are well positioned to provide this assis-tance. In addition, there would be value in estab-lishing local “centers of excellence” in managingsocial and environmental practices for SMEsengaged in production for export. Such centerswould be locally based and draw on a broadrange of institutions able to deliver training, tools,and education in a manner that could be imple-mented in local environments. There is a sub-stantial need for local resources that can aid theseenterprises in the development of managementpractices that raise awareness and expertisedevoted to the creation of increased economicperformance tied to positive impacts on labor andthe environment. At the same time, there may bean advantage to exploring skill transfer in areassuch as human resource management and envi-ronmental management, two areas where sub-stantial resources are present in buyers, othermultinational companies, the public and inde-pendent sectors, and academic institutions in theindustrial economies.

There may also be opportunities for direct cooper-ation between groups of buyers and suppliers inthis area, although this would probably requirefairly long-term relationships. One major Euro-pean buyer has recently initiated a comprehensiveprocess to identify other buyers with whom itshares suppliers with a view to initiating coopera-tion in the area of capacity building.

� Social Auditors/Verifiers: Although many ofthe parties consulted for this project were in

agreement that worksite monitoring should bedeemphasized in coming years, there remains aconsensus that some form of monitoring will bea significant part of the equation in the nearterm. Monitors, as noted above, would benefitfrom the development and refinement of addi-tional skills, notably in the areas of reviewingperformance against qualitative social indica-tors, on issues such as freedom of associationand collective bargaining, nondiscrimination,and disciplinary practices. A variety of meansmay be available to support such efforts. Thepublic sector can contribute in light of its role asthe ultimate enforcement agency, and interna-tional institutions, notably the ILO, may have asubstantial role to play in the development of amore robust core of social auditors and verifiers.In addition, the need to incorporate social con-cerns more fully into this process suggests astrong role for civil society organizationsfocused on this area. Finally, a more completeunderstanding of the ways that trade unions canbe factored into the process of monitoring andverification also would be valuable.

3.7 WORKER EDUCATION, EMPOWERMENT,AND REPRESENTATIONMany of those consulted in the course of the studynoted that workers have not been placed at the cen-ter of efforts to ensure good practice, even on—orparticularly on—labor issues. The worker inter-views conducted in the course of this project gen-erally supported this view, although there wassome evidence that, in a limited way, workerswere aware of and positive about the results ofcodes or related activities. The results of the inter-views with almost 200 workers in four countriessuggest, however, that additional means of edu-cating and enabling workers are needed to makethe next generation of efforts to promote CSR insupply chains more effective, and this conclusionis also supported by consultations with buyers andstakeholder groups.

In addressing the education and empowerment ofworkers in a global study such as this, it is alsoimportant to ensure that generalized definitions of“the work force” are not allowed to erase impor-tant local and industry differences that have a sub-stantial impact on the terms and conditions of



employment. The consultations performed for thisstudy, especially the worker interviews, under-scored the degree to which the apparel and agri-culture industries employ a large number of casualworkers, domestic and foreign migrant workers,and workers employed in export processing zones.In many of these circumstances, workers do nothave the same legal protections, experience defacto limits on their rights, or elect not to pursuelegal and practical steps pursued by workersemployed in more traditional contexts.

Whereas stakeholders generally agreed that effortshad to focus on workers, they were much less inagreement on how this should take place. Workerempowerment was key to the improvement ofstandards as it would enable workers to improvestandards on their own, working with their repre-sentatives where such relationships exist. In the longrun such an approach was considered more effectivein raising standards than codes themselves.

Several people who were consulted for the projectalso noted broad social and cultural characteristics,such as the caste system in India, widespreadglobal discrimination against women, and the gen-erally weak nature of civil society in China, as hav-ing significant influence on whether and howworkers are engaged on their own behalf, orwhether workers’ representatives were able to vin-dicate workers’ rights effectively. Quite obviously,efforts to address the needs of workers should betailored to the particular context in which theywork and live, and this is a further reason whyoptions tailored to particular geographic regions orindustries appear to hold distinct promise.

To further workers’ ability to engage on theirown behalf, additional efforts to educate workersin export factories and agricultural productionabout their rights, with a focus on local laws, arecritical to the further effectiveness of current andfuture efforts to ensure good social and environ-mental practices. Such efforts have the greatestimpact when provided in a manner consistentwith workers’ educational levels, and with afocus on providing workers with informationabout how they can seek additional informationand redress for concerns they might have aboutviolations of their rights, whether through dis-pute resolution processes at the worksite level,including their workers’ representatives and

worker advocates in the community, or public dis-pute resolution processes.

In addition to the medium of communication withworkers, choosing which parties engage in thiseducation is also important. Relying on a mix ofcivil society organizations, trade unions, govern-ment officials, and possibly academic institutionswould be most beneficial. As noted by several par-ticipants in the consultations, donor institutionshave an important role to play in providing theresources needed to undertake a broad-based effortto educate workers in export industries, as thiseffort would help to cement the role that increasedexport production plays in skill and knowledgetransfer to those working in such industries.

While such noncommercial institutions are criticalto effective educational efforts, suppliers and buy-ers also have a critical role to play in helping to cre-ate an environment in which worker education andempowerment is respected and translated into bet-ter workplace communication. It is not assumedthat workers currently enjoy a workplace environ-ment in which they would be able to act upon agreater understanding of their rights relating tolabor, environmental, and other issues.

This can be addressed in part by replicating theefforts of some buyers to reorient their monitoringaway from a model often referred to as “policing”workplace conditions, and more toward a modelthat supports education. To support a transition tosystems that focus more attention on direct dia-logue and engagement with workers, monitoringand verification processes could focus increasedattention on how well informed workers are aboutprevailing workplace standards and practices. Awell-informed work force, combined with evi-dence of a functioning worker–management com-munication system that results in workplaceimprovements, constitutes a strong indicator of ahealthy workplace, and should be given greater pri-ority in monitoring and verification efforts. Thisstep would help to address the view of many of theworkers consulted in the study that monitoringpractices are currently tilted toward the perspectiveof management, and would create an environmentin which workers are placed more at the center ofthese processes. In addition, buyers have an impor-tant role to play in that they are considered bymany—including some buyers’ representatives—

as having the ability to communicate to govern-ments about their own desire to see workers’ rightsbetter protected.

Buyer consultations showed an increasing interestin addressing workers, although China-based rep-resentatives of buyers did not share the enthusiasmfor this concept, concluding that the vast oversup-ply of labor, and the predominance of migrantlabor in China will counteract any effort toempower workers, since workers will concludethat the risks of acting on their rights will be toogreat. One agricultural buyer that adhered to theSA8000 concept believed that empowerment ofworkers was very important, having successfullypursued this concept in some countries, but alsorecognized that this required substantial invest-ments and long-term efforts involving local unionsand representatives of local communities. Overall,many buyers recognized the role of unions inempowering workers, although many also notedthe difficulties of working with local unions that attimes lacked necessary capacities or a cooperativeattitude.

3.7.1 Worker Representation and Trade UnionsThe question of worker education is intimatelylinked to worker representation, and freely chosentrade unions play a critical role in educating andempowering workers. In determining how tostrengthen worker representation, there is at timesa divide between the views of observers in indus-trial and developing countries. In consultations forthe study, there was substantial support, especiallyamong stakeholders in the North, for a strength-ened role for trade unions, while numerous partiesbased in the South expressed greater skepticismabout how well this goal could be reached.

Discussions with local parties, that is, workers andsuppliers, revealed views that ranged from supportto ambivalence to outright opposition to trade unionrepresentation. Numerous observers noted formaland informal barriers to the formation of indepen-dent trade unions on the part of local governments.In this light, the most effective means of promotinggreater respect for freedom of association and col-lective bargaining would be a legal environment inwhich local authorities uphold and protect these

principles, such that employees wishing to exercisethese rights have the full ability to do so.

One participant in the study consultations, repre-senting an international institution, observed that:“To support greater worker empowerment, institu-tional changes are needed at several levels: (a)changes in the workers’ organizations themselves,(b) changes in the company attitudes towardsunions, and (c) changes in local legislation(strengthening freedom of association).” Thisview probably reflects most carefully the range ofopinions expressed, and presents a useful frame-work for addressing this question.

3.8 RESEARCHWhile research per se did not arise directly out ofthe consultations conducted as part of the project,it appears likely that several issues discussed in thecourse of the study could be advanced throughmore, or more rigorous, research. This should beevident given that global efforts to ensure goodsocial and environmental practice in supply chainsare still relatively young. Much of the learning thathas occurred in the field has resulted from trial anderror or, in the words of the ETI, “Learning byDoing.”

While these practical steps have great value, thereis likely a need to test some of the assumptionsexpressed by practitioners through more rigorousanalysis, which was beyond the scope of thisstudy. This view is reinforced by the fact that manyof the people consulted for the project tended topresent deeply held views that often appeared to betied to their institutional positions. It appears thatall parties in this debate would benefit from formalassessment and analysis, and that such work wouldenrich efforts to identify and implement sustain-able solutions. This report does not presentdetailed research plans, but rather identifies fourbroad areas in which the collection, analysis, andtransmission of information would be helpful, andin many cases tie directly into the capacity build-ing agenda described above.

3.8.1 The Business CaseIn particular, the barriers associated with a lack ofunderstanding of the business case for CSR would



benefit from further research. Several of thoseconsulted noted that they were able to point onlyto anecdotal or isolated cases of business benefit,apart from the widely cited example of the threatthat suppliers could lose customers and businessif they did not comply with social and environ-mental standards. As one stakeholder in theUnited States noted, “telling someone to do some-thing or they lose business is not the same asdemonstrating benefit.”

However, some noted that there had been insuffi-cient benchmarking to allow for comparisons to bemade. While noting that some efforts are currentlyunder way to assess the impact of codes of conduct,such as one sponsored by the ETI and anotherrecently completed for the World Bank,29 additionalresearch should be conducted to identify whether thecosts of achieving broadly agreed labor and envi-ronmental goals are financially advantageous to sup-pliers. In making this suggestion, it is worth notingthat several of those consulted for this projectrejected the need to make economic arguments toconvince suppliers to move into compliance, statingin essence that there should be no need to convincebusinesses to comply with applicable laws. Regard-less, there is a rough consensus that resolving thequestion of whether and how the business case existsis of critical importance.

3.8.2 Worker EmpowermentA second area in which additional research could bevaluable is in the area of worker empowerment. Inparticular, there appears to be a knowledge gap con-cerning the nature and interests of various groups ofworkers, and without a clear sense of the context inwhich workers are employed, efforts to enhancetheir understanding of their rights may not be as suc-cessful as possible. There is wide disparity of under-standing of these distinctions, and more than likelythis translates into insufficient tailoring of efforts toaddress workplace issues. Migrant workers both for-eign and domestic, seasonal workers, and home-based workers all comprise significant percentagesof the work force in apparel and agriculture, andgreater understanding of their needs is needed. The

surveying work performed by the Global Alliancefor Workers and Communities is a useful exampleof applied research that could be expanded.

3.8.3 Environmental StandardsAdditional transmission of research illustratinghow to make environmental improvements alsowould be beneficial. This set of issues reflects anarea in which existing information should be morewidely disseminated to raise awareness and capac-ity. There is an information gap in many supplychains concerning ways to ensure that chemicalsare used, stored, transported, and disposed of prop-erly. Similarly, there is a need to engage suppliers,local governments, and others in building aware-ness of the impact of water use in the apparel andagriculture industries. There is an opportunity toweave the understanding of environmental issuesinto research on the business case, given that otherindustries have in many cases been able to linkresource management into both environmental pro-tection and cost savings. Noting the existence of anumber of internationally recognized process stan-dards such as the ISO 14000 series, this should bean area where progress can be made. And, as notedabove, the development of broadly applicable envi-ronmental standards, given the lack of provisionsanalogous to ILO conventions, likely will requirefurther study, although the OECD Guidelines forMultinational Enterprises do contain broad princi-ples that could be applied in the development ofstronger approaches to environmental managementof supply chain practices

3.8.4 ConsumersSeveral participants in the study consultationsrejected the widely cited research showing thatconsumers are willing to pay a premium for prod-ucts made under decent conditions, arguing thatsuch data reflect sentiments not actions. Given theimportance of the business case, and wide skepti-cism concerning the existing reservoir of research,this area would benefit from further study as well.

3.9 REMOVING ECONOMIC BARRIERS TO CSRAlthough this study did not attempt either a macro-or microeconomic analysis of supply chains, it was

29 The Global Alliance—Benefit-cost framework and appli-cation, Centre for International Economics, Canberra &Sydney, May 2003.

clear that several strong economic currents areinhibiting the uptake of CSR in supply chains.

At the macroeconomic level, some nations arereluctant to support CSR strongly for fear thatthis will adversely impact investment. For multi-national enterprises, price pressure has grownmore intense in recent years, notably in theapparel and agriculture industries, where pricesconsumers pay for some items have fallen in realterms. These price pressures are widely agreed to have been passed along to suppliers, many of whom are SMEs operating in developingeconomies, with little ability to control the waysthat this occurs. Finally, and importantly, workersthemselves—especially in labor-intensive indus-tries where little formal education is required foremployment—are often least able to shape eco-nomic outcomes.

One economic issue arose with some frequency:the question of the “mixed messages” manybelieve buyers deliver as they push for improvedsupplier performance on commercial issues, whileat the same time they are also seeking improvedsocial and environmental performance. Many ofthose consulted for this project stated that buyersneed to come to terms with the sometimes-con-flicting imperatives that they place on suppliers.There was wide recognition, including by somebuyers’ representatives themselves, that some oftheir staff reinforce the message about social andenvironmental practices, while other staff createeconomic pressures related to price, quality, anddelivery deadlines that are mutually inconsistent.Note that local buyers in India and China were notin full agreement with this.

There appears to be no single “solution” for thisissue, although broad recognition and discussionwill help, as will clarification of the value of thebusiness case.

Viewed from the perspective of buyers, the publicpressure to create “independent” labor complianceoffices has perhaps had the unintended effect ofdecoupling social and environmental concernsfrom commercial issues. The fullest possible inte-gration of commercial, social, and environmentalconcerns likely will lead to the greatest progress,and arguably reduce some of the confusion buyerspropound and suppliers experience.

From the perspective of suppliers consulted throughthis project, there is a substantial need to create alevel playing field, based on their view that suppli-ers that fail to invest in CSR now have an unfair eco-nomic advantage over those who do. In addition,many suppliers expressed the view, heard fre-quently also by consortium members outside thescope of this project, that suppliers would be farmore willing to invest in CSR if they had greatercertainty that they would maintain their businesswith buyers over an extended period of time. One ofthe chief advantages of looking at these issues in abottom-up manner is that the impact of shifting sup-ply chains diminishes, since a single supplier can beassured that its performance would meet the con-cerns of all buyers.

Buyers likely would create greater incentives forsuppliers to act if they sought to create a smallerand more stable set of suppliers. Some buyers havealready implemented this, to some degree. As wasreported in the convening with Chinese suppliers,“Participants complained that achieving compli-ance does not create any loyalty on the part ofmost buyers/brands. Even if a facility were to be incompliance, participants said that most brandswould move orders elsewhere if they could find abetter price.” However, this could also lead to theunintended consequences of reducing the SMEsengaged in CSR efforts, and the risk of creating atwo-tiered set of producers, with some focused ondomestic markets with poor standards, and a smallnumber of companies producing under decent con-ditions for the export markets.

3.10 OPTIONS FOR ACTIONThis report proposes a wide range of options to beconsidered in the quest for improving social andenvironmental standards in global supply chains.

While the report notes the critical importance of col-laborative action, a number of proposed actions arespecifically addressed to, inter alia, buyers, suppli-ers, and host governments. Some of these steps canbe acted upon in conjunction with initiatives byother actors; others can be pursued in isolation.

The following provides a summary of the pro-posed options and how they relate to differentgroups of actors: suppliers, buyers, host govern-ments, home governments, civil society organiza-



tions (NGOs and trade unions), and internationalorganizations. The proposed options are catego-rized according to the principle of who shouldtake responsibility for initiating each action, bear-ing in mind that many actions require cooperationand joint implementation by at least two differentsets of actors.

3.10.1 SuppliersReal and sustainable implementation of goodsocial and environmental practices in global supplychains will not take place unless embraced andsupported in full by suppliers’ owners, managers,and supervisors. In the end, only suppliers canensure the proper implementation of CSR practicesin line with local law and international standards.In addition, business organizations representingsuppliers should also actively promote good socialand environmental practices.

In particular, individual suppliers can:

� Accept social and environmental requirements aspart of the contractual relationship with buyers.

� Adopt good social and environmental practicesin the workplace and engage more fully withworkers, and their representatives and organiza-tions, when implementing these practices.

� Ensure that their staffs have the requisite knowl-edge and support to implement policy and prac-tice consistent with social and environmentalprinciples.

� Seek to engage buyers in a dialogue on how todevelop processes and procedures that ensurecompliance.

� Participate in local employers’ organizationsand tripartite structures.

The business organizations that represent suppli-ers can:

� Actively promote social and environmentalpractices by adopting relevant policy statements,business guidelines, and so on.

� Develop relevant training modules in the applica-tion of local law, human resource management,environment, and health and safety managementsystems. Such services can be developed in part-nership with local labor inspectorates. Training-of-trainers programs can also be developed.

� Establish industry-specific forums for learningand exchange of information in the area of imple-

mentation of social and environmental practices.� Engage governments with a view to promote

better enforcement of local law and other stepsgovernments can take to facilitate and supportimproved performance.

� Engage in multistakeholder national initiativesfor harmonizing and strengthening the applica-tion of standards.

� Engage in constructive dialogue with tradeunions and NGOs to build greater understandingof the issues, and to build a greater foundationfor implementing options.

3.10.2 BuyersBuyers are increasingly acknowledging the needfor new approaches to implementation of codes ofconduct in order to secure real and sustainable CSRpractices in their global supply chains. There was astrong desire expressed by buyers for the develop-ment of “sustainable” solutions to supply chainissues, and collaborative efforts to achieve thisgoal. Buyers can adopt a wide range of measuressome of which can be pursued individually,although the likelihood of sustainable impacts isgreatly enhanced through collective action withother buyers.

In particular, the individual buyer can:

� Ensure that a uniform message is presented to itssuppliers and stakeholders. This could take placeby, inter alia, integrating CSR requirements inprocurements policies, including training of pro-curement officers in CSR issues, and adjustingpossible reward systems to include CSR aspects.

� Work to reorient monitoring away from a polic-ing model toward one that supports educationand capacity building.

� Address environmental issues more fully in itscodes of conduct and the implementation thereof.

� Engage more fully with workers and their repre-sentatives, as well as local and international NGOsworking knowledgeably to promote good practice.

� Communicate to governments and local busi-ness organizations the desire to see social andenvironmental practices improved.

� Contribute to the building of greater capacityamong supply chain partners to implementsocial and environmental principles.

� Critically assess the present business model(especially in apparel) with a view to developing

a business model that better facilitates theproper implementation of social and environ-mental standards.

� Participate in local employers’ organizations andtripartite structures in order to strengthen cooper-ation with local governments and trade unions.

Collectively, buyers can:

� Coordinate and harmonize implementation,monitoring, and remediation when sharing indi-vidual suppliers.

� Work to harmonize codes of conduct and associ-ated implementation mechanisms through, interalia, participation in multistakeholder initiatives.

� Work to promote collective (cross-border) indus-try initiatives based on a common code of con-duct, shared monitoring, implementation, andremediation. Such initiatives should conformwith the guidelines outlined in the precedingsection, including in particular the need forbuilding local capacities and ownership throughlocal partnerships.

� Identify environmental issues on an industry-wide basis to be addressed in supply chains.

� Agree on viewing CSR as a noncompetitiveaspect of business development.

� Develop standards for CSR-sensitive procure-ment policies, including industrywide trainingprograms for procurement officers.

� Encourage their suppliers to participate in localemployers’ organizations and tripartite structures.

3.10.3 Host GovernmentsAs noted previously, consultation participantswere nearly unanimous in wishing to see govern-ments enforce local laws concerning social andenvironmental matters more fully and effectively.In addition, proposals were made for governmentsto undertake additional initiatives with a particularview to facilitating the implementation of socialand environmental practices.

Broadly speaking, the role of government falls intofour categories: mandating, facilitating, partner-ing, and endorsing.30 While noting that the role of

the public sector is likely to be the subject of a sep-arate study commissioned by the World Bank, thisreport nonetheless attempts to flag a number ofoptions falling in particular within the categoriesof facilitating and partnering.

In terms of mandating, host governments shouldensure that local laws are consistently interpreted,implemented, and corroborated by proper enforce-ment. Such efforts could be complemented bythe development of local dispute resolutionmechanisms, the development of implementa-tion guidelines, and so forth. Governments arealso encouraged to reconsider policies that, dejure or de facto, allow export processing zones tooperate without the legal obligations that areapplicable elsewhere as well as provisions thatdeprive particular labor groups of certain rightsand levels of protection, including in particularmigrant labor. Host governments also can ensurethat applicable laws are consistent with interna-tionally accepted principles in cases where theycurrently are not, and provide substantially moredefinitive guidance on the application of laws,which currently are considered by many to beinterpreted inconsistently.

In its role as facilitator, the host governmentshould develop penalties and incentives that providea proper framework for compliance with labor andenvironmental legislations. Such mechanisms couldbe linked to relevant export licensees, export creditschemes, and so forth. Governments can also actas the principal convener and facilitator of multi-stakeholder national initiative processes men-tioned earlier as well as facilitate (and possiblyprovide initial capital to finance) the developmentof local industry initiatives. Host governmentscould provide financial resources to general aware-ness programs directed at suppliers as well asworkers to inform these groups of their rights andobligations in the area of CSR. Such programsshould be implemented by civil society organiza-tions. Host governments could also include CSRconsiderations in public procurement purchasingcriteria. Host governments should also workactively to strengthen local tripartite structures as ameans to facilitate cooperation among the mostfundamental stakeholders, namely the representa-tives of workers and businesses, as well asstrengthen local dispute resolution mechanisms.


30 This framework is elaborated in the report “Public SectorRoles in Strengthening Corporate Social Responsibility—A Baseline Study,” developed for the Bank Group by theInternational Institute for Environment and Development,October 2002.


Host governments should engage in various part-nerships with the private sector, civil society, andinternational organizations. In particular, govern-ments could work with bilateral and multilateraldonors as well as civil society to build capacity forstandard setting, enforcement, and technical assis-tance programs in local labor inspectorates. Like-wise, host governments could form partnershipswith donors and the private sector to set up pro-grams that train suppliers in environmental man-agement and management of health and safetypractices. Host governments also should developpartnerships with the private sector and civil soci-ety in the process of implementing multistake-holder national initiatives.

The host government can endorse local businessinitiatives that seek to promote better social andenvironmental practices in the workplace. Hostgovernments could consider endorsing certaincodes of conduct and implementation steps, whichwould allow companies using officially sanctionedschemes to be reviewed less frequently by govern-ment enforcement staffs.

3.10.4 Home GovernmentsDeveloped country governments may employ anumber of measures to stimulate better workplacepractices at the supplier level in developing coun-tries. Some of these will impact through buyers;others will be directed at the supplier level.

In its mandating role, home governments can con-sider the pros and cons of introducing social andenvironmental clauses in their trade policies. Theymay also promote the consistent application ofinternationally agreed-upon social and environ-mental legally binding instruments.

Home governments may facilitate better social andenvironmental practices at the supplier level bymeans of linking CSR supply chain performance topublic procurement purchasing criteria, export cred-its, and other international financing credits (includ-ing investment guarantee programs and joint capitalfor investment projects in developing countries),and by explicitly addressing CSR issues in bilateraldevelopment assistance programs. Home govern-ments have in a number of countries played a crucialrole in facilitating national multistakeholder initia-tives (that is, the ETI, AVE, and FLA processes),

and these could be replicated in other industrialcountries. Likewise, home governments may facili-tate and act as partner to the development of buyerindustry initiatives (see above under buyers). Thenational contact points for the OECD Guidelines forMultinational Enterprises may act as an appropriatechannel for public–private discussion and debate onresponsible supply chain practices.

The role as facilitator often requires a complemen-tary role of partner. The report proposes a numberof partnership roles for home governments. Theseinclude the role as partner for host governmentthrough bilateral development assistance pro-grams that focus on capacity building in enforce-ment and the provision of technical expertise inlabor inspectorates. Home governments may alsoact as an important partner for groups of buyers,for example, as in the Cocoa initiative or the Ger-man AVE initiative, which seek to promote goodsocial and environmental practices in global sup-ply chains.

Home governments can endorse efforts made byindustries or individual companies to promote CSRpractices in global supply chains. In a similar vein,home governments can promote international stan-dards and guidelines such as the OECD Guidelinesfor Multinational Enterprises, the UN Global Com-pact, the ILO core conventions, and relevant inter-national conventions and declarations. Finally,home governments can play an important role instimulating socially responsible consumer behavior,for example through the development, refinement,and harmonization of social labels.

3.10.5 Civil Society Organisations (NGOs, trade unions, andmultistakeholder initiatives)Civil society organizations can be pivotal in theprocess of strengthening implementation of CSR inglobal supply chains. In particular, NGOs andinternational and local trade unions are centralactors; but in addition, the multistakeholder initia-tives, which are the uniquely placed agentsbetween civil society, government, and business,have a key role to play. The multistakeholder ini-tiatives should be encouraged in their recently ini-tiated efforts to find common ground on thecontent, implementation, and monitoring of CSRstandards. Despite the general observation among

the research participants that a common base codeshould not be the first, nor the primary, step towardimproving CSR standards, it was nonetheless rec-ognized that such a code would likely serve as animportant benchmark for the further developmentof more focused and applicable industry-specificand country-specific standards.

Trade unions, another pivotal actor in civil societyon the CSR issue, could:

� Take a lead role in the process of training andempowering workers.

� Build capacity to train workers and engage withbusiness in the process of implementation ofcodes of conduct.

� Engage in multistakeholder national initiatives.� Engage in industrywide initiatives such as the

German AVE initiative.

NGOs, for their part, could:

� Engage in multistakeholder national initiatives.� Undertake research to clarify the nature and

extent of the public expectations of corporatesocial responsibility.

� Engage in public awareness campaigns to raiseconsumer interest in CSR issues.

� Assist in the training and empowerment of work-ers, particularly in areas where trade unionsand other forms of worker representation areoutlawed.

� Campaign to pressure governments, businesses,and other actors to play a role in strengtheningthe implementation of CSR.

3.10.6 International OrganisationsAlthough this study was not designed to identifyparticular roles for international organizations,these institutions nonetheless have importantroles to play in the process of strengtheningimplementation of CSR in global supply chains.As with governments, international organizationscan mandate, facilitate, partner, and endorse vari-

ous initiatives and efforts. Some of the most impor-tant would seem to be:

� Develop pro-CSR procurement policies as wellas incorporate CSR requirements in other poli-cies and programs, including export credits,loan guarantee programs, investment credits, aswell as social labels with a wider geographicalapplication, and so forth. This would apply to allinternational organizations, not least the WorldBank Group, the UN system, and the EU.

� Develop multilateral development assistanceprograms that support capacity building inenforcement of local laws, including the pivotalrole played by local courts, the provision oftechnical assistance, and standard setting. Suchprograms could also focus on the strengtheningof local tripartite structures. The UN agenciesand the World Bank Group would be appropri-ate actors.

� Facilitate and provide cofinancing for multi-stakeholder national initiatives. The UN GlobalCompact, the United Nations DevelopmentProgramme (UNDP), and the EU may have par-ticular roles to play here.

� Initiate and finance research and developmentthat focuses on how to address environmentalissues more fully in global supply chains, includ-ing developing appropriate guidelines for indus-try-specific environmental codes of conduct. Themultistakeholder process resulting in the GRIguidelines could be replicated, giving in particu-lar the United Nations Environment Programme(UNEP) an important role to play.

� Develop guidelines and tools that help compa-nies address labor and human rights issues inglobal supply chains in line with internationallyagreed principles such as the core ILO conven-tions and the Universal Declaration of HumanRights. The ILO, the UN Global Compact, andthe Office of the United Nations High Commis-sioner for Human Rights, among others, wouldbe relevant organizations.


This annex outlines in detail the key challengesand their underpinning assumptions as they

were identified and phrased by the Bank Group inthe Terms of Reference to the present study.

KEY CHALLENGE 1The plethora of individual buyer CSR codes isgenerating inefficiencies and confusion. The chal-lenge is to minimize inefficiencies and confusionin ways that make sense for buyers, suppliers, thework force, and other key stakeholders.

� Inefficiencies have emerged partially as a resultof industry structures frequently characterizedby (a) shifting contractual relationships amongsuppliers and buyers with a lack of long-termbusiness relationships and (b) suppliers withmultiple buyers. Increasingly, each buyer has itsown code of conduct, CSR training require-ments, buyer monitoring, and external verifica-tion audits. The result is significant overlap andrepetition; suppliers assert that this imposesunnecessary burdens on buyers who have toallocate time to address an overlapping streamof CSR-related activities.

� Confusion results from the variation in CSRrequirements among buyers and CSR initiativesand poses two separate challenges for suppliers.First, it serves as a barrier to entry for supplierswishing to be proactive in addressing CSR as ameans of attracting or retaining clients: it is notsufficiently clear to suppliers how they can bestdemonstrate compliance to a range of potentialCSR-sensitive buyers. Second, confusion canundermine CSR implementation: despiteincreasing convergence in the content of codesof conduct (particularly in labor content), sig-nificant discrepancies in the details of imple-

mentation remain, revealed through variation inthe quality and content of monitoring and audit-ing processes and personnel and remedial action.

Assumptions UnderpinningKey Challenge 11a) The multistakeholder code initiatives havealready started a process to improve practical col-laboration and to consider coordination; this studyis unlikely to add much value to that process, otherthan encouraging the participants in their endeav-ors. Instead, this study is likely to be most usefulby focusing on the much larger number of indi-vidual buyer codes. It is also likely that some of thefindings regarding implementation consistencymay contribute to the separate discussion takingplace among multistakeholder code initiatives.

1b) Labor content of codes (multistakeholdercodes plus leading individual buyer codes) isslowly converging around ILO core conventions.It is likely that this convergence will facilitatesolutions to the challenge of inefficiencies andconfusion, as well as the third challenge of capac-ity building.

1c) If assumption 1b) about labor content of codesis correct, it is likely that this has implications forthe utility of content convergence in other contentareas, such as environmental standards and humanrights. It further implies that content convergenceshould derive from internationally agreed stan-dards such as those represented by the ILO con-ventions, international declarations, or agreementsof UN agencies or the OECD.

1d) It is likely that the presence of multistake-holder initiatives have had a significant indirectinfluence in shaping firm decisions about the con-

The Key Challenges and Underpinning Assumptions

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tent of their codes, even among firms that are notmembers of these initiatives. This may have impli-cations for the role that multistakeholder initiativescan play, both directly and indirectly, with regardto addressing the three key challenges listed in theTerms of Reference.

1e) The area where the majority of confusion existsis in the activities associated with the implementa-tion of standards, that is, differences in the qualityand specifics of monitoring, auditing, and remedi-ation efforts. There appears to be significant incon-sistency at the basic level of CSR implementation,that is, how standards are to be interpreted intoeveryday business practices and subsequentlymonitored. This is said to be true at all levels:within companies, across companies, within multi-stakeholder initiatives, and across multistakeholderinitiatives and other factory certification programs.It is likely that removing unnecessary inefficienciesin this area will not stifle innovation or ongoingdevelopment of CSR initiatives. Efforts to stan-dardize or harmonize elements of these initiativesshould be quite straightforward: as one executiveof a major apparel company put it, fake books arefake books.

1f) There is a risk that consolidation of individualbuyer code content may lead downwards to thelowest common denominator, but this need not bethe case, especially if content is derived from inter-nationally agreed standards.31 There is a relatedassumption that CSR can be made more accessibleor economically viable to SMEs without loweringstandards, for example, through increased capac-ity building. It is possible, however, that in someindustry sectors, CSR combines with other buyerdemands to the advantage of larger enterprises.

1g) It is likely that businesses have concerns aboutexplicitly adopting internationally agreed stan-dards that have prevented them from doing so.Possibilities include fears of legal liability, desireto use individual CSR policies as a branding ele-ment, and a desire to maintain flexibility in termsof CSR commitments.

1h) It is likely that governments, especially hostcountry governments, have a key role to play in

clarifying expectations and helping reduce confu-sion and inefficiencies, but it is important to iden-tify where the private sector may willingly playthis role and where it may have a comparativeadvantage to do so.

KEY CHALLENGE 2Buyers are recognizing that traditional top-downCSR strategies are not achieving improved CSRimplementation. The challenge is to identify bestpractice from the many pilot initiatives thatacknowledge the importance of stakeholder par-ticipation, empowerment, and capacity building.

The evidence seems clear that a top-down policingapproach to CSR compliance is insufficient oreven inappropriate: a supplier who is only imple-menting CSR standards because of buyer insis-tence can find ways to evade compliance withouttoo much fear of detection. A number of buyershave concluded that this implies a need to addressthe challenge of achieving shared ownership forthe implementation of CSR standards throughoutthe supply chain. New strategies have included:

� A focus on clarifying the business rationale togenerate bottom-up demand for CSR imple-mentation, including development, dissemina-tion, and promotion of frameworks to analyzethe costs and benefits of implementing CSR(revealing productivity and quality gains andpotential increased market share).

� Capacity-building support at the supplier level,for management, workers, and stakeholders alike.Many suppliers lack the management expertise toaddress challenges associated with bringing theirworkplace into compliance with CSR codes ofconduct. These skills include operations manage-ment, knowledge of environmental practices,human resource management/industrial relations,health and safety, and knowledge of other systemsthat ensure sustainable production through a fun-damental change in business systems.

� An emphasis on the role of workers or other keystakeholders as guarantors of CSR implementa-tion. Trade unions have long argued thatempowered workers are key to ensuring imple-mentation of CSR standards because of theircontinuous presence at the worksite and theirstake in the outcome. Similar arguments havebeen made about local communities and envi-


31 A possible model for modularization could be seen inIKEA’s four-step ladder approach to compliance with labor,social, and environmental issues.

The Key Challenges and Underpinning Assumptions 59

ronmental protection. A small number of buyersand suppliers are undertaking experiments toincrease the involvement of workers in theirCSR implementation strategies. Some focus onNGO-style participatory techniques as a meansof improved communication. Less common, butimportant, experiments include supporting anactive role for trade unions.32

Assumptions Underpinning Key Challenge 22a) The top-down approach to CSR code imple-mentation has been buttressed by the growth ofexternally provided inspection and audit services,on a commercial basis. It is likely that a capacity-building approach to CSR code implementationwill require the growth of equivalent quality CSRsupport services, for example, such as those pro-vided by properly trained auditors, empoweredworkers, well functioning and independent tradeunions, and multistakeholder organizations. Theseare not currently available beyond relatively small-scale experimentation, and it is likely that the lackof widespread availability results in relatively highmarket prices and inconsistent implementation.

2b) It is likely that the organizations best posi-tioned to lead implementation of empowermentstrategies, capacity building, and training serviceswould be unions (for labor issues) or multistake-holder organizations using participatory tech-niques. It is also likely that such activities would bebetter situated to offer complex or shared financingarrangements involving contributions from a vari-ety of stakeholders and thereby altering the unitcost of CSR implementation and therefore thefinancial viability of participation for some com-panies such as SMEs (cost-benefit outcome).Similarly, it seems likely that the role of host gov-ernments will be significant in endorsing andenforcing standards, providing social services, andsupporting worker empowerment.

2c) Despite the growing practice of consultancy(capacity building) services by some commercialCSR auditing agencies, which currently consti-

tute a large portion of the small community ofprivate sector experts experienced in CSR man-agement systems, this is likely to present a con-flict of interest with their external verification andauditing services.

2d) It is likely that public–private collaborationover the capacity-building challenge would bemade easier if mechanisms for collaboration withrelevant public sector inspectorates were in place,for example, if the results of buyer audits or reme-diation plans could be shared with labor inspec-torates, although clear disincentives currently existin this regard.

2e) It is likely that coordination among buyerssourcing from shared suppliers would increasecompliance by suppliers through the creation of aunited front and, ideally, a consistent messageregarding implementation guidelines.

2f) It is likely that “initiative fatigue”—whichdescribes the saturation of involvement in a varietyof CSR initiatives by leading companies in thisfield—may serve as an obstacle to their engagementin the options presented by this study. It is also likelythat additional ambivalence may stem from institu-tional constraints, such as a vested interest in exist-ing organizational structures and policies.

KEY CHALLENGE 3The reticence of some suppliers to undertake CSRcompliance reflects a view that there is insufficientunderstanding of the business rationale for makingthe required investments. The challenge is to beclear about the business benefit at the supplier leveland to develop business practices that maximizethose benefits.

An associated challenge is the likelihood that forsome suppliers, the business case does not exist,that is, in the absence of legal enforcement, the riskof market sanction and the benefits of CSR imple-mentation are not sufficient to motivate suppliersto engage in CSR.33

32 The Global Alliance for Workers and Communities andCARE/Timberland have implemented projects to empowerworkers using participatory techniques. Reebok has facili-tated trade union elections in two factories in China.

33 Many suppliers operate on extremely thin margins andshort-term business horizons. This is partially because of thenature of the industry (margins are slim), low barriers to entryin many labor-intensive industries leading to overcapacity inthe supply chain, and underdeveloped capacity of manage-ment to operate profitable businesses.

� There are unresolved tensions between the deliv-ery time and price and the CSR requirementsof CSR-sensitive buyers. Suppliers, who areoften less skilled in the area of contract negotia-tion, claim that unrealistic contract requirementsdrive them to make tradeoffs between acceptingprofit losses and violating CSR complianceobligations.34

� A misunderstanding of codes as a nontariff tradebarrier rather than the contractual obligation ofthe business relationship may focus suppliersunnecessarily on their perception of the con-tent of the codes rather than the challenges ofimplementation.

Assumptions Underpinning Key Challenge 33a) It is likely that clarity on the apparent con-flict between price and delivery, on the one hand,and CSR on the other, will be the primary con-tribution of this study, permitting individualbuyers to make more informed choices about thetradeoffs involved.

3b) It seems likely that other tensions may beresolved, or decreased, through improved integra-tion of CSR policies within individual buyersfirms. For example, coordination of design andpurchasing departments enabling longer lead timemay decrease likelihood of overtime violations.

3c) It is likely that a primary obstacle to greaterawareness of the business rationale for engaging inCSR is the absence of a simple and credible frame-

work for analyzing the business case, and there-fore a lack of quantifiable evidence of the costsand benefits of CSR to suppliers, despite signifi-cant anecdotal evidence indicating a positive busi-ness case.35

3d) Increased transparency around CSR, driven bya system of improved and credible reporting, canbe a key determinant of some categories of busi-ness benefit, creating a mechanism through whichfree riders are exposed and CSR-sensitive buyersand suppliers are increasingly likely to be rewardedby CSR-sensitive clients and consumers. It is likelythat various stakeholders, including the publicsector, can take steps to influence the businesscase for CSR by influencing the potential bene-fits and costs.

3e) There is both a lack of critical mass of buyerswith serious interest in CSR and limited engage-ment on the part of many buyers in living up to thecommitment implied in their codes. This sendsmixed messages to suppliers and appears to limitthe ability of buyers who are serious about CSR tomore successfully engage suppliers on CSR.

3f) Because most codes of conduct have been cre-ated in industrial countries by multinational firmsand frequently represent the culmination of aneffort by industrial country civil society activiststo increase implementation of standards, the stan-dards are often perceived as Western-centric. It islikely that the perception of these standards as for-eign may be influencing local acceptance andimplementation of codes by suppliers.


35 The Bank Group is currently testing a framework for eval-uating the cost and benefits of CSR programs in a number offactories where programs supported by the Global Alliancefor Workers and Communities are being implemented.

34 This may be a function of a market constrained by a vari-ety of issues: CSR-sensitive buyers competing with non-CSR-sensitive buyers; overcapacity in the industry drivingprices down to unsustainable levels; or lack of awareness andcoordination among the CSR and sourcing departmentswithin individual firms.

Group Interview No. of Participants

StakeholdersU.S. Stakeholders

AFL-CIO Solidarity Center x 1As You Sow Foundation x 1 Global Alliance x 1 Human Rights Watch x 1 International Labor Rights Fund x 1 Investor Responsibility Research Center x 1 Lawyers Committee for Human Rights x 1 Maquila Health & Safety Network x 1 National Consumers League x 1 OXFAM US x 1 SAI - Social Accountability Limited x 1 The Natural Step x 1 Trillium Investment x 1 U.S. Agency for International Development x 1 U.S. State Department x 1 WRAP - Worldwide Responsible Apparel Production x 1 WRC - Worker Rights Consortium x 1

European Stakeholders

ACV Textura, Belgium x 1 Amnesty International x 1 Banana Link x 1 CARE Honduras x 1 Care International x 1 Central American Women’s Network x 1 Clean Clothes Campaign x 1 Deloitte Touche Denmark x 1 EFFAT x 1 ETI - Ethical Trading Initiative x 1 European Commission, Development Directorate General x 1 European Commission, Employment and Social Affairs Directorate General x 1 Fair Wear Foundation x 1 GRI - Global Reporting Initiative x 3ICFTU - International Confederation of Free Trade Unions x 1 ILO x 4International Business Leaders Forum x 1 IOE - International Organisation of Employers x 1

List of Participants Consulted in the Study

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European Stakeholders (continued)

ITGLWF - International Textile, Garment & Leather Workers’ Federation x 1 IUF x 1 New Academy of Business x 2OECD x 1 Office of the High Commissioner for Human Rights x 1 Oxfam x 1 SOMO Centre for Research on Multinational Corporations x 2WBCSD - World Business Council for Sustainable Development x 1 WCL x 2WWF International x 1

Stakeholders in India

Action for Food Production x 2ASK Association for Stimulating Knowhow x 1 Centre for Education and Research x 1 CLEAR Centre for Labour Education and Social Research x 1 Global Alliance for Workers and Communities x 1 INTUC – Indian National Trade Union Congress x 1 UNICEF x 1

Stakeholders in Hong Kong, China

AMRC x 1 China Labor Bulletin x 1 CIC x 1 City University x 1 CTU x 2

Stakeholders in Kenya

Africa Now x 1 Business Partnership Programme - DFID x 1 Centre for Corporate Governance x 1 Federation of Kenya Employers x 1 Institute of Economic Affairs x 2Kenya Women Workers Organisation x 1 Ministry of Labor x 1 Standing Commission on Human Rights x 1 Tea Board of Kenya x 1 Ufadhili Trust x 2UNDP x 1

Stakeholders in Honduras

Comité General Menonita x 1 Equipo de Monitoreo Independiente x 1 Honduran Ministry of Labor x 1 Union of Banana and Agro-Industrial Workers of Honduras x 1

List of Participants Consulted in the Study 63


BuyersBuyers in the United States

Cutter & Buck x 1 Disney x 1 Eddie Bauer x 1 Gap x 2Global Social Compliance x 1 Jones Apparel x 1 Levi Strauss & Company x 2Liz Claiborne x 1 L.L. Bean x 1 Mattel x 1 McDonald’s x 1 NIKE x 2Nordstrom x 1 Phillips Van Heusen x 1 Polo Ralph Lauren x 1 Proctor & Gamble x 1 Reebok x 1 Starbucks x 1 Wal-Mart x 1 Wolverine Worldwide x 1

Buyers in Europe

adidas-Salomon x 1 Chiquita x 1 Coop Denmark x 1 H&M Hennes & Mauritz x 1 IKEA International x 1 John Lewis - Waitrose x 1 Karstadt Quelle x 1 Littlewoods x 1 New Look x 1 PPR Group x 1 Safeway x 1 Somerfield x 1 Tetley x 1 Unilever x 1

Buyers in India

Gap x 2H&M Hennes & Mauritz x 1 Li & Fung x 2Triburg Sportswear x 1 Wal-mart x 1



Buyers in Hong Kong

Adidas-Salomon x 1 Colbys x 1 Debenhams x 1 Disney x 2Eddie Bauer x 2Hallmark x 2IPS x 2Levi Strauss x 1 Li & Fung x 3Mattel x 1 Narrowgate x 1 NIKE x 1 Pentland x 1 Sears x 1 Target x 1 W.E. Connor x 3

SuppliersSuppliers in Honduras

Asociacion Hondureña de Maquiladores ap 1 Garan Buena Vista ap 1 Garan San Jose ap 1 Grupo Compañía Azucarera Hondureña ag 1 Han-Soll Honduras ap 1 Hugger Group ap 1 ICX ag 1 Jerzees Choloma ap 1 King Star Garment ap 2Liberty de Honduras ap 1 Skips de Honduras ap 1

Suppliers in India

Aksahy Apparels ap 1 Assam Frontier Tea ag 1 Curious Crafts ap 1 Empire Tea Company ag 1 Eveready Industries India Ltd. ag 1 Federation of India Export Organisations ag x 1 Gupta Exim ap 1 Jorehaut Tea Company ag 1 Moran Tea Co. ag 1 Neetee ap 1 Orient Craft ap 1 Rangi International ap 1 Rossel Tea Limited ag 1 Singlo Tea Company ag 1 SPL Industries ap 1 Super Fashion ap 2

List of Participants Consulted in the Study 65


Suppliers in Kenya

Karirana Tea Estates ag 1 KTDA Kenyan Tea Development Agency ag 1 Linton Park Plc. ag 1 Socfinaf Company Ltd. ag 1 Williamson Tea Kenya Ltd. ag 1

Suppliers in China

Apache ap 1 Mansum Group (Zhong Shan) Fty. ap 2Starite ap 2XC ap 1 YY ap 2

164 organizations individuals 194(In the table above, ‘ag’ stands for agriculture and ‘ap’ stands for apparel).

Table F1 Summary Figures of ConsultationsHong Kong, China Honduras India Kenya United States Europe Totals

Buyers AP 24 (49) 7 (10) 20 (50) 9 (35) 60 (144)Buyers AG 3 (19) 5 (15) 8 (34)Suppliers AP 8 (50) 10 (59) 10 (15) 28 (124)Suppliers AG 2 (24) 7 (14) 5 (15) 14 (53)Stakeholders 6 (9) 4 (24) 8 (17) 13 (15) 17 (35) 36 (45) 84 (145)Workers 58 60 21 60 199

AP, apparel; AG, agriculture. The number in parentheses indicates the number of invited participants in each category. We consulted a total of 194 individuals representing 164 organizations and companies. Of these, 43 individuals representing 40 organizations were interviewed either in-person or telephonically. The remaining 151 individuals representing 122 organizations were consulted in group sessions with two or more participants. Participants were consulted in 11 locations in 9 countries on 5 continents.

Table F2 Buyer ConsultationsSan Francisco New York London Hong Kong, China New Delhi

Group 8 (25) 7 (25) 8 (50) 24 (49) 7 (10)Interview 5 6

The consortium invited approximately 160 buyers to participate in the consultation process; of these 68 were consulted in course of the study. The number of agricultural and apparelbuyers was 8 and 60, respectively.

Table F3 Stakeholder ConsultationsChina Honduras India Kenya United States Europe

Group 6 (9) 2 (24) 8 (15) 1 3 (15) 1 4 (35) 23 (45)Interview 2 (2) 3 1 3

In the United States, stakeholder group consultations were held in San Francisco and Washington D.C. In Europe, stakeholder groups consultations were held in Amsterdam, Brussels,Geneva, and London. The consortium invited approximately 143 stakeholders to participate in the consultation process; of these, 84 were consulted, the vast majority being NGOs andtrade unions. The remainder makes up a diverse group, including a number of government officials, representatives of international organizations, and commercial service providers.

Table F4 Supplier ConsultationsChina Honduras India Kenya

Group 8 (50) 1 2 (83) 1 1 (29)Interview 6 5 (15)

A total 177 suppliers were invited to participate in consultation; of these, 42 suppliers were consulted, of which 14 were agricultural suppliers and the remaining apparel suppliers.

Buyers: the term used for international companiesthat purchase goods from independently ownedsuppliers for sale in retail outlets. Many buyersrepresent prominent brand names or retail outlets,and are subject to various forms of pressure frominvestors, consumers, and civil society activists toprotect workers, the environment, and humanrights throughout their supply chains.

Multistakeholder Initiatives: Multistakeholderinitiatives are efforts that bring diverse stakeholderstogether around a set of agreed principles in the areaof labor, human rights, or the environment. Theseinitiatives vary in their mission, some focusing onshared learning around best practice and others withmore focused monitoring or certification programs.Examples include the Ethical Trading Initiative(ETI), Social Accountability International (SAI),

the Clean Clothes Campaign (CCC), and the For-est Stewardship Council (FSC).

Stakeholders: the term used for nonstate, non-business organizations, such as nongovernmentalorganizations and trade unions, which make up theoverwhelming majority of stakeholders consulted,but also international organizations such as theUnited Nations Children’s Fund (UNICEF). Theterm covers international, national, and local orga-nizations in industrial and developing countries.

Suppliers: refers to the suppliers that produce forbuyers or their subcontractors and intermediaries.In the apparel sector, suppliers are predominantlyfirst-tier suppliers, whereas suppliers in agricul-tural sector supply either directly to buyers or viacommodity auctions.

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This annex provides a summary of perspectivesand opinions offered by suppliers consulted in

the process of implementing this study and, as such,were not subjected to analysis by the consortiumthat was responsible for preparing the report. Theorganization of the annex follows the structure ofthe key challenges and their underpinning assump-tions as defined by the Bank Group in the Terms ofReference; please refer to these in annex A. Thestructure is designed to allow the reader to see howthe participants related to each of the outlined chal-lenges and underpinning assumptions.

OVERVIEW OF CONSULTATIONSThe NumbersThe consortium consulted suppliers in two indus-try sectors, apparel and agriculture, within fourcountries: China, Honduras, India, and Kenya.

In the apparel industry sector, participants weremade up of small and medium-sized suppliers. Allsuppliers could be considered first-tier suppliersdirectly interfacing with buyers. Most suppliershad experience implementing multiple codes for anumber of years. In general, those suppliers thatwere consulted were located in the proximity ofthe capitals of the respective countries. A total of28 apparel suppliers were consulted, 8 in China,and 10 each in Honduras and India.

In the agriculture industry sector, participantswere made up of small and medium-sized, as well

as large, international supplier companies. Forexample, one participant employed more than20,000 employees within a particular agriculturalindustry. Suppliers were predominantly tea sup-pliers; however, the group also includes suppliersof coffee and sugar. Most suppliers were relativelyinexperienced in working with codes. The con-sulted suppliers were in general located in theproximity of the capitals of the respective coun-tries. A total of 14 agriculture suppliers were con-sulted, 2 in Honduras,7 in India, and 5 in Kenya.

The table shows the number of participants in thevarious locations.

In general, suppliers were consulted by means of adedicated workshop that lasted four to six hours.The number of participants in each workshopranged from two to nine individuals. In Kenya, theconsortium carried out consultations as individualin-person interviews at the premises of the suppli-ers. This turned out as the only viable consultationmechanism. Also, in India, a number of tea sup-pliers were consulted in-person in an effort toincrease the number of participants. Some suppli-ers took advantage of the opportunity to provideadditional information through the secured webpage at www.worldbankstudy.dk, dedicated to thestudy and maintained by the consortium.

The main report provides a general description ofthe methodology employed to carry out the con-sultations, as well as the means of identification ofparticipants. It should nonetheless be stressed here

Summary ofSupplier Consultations

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69

Table A.1 Supplier ConsultationsChina Honduras India Kenya

Group 8 12 (2) 11 (2)Interview 6 (5) (5)

A total of 177 suppliers were invited to participate in consultations. The number in parentheses is the number of agricultural suppliers consulted in the individual countries.

A N N E X

that the consortium made a particular effort to pro-vide a setting that allowed participants to speakfreely and confidentially.

Overall Comments on ConsultationsOverall, consultations took place in a frank andengaging atmosphere in which suppliers pro-vided valuable input to the discussion on barriersand key challenges.

The consultations demonstrated that the familiar-ity with the issues at the heart of the study variedgreatly between the industry sectors and littlewithin the sectors. In general, suppliers in theapparel sector were quite experienced workingwith codes of conduct, whereas participants in theagricultural sector were much less experienced.While this has obviously impacted the quality ofinput provided from each of the consultationgroups, it is probably also quite reflective of thesituation in the respective industries, where codesare often seen as more problematic in the agricul-tural sector because of the predominance of smallproducers

Supplier consultations also showed that suppliersare finding it difficult to develop practical solu-tions to the challenges they are facing. Thisobservation applies equally to both industry sec-tors. While they acknowledged codes of conducthad become part of the business relationship theyalso tended to see codes of conduct as an addi-tional buyer requirement that just added to thealready unbalanced business relationship. Thismeans, in turn, that suppliers are seldom involvedin setting an agenda that shapes their own businessenvironment, which potentially has a great effecton their future business opportunities. In addition,and similar to many of the other consultationgroups, suppliers’ options and solutions to over-come the identified key challenges and barriers ingeneral implied efforts on the part of the otherstakeholder groups.

As suggested by the table above, overall, the num-ber of participants turned out to be fewer thananticipated. This is somewhat disappointing andeven surprising given that the approach of thestudy gave suppliers a pivotal role in influencingthe outcome of the study. However, the consor-tium did appreciate an overall feeling of survey

fatigue among many of the targeted participantgroups. This latter explanation would seem partic-ular relevant for the apparel sector, which, indeed,has been the subject of numerous surveys, researchstudies, and workshops over the past couple ofyears.

In the agricultural sector, the low turnout may beattributed to a number of different reasons, includ-ing (1) the lack of experience with codes of con-duct, (2) the inability of the consortium toreimburse participants’ costs of transportation andaccommodation, (3) the often uneasy relationshipbetween buyers and suppliers in that sector,36 and(4) the present depressed economic situation inseveral agricultural industries.

In sum, despite the lower than anticipated numberof suppliers in the study and many suppliers’ gen-eral difficulty in developing practical solutions tothe challenges they face, supplier consultations didprovide input of great value to the study.

KEY CHALLENGESOverall, suppliers agreed to the key challengesidentified by the Bank. However, throughout con-sultations, it remained difficult to ascertain thedegree to which these challenges were consideredserious to business development. Although a cer-tain feeling of powerlessness could be discernedamong suppliers, this may be attributable to thegeneral business climate and the overall nature ofthe buyer–supplier relationship than from thedirect burdens imposed by codes of conduct.

In general, suppliers appeared more frustrated andirritated than concerned with the new requirementsmade by buyers. The increased use of codes ofconduct comes at a time when the surveyed indus-tries, apparel and agriculture, experience increas-ingly difficult business conditions stemming inpart from overcapacity and depressed prices. Assuch, the requirements resulting from implemen-tation of codes of conduct—and the resultingcosts—are seen as yet another set of difficulties.

It is also noteworthy than only a few of the suppli-ers fully embraced the objective of implementing


36 In Kenya, this reason was offered for not wanting to speakin a workshop setting.

Summary of Supplier Consultations 71

codes of conduct, although many of them wel-comed most of the code provisions and evenclaimed they would have complied with thesewithout pressure from buyers. This may, of course,be a function of the above as well as the presentimplementation mechanisms of codes of conduct.However, most suppliers remained skeptical aboutthe real motives of buyers, seeing codes of conductas a tool of reputation management rather than astool for improving labor conditions.

Key Challenge 1: What Suppliers SaidOverall, suppliers agreed that Key Challenge 1 wasa barrier to improved implementation of codes ofconduct. The barrier was overall considered themost important of the three challenges outlined bythe Bank. Nonetheless, in general, suppliers did notperceive the barrier to be a significant challenge.The multiplication of codes and the resulting mul-tiple auditing was a source of friction and irritationas well as a source of increased costs. However, thekey issue appeared to be that of multiple codes gen-erating unnecessary costs and burdens rather thanthe scale of costs and burdens themselves.

Agricultural suppliers were less well positioned tocomment on the challenge since the consulted sup-pliers in general only worked with one or twocodes.

Inefficiencies and Confusion� Inefficiencies were recognized by all suppliers,

in both apparel and agriculture. Inefficienciesemerged as a result of multiple auditing, costsrelated to documentation, inconsistent docu-mentation requirements, management resourcesallocated to audits, documentation, and so forth.These costs were in general considered unnec-essary and unproductive.

� The source of inefficiencies was not necessarilya result of the number of codes—which gener-ally were perceived to be converging with regardto the content—but rather the inconsistentimplementation practices associated with codes.A common code would not sufficiently reduceinefficiencies as long as individual buyersdefined implementation practices.

� Confusion was recognized by all suppliers,although suppliers didn’t believe that the mul-tiplication of codes acted as a barrier to entry

for suppliers wishing to be proactive in address-ing CSR as a means of attracting or retainingbuyers.37

� Suppliers, however, agreed that confusion didarise as a result of the different implementa-tion practices of buyers. This was particularlynotable in the apparel industry where suppliersoften had to deal with varying, and at times con-flicting, implementation practices of more orless identical code provisions. While aspiring tothe highest standard often could solve the prob-lem of inconsistency, this wasn’t always thecase. In addition, some apparel suppliers arguedthat implementation practices varied accordingto the company and even the auditing individualconducting the auditing.

� The inconsistent implementation practices werea source of concern in particular when imple-mentation practices were conflicting. In thesesituations, suppliers were at loss as to what solu-tion to pursue. Although suppliers acknowl-edged that the examples offered may be minorand insignificant (the location of fire extin-guishers and first aid boxes were the most fre-quently mentioned examples), suppliers werenonetheless required to address the issue, includ-ing dealing with the ensuing follow-up audits,“red marks” in auditors’ reports, and so on.Apart from the frustrations, confusion, andinefficiencies this gave rise to, the greatestproblem was that suppliers risked being in non-compliance—and thus risked damaging thebusiness relationship.

� Confusion may not seem to be the proper conceptfor describing the challenges emerging as a resultof inconsistent implementation practices, since itimplicitly ‘blames” suppliers for the present situ-ation. Inconsistent implementation practiceswould appear to be a more appropriate term.

Underpinning Assumptions1a) Multistakeholder Initiatives: Overall, suppli-ers did not offer any particular perspectives rele-vant to the process of collaboration between themultistakeholder initiatives. In general, supplierswere not familiar with these initiatives, with the

37 It should be noted that all suppliers consulted had beenworking with one or more codes for more than a year, and fre-quently several years in the apparel sector.

exception of Kenyan agriculture suppliers, whowere familiar with the ETI.

1b) Code Convergence: With the exception ofHonduran apparel suppliers, suppliers in generalagreed that (labor) codes were very similar in con-tent. They also agreed that convergence was tak-ing place, and that differences in code contentwere insignificant. Suppliers were in general not ina position to equate labor codes with the provisionof relevant ILO conventions. Based on the experi-ences of suppliers and opinions offered, it cannotbe assumed that code convergence in itself willhave any significant impact on the experiencedinefficiencies and confusion.

1c) Human Rights and Environment: In general,suppliers had few if any experiences with environ-mental or human rights provisions in codes. Fewopinions were offered on the subject; however,those who did comment found it difficult to see howan environmental code could be developed.

1d) Not applicable.

1e) Standardization of Implementation Prac-tices: Across the board, suppliers believed thatstandardization of implementation practices waspossible. Standardization would have to be com-pliant with local laws and traditions. Suppliersgenerally favored a common code compliant withlocal law. This would seem to suggest that stan-dardization would have to be localized, although itmay be based on some common standards andprinciples.

1f) Risk of Lowest Common Denominator: Sup-pliers didn’t fear that consolidation and harmo-nization of codes would lead downwards to thelowest common denominator. In China and India,suppliers believed that the local laws in manyinstances offered a higher protection than that ofILO conventions. Moreover, suppliers believedthat buyers would not allow this to happen out ofreputation and risk management concerns. How-ever, many suppliers did favor a modular approachto compliance, starting out with basic require-ments. The present “system” does not allow fordifferent levels of compliance: “Either you arecompliant or not” (Indian apparel supplier). Sup-pliers, however, were not able to suggest whatwould be the starting point of a modular systemnor did they offer perspectives on how to gradually

move up the ladder. Nonetheless, suppliers wouldlike a more long-term, modular-based approach tocompliance.

1g) Business Risk Concerns: Not applicable.

1h) Role of Government: All suppliers agreedthat the government had a key role to play; how-ever, in all countries local authorities were viewedas inefficient and corrupt. In particular, agricul-tural suppliers in Kenya and India believed thatgovernment should assume responsibilities thatwere believed to be undue burdens on companies;these included the provision of healthcare services,school facilities, maintenance of physical infras-tructure such as roads, and so forth.

Industry and Country CharacteristicsThe consultations showed that overall suppliersare facing the same challenges, although country-specific and industry-specific issues did exist.

In general, on the basis of greater experience,apparel suppliers were better positioned to con-tribute to the discussion of the key challenge. Itwas also evident that the two industries are facingdifferent implementation difficulties. For instance,in the apparel industries in China and India, theoverriding implementation difficulty is that ofovertime and compensation. In the agriculturalindustries in India and Kenya (tea and coffee), oneof the greatest challenges is that of the provision ofvarious services for employees, including mainte-nance of infrastructure.

While many challenges cross-cut industries andcountries, it was nonetheless a shared view of mostsuppliers that any approach toward greater harmo-nization and consolidation had to take into accountthe local context, including local laws.

Key Challenge 2: What Suppliers SaidOverall, suppliers agree with Key Challenge 2;however, though they attribute less significance toit than Key Challenge 1. This may in part stemfrom the fact that Key Challenge 2 implicitly sug-gests that suppliers lack the skills necessary tocome into compliance. Few, if any, suppliersagreed that there was a supplier skill deficit thathad to be dealt with. Compliance was in generalviewed as a cost issue, and possibly an awarenessissue.



In addition, suppliers questioned the motives ofbuyers, arguing that buyers at the end of the daywere mostly concerned with their own reputationrisks than with seeing actual changes take place onthe ground. Most suppliers believed that codeswere being imposed, that insufficient consultationtook place, and that the business relationshiplacked equity. Some apparel suppliers bluntly con-fessed that compliance was perceived as a game ofevasion in which suppliers would prepare forannounced audits by cleaning up the factory place,instruct workers to wear protection equipment, andso on. Although suppliers generally believed codesto be fair, few if any of them embraced codes.Many others echoed a comment by one Indianapparel supplier: “If buyers would pay an addi-tional three cents per piece I’ll be in compliancetomorrow.”

Suppliers had mixed feelings about the involve-ment of unions and NGOs, although most agreedthat empowerment of workers was an objectiveworth pursuing.

The Bottom-Up Approach, Capacity Building, and Worker Empowerment� Top-Down versus Bottom-Up Approach:

Overall, suppliers believed that codes of conducthad been thrust upon them without any priorconsultation. This was a source of discontent. Inaddition, many suppliers expressed frustrationabout codes being altered without consultationor even proper notification of suppliers. OneIndian apparel supplier claimed that he onlybecame aware of changes to a code once audi-tors informed him he was noncompliant. In asimilar vein, suppliers complained about anoverall lack of equity, and that buyers were notsufficiently sensitive to the ground realities.

Most suppliers requested a real, in-person consul-tation between buyer and supplier. As of now, a lotof the communication takes place through compli-ance reports and auditors acting as intermediaries.This was frustrating, because it doesn’t allow sup-pliers to present their views to the buyer. Few ifany suppliers made requests beyond this. A regularconsultation with the buyer would also form thebasis for reaching agreement on the setting onobjectives for compliance. In addition, it was sug-gested that suppliers could convene to form a com-mittee that would negotiate with buyers.

The comments by many suppliers seemed to echoan overall feeling of powerlessness. This wouldprobably have to be seen in a broader contextreflecting the overall buyer–supplier relationship.

� Capacity Building: Few if any suppliers rec-ognized a need for capacity building. Whilesome agreed that training of workers could bebeneficial, this was not a theme that waspicked up by the majority. Suppliers choseinstead to focus on the need for capacity build-ing at the government and local authority’slevel, including local labor inspectorates.Inspectorates were in general not perceived tobe well trained in labor law and social/envi-ronmental regulations.

� Worker Empowerment: Suppliers recognizedthat efforts had to focus on workers. Apparel sup-pliers overall agreed that the general complianceawareness among workers needed improvement.Awareness campaigns could address issues suchas rights and information on the need for wearingprotective equipment and other means related tohealth and safety. However, one agricultural sup-plier argued that training should not be overem-phasized, as this would make it inherently moredifficult to retain the work force.

In general, suppliers did not believe that NGOshad any particular role to play, whereas opinionswere more mixed about the role of unions. Forinstance, unions were perceived to hold a keyrole in the Indian agricultural sector, whereasunions were not considered important in theunorganized apparel sector; it should be notedthat only approximately 5 percent of the Indianwork force is organized. In Honduras the role ofunions was perceived with some ambiguity byboth apparel and agricultural suppliers.

Underpinning Assumptions2a) Lack of Services to Support a Bottom-UpApproach: Since suppliers didn’t recognize a par-ticular need for new services or services related tocapacity building, the possible absence of such ser-vices was not recognized. One exception to thisgeneral observation was Indian apparel suppliers’recognition of the need to develop and share bestpractices among suppliers; suppliers believed com-mercial service providers or industry federationsshould carry this out.

2b) Organizations Best Positioned to Lead onCapacity Building and Empowerment Strate-gies: Some suppliers (apparel and agriculture)believed that unions could and should play a rolein training of workers; however, the role supplierswanted to afford unions did vary somewhat amongthe different countries with Honduran suppliersbeing the most negative about involving unions.Likewise, suppliers believed strongly that govern-ment had a key role in endorsing and not leastenforcing standards as well as providing varioussocial services. This was a sentiment sharedamong all suppliers with apparel suppliers empha-sizing the enforcement aspect and agriculture sup-pliers emphasizing provision of social (andeducational) services.

2c) Commercial Service Providers Shouldn’tProvide Capacity-Building Services: Suppliersdidn’t have any views on this except that they wereconvinced that any certification scheme had to beexecuted by commercial service providers.

2d) Public–Private Collaboration: Suppliers didnot welcome the idea that auditing reports shouldbe shared with local labor inspectorates. The latterwas generally seen as corrupt and inefficient, andsuppliers feared that access to auditing reportscould be misused by labor inspectorates. However,most suppliers agreed that local authorities had akey role to play in enforcing standards—a role thatis grossly neglected at present.

2e) Coordination Among Buyers Would Increasethe Level of Compliance: Suppliers did not explic-itly reflect on this; however, all suppliers welcomedincreased coordination among buyers in the processof code implementation. This should indicate thatsuppliers also believed that increased coordinationwould increase the level of compliance since a num-ber of inefficiencies and confusion would be reducedor potentially cease to exist.

2f) Initiative Fatigue: Only a few suppliersexplicitly referred to initiative fatigue. While ahandful of suppliers had participated in variousworkshops on codes of conduct, few of them par-ticipated in pilot projects or new initiatives. Thelack of engagement in developing options to over-come the barriers identified would seem not tostem from initiative fatigue, but, rather, to a gen-eral sense of powerlessness and inability to moveforward.

Key Challenge 3: What Suppliers SaidThe business case remains a disputed challengeamong suppliers. It goes without saying that allsuppliers recognized the business of compliance inthat it increasingly was a sine qua non for main-taining and securing business, although many sup-pliers did not believe that investments in CSRcompliance translated into new contracts. How-ever, suppliers did not agree on whether compli-ance with codes of conduct in itself was a sourceof business benefits, for example, via higher pro-ductivity, lower costs, fewer accidents, and soforth. The general picture would, however, seemto be one in which suppliers overall reject the ideathat CSR compliance in itself is good for business,except for isolated aspects of compliance.

Overall, Indian suppliers—in both apparel andagriculture—believed in the business case of com-pliance with codes of conduct; however, they gen-erally believed that the business benefits wereselective, related to particular aspects of compli-ance. For instance, they were convinced that com-pliance with local law on overtime was destructiveto business rather than beneficial to business,whereas they recognized some potential benefitsassociated with elements of health and safety reg-ulations. Still, most apparel suppliers justified non-compliance on cost considerations.

Meanwhile, Honduran apparel suppliers did notbelieve compliance created any business benefits.Similarly, Chinese apparel suppliers were skepti-cal about benefits associated with compliance.Agricultural suppliers in Kenya and India believedthat good working conditions were essential tomaintaining the work force as well as to the pro-ductivity of the work force; however, compliancewith codes of conduct went beyond this standard,requiring suppliers to provide a number of costlyservices to workers and communities.

Unresolved Tensions between Buyers’Requirements and Codes as Trade Barriers� Unresolved Tensions between Delivery Time

and Price and the CSR Requirements of Buy-ers. Most suppliers agreed this was the case,some stressing it as a serious challenge. Accord-ing to suppliers, the tensions were a result of lackof coordination between the different depart-



ments of buyers. Some suppliers also suggestedthat tensions were a result of buyers’ lack of realcommitment to CSR.

� Codes of Conduct As a Nontariff Trade bar-rier. Few if any of the consulted suppliers per-ceived CSR codes of conduct as a nontariff tradebarrier. In general, most suppliers saw codes ofconduct as a restatement of local law. Most sup-pliers recognized codes of conduct as a contrac-tual obligation, although a few did question theseriousness with which some buyers approachedthe issue.

Underpinning Assumptions3a) Not applicable.

3b) Tensions May be Resolved throughImproved Integration of CSR within SourcingPractices and Business Policies: Not applicable.

3c) A Credible framework for Analyzing Costsand Benefits of CSR: Without justifying this posi-tion in detail, suppliers remained skeptical overallthat it would be possible to develop a framework toanalyze the costs and benefits of CSR implementa-tion. Some suppliers suggested that the costs andbenefits were circumstantial and company specific.

3d) Increased Transparency May Support Busi-ness Benefits: Suppliers did not provide input tothe question of transparency. Asked directly, sup-pliers did support the idea that public procurementshould use CSR criteria. Since compliance wasgenerally seen as legal compliance, suppliers werenot convinced that government could set up incen-tive schemes.

3e) Lack of Critical Mass and CommitmentAmong Buyers: Several suppliers argued that buy-ers were not always committed to their codes. Fewif any suppliers had experienced loss of businessbecause of noncompliance. An Indian agriculturalsupplier argued that only a minority of sales wentto CSR-sensitive buyers in the West. Hence, sup-pliers could afford to lose these particular markets.Some suppliers did recognize that an increasednumber of CSR-sensitive buyers would push forcompliance; however, they were not convinced thiswould translate into improved implementation ofcodes.

3f) Western-Centric Codes: The point was rarelymade that codes were Western-centric or that they

were insensitive to local traditions. However, somesuppliers did believe that codes were not beingimplemented with due regard for local realities(however not local traditions or cultures). As men-tioned, codes were in general perceived as restat-ing local laws.

Other Key ChallengesIn general, suppliers in both industries did not pointto additional key challenges that should be addressedwithin the framework of the present study.

One notable exception to this observation would beagricultural suppliers’ insistence that full compli-ance would remain illusory unless government andlocal authorities assumed a greater responsibilityfor providing basic social services to workers andcommunities.

ConclusionsOverall, the consulted suppliers agreed with thethree key challenges. The following points shouldbe highlighted:

� Apparel suppliers believed that the multiplicationof codes, and in particular the inconsistent appli-cation of codes, acted as barriers to improvedimplementation. Suppliers argued that the presentproliferation of codes of conduct and the resultingduplicative auditing were both inefficient andconfusing. On the basis of observations made bysuppliers there is no doubt that greater coordina-tion among buyers or even consolidation andstandardization of codes of conduct would reducethe level of confusion and eliminate many of theexperienced inefficiencies. It would appear, how-ever, that suppliers would support coordination,consolidation, and standardization less out of adesire to see labor conditions improve and moreout of a wish to see costs related to CSR compli-ance come down. This would seem to indicatethat unless the business case is firmly establishedand accepted by suppliers, suppliers would stillfar from embrace implementation of codes ofconduct.

� Agricultural suppliers were as yet inexperiencedin working with codes, yet alone multiple codes.However, all suppliers envisioned increasedcosts and friction if they had to work with mul-tiple codes.

� Suppliers did not see the number of codes ofconduct as the real problem. The real problemwas inconsistent implementation of codes thatoften left suppliers in situations with conflictingobligations. There is undoubtedly merit to theseconclusions; however, the extent to which theinconsistent implementation of codes is a sourceof real challenge may be questioned. The exam-ples offered by suppliers—location of first aidbox and fire extinguishers—would seem to indi-cate that the nature of the problems is sur-mountable even in the short run. However, itcannot be underestimated that the inconsistentimplementation practices add to the increasedlevel of frustration experienced by suppliers aswell as serve to ridicule the requirements madeby buyers.

� Suppliers generally perceived codes of conductas something that had been thrust upon themwithout any prior consultation. Many suppliersresented the top-down approach by buyers;however, suppliers didn’t recognize the under-lying assumption that noncompliance and inad-equate implementation of codes were partlycaused by skill deficits on the part of suppliers.Rather, suppliers believed that the top-downapproach had to be supplemented by direct con-sultations between suppliers and buyers ratherthan working with auditors as intermediaries.This would seem to indicate that suppliers don’tsee noncompliance as an issue that has to betackled through changed work practices, newmanagement techniques, and so forth. Rather,(non)compliance is viewed as a cost issue.According to suppliers, the challenge of the top-down approach within the overall business rela-tionship is the domination of buyers. The use ofthe concept of “equity” would seem to supportthis observation.

� In general, suppliers remained mixed about thebusiness benefits of CSR compliance, arguingthat certain, selective elements of CSR compli-ance did generate business benefits. However,attitudes and comments by suppliers tended tosupport a view of CSR compliance as a factorthat had to be added to the cost side with littleleft on the benefit side.

� Suppliers agreed that buyers were not success-ful in coordinating their CSR-requirementswith requirements on delivery time and price.

This remained a challenge that buyers had towork with.

OPTIONS AND SOLUTIONSOverall CommentsOverall, suppliers did not contribute greatly to thedevelopment of options and solutions to the iden-tified barriers and key challenges. This was partic-ularly true with Key Challenges 2 and 3.This maybe explained by a number of factors:

� Many suppliers are caught by a feeling of pow-erlessness that makes a poor starting point forengaging in constructive discussion on devisingways forward.

� Most suppliers tend to see the identified barriersand key challenges as being caused by thebehavior and practices of buyers (and govern-ment); hence, it is up to buyers (and govern-ment) to identify and implement solutions.

� Many suppliers work on (such) narrow marginsthat don’t leave much room for engaging in dis-cussions on finding solutions. Moreover, suppli-ers are generally not used to working with otherstakeholders or engaging in public policy matters.

� Finally, suppliers remain skeptical about work-ing with competitors, thus depriving themselvesof the opportunity to engage with like-mindedsuppliers facing similar challenges.

This being said, suppliers, in particular apparelsuppliers, did propose ways forward to several ofthe identified key challenges and barriers. The rel-ative inexperience of agricultural suppliers may inlarge part explain why this group didn’t contributein any substantial way to the discussion on optionsand solutions.

Key Challenge 1In respect to Key Challenge 1, many suppliers inthe apparel sector welcomed the idea of a commoncode. Most suppliers initially believed that a com-mon code should be aligned with, although notsimilar to, the local legislation. Along these lines,many suppliers believed that a code should leaveroom for multiple levels of compliance (that is, amodular approach); however, they did not com-ment on how this would comply with a code basedon legal requirements.



The concept of a base code (or framework code)was put on the table a couple of times, without,however, any concrete suggestions as to whatshould make up the base. The UN and the ILO con-ventions were suggested as a source for a basecode. Most suppliers rejected the idea of a com-prehensive universal code although they couldenvision a universal base code based on relevantUN conventions.

Apparel and agricultural suppliers in India pro-posed certification as a way forward. This groupwas unfamiliar with the SA8000 and as such wasunable to relate to the merits of that particularscheme. Frequent references were made to ISOstandards, and suppliers believed commercial ser-vice providers should carry out that certification.

Apparel suppliers generally stressed that the imple-mentation of codes should be standardized, that is,implementation guidelines should be standard-ized. In addition, some suppliers also believed thatmonitoring procedures and the qualifications ofmonitors had to be harmonized.

Buyers should accept each other’s audit reports—and even share audit reports on a systematic basis.

Key Challenge 2Few solutions were tabled in reference to the chal-lenges identified in respect to Key Challenge 2.Many suppliers were frustrated that they were notable to communicate directly with buyers; hence,suppliers proposed to establish more direct lines ofcommunication between buyers and suppliers onCSR issues. Buyers should employ a partnershipapproach.

Some suppliers recognized the need for a morecooperative approach among suppliers. Supplierslacked a forum to discuss CSR issues, and suppli-ers should work together on addressing some of thechallenges posed by CSR requirements. Local foracould be established. This could also help suppli-ers address certain laws considered obsolete orirrelevant.

Suppliers generally wanted longer-term businessrelations as well as compensation for investmentsin CSR, for example, via more orders, more stableorders, and so on.

Some suppliers believe they should be financiallycompensated for investments resulting from buyerrequirements.

Indian apparel suppliers acknowledged the needfor raising awareness among workers and fellowsuppliers. Unions, governments, and suppliersshould undertake this jointly. Buyers and donorscould contribute financially to these activities.

Capacity building was required on part of govern-ment and local authorities; however, suppliersweren’t explicit about the nature of capacity-build-ing activities required. In addition, buyers shouldwork with governments.

Key Challenge 3Buyers should improve their intracompany coordi-nation to balance sourcing and CSR requirements.

This annex provides a summary of perspectivesand opinions offered by buyers consulted in

the process of implementing this study and, assuch, were not subjected to analysis by the con-sortium that was responsible for preparing thereport. The organization of the annex follows thestructure of the key challenges and their underpin-ning assumptions as defined by the Bank Group inthe Terms of Reference; please refer to these. Thestructure is designed to allow the reader to see howthe participants related to each of the outlined chal-lenges and underpinning assumptions.

OVERVIEW OF CONSULTATIONSThe NumbersThe consortium consulted buyers in two industrysectors, apparel and agriculture, in several loca-tions: Hong Kong, China; Delhi, India; London,United Kingdom; and New York and San Fran-cisco, United States. In addition, the consortiumconducted individual interviews with buyers basedin Europe and the United States in instances wherescheduling conflicts prevented invitees fromattending group consultations. Consultations tookplace in May to July 2003.

The table below shows the number of participantsin the various locations.

In general, buyers were consulted by means of a ded-icated workshop that lasted four to six hours. The

number of participants in each workshop rangedfrom 7 to 23.

A general description of the methodologyemployed to carry out consultations as well as themeans of identification of participants are pro-vided in the main report.

Overall Comments on ConsultationsOverall, consultations took place in an open andhonest setting in which buyers expressed theirviews fully. Many buyers expressed or supportedthe view that “the time was right” for this study,and that they wished to see changes made to thearchitecture in which efforts to integrate CSR intosupply chain relations took place. Many expressedthe desire to understand more fully what theBank’s goals were with respect to these issues.

As in other areas of the consultations, experiencewith buyers’ consultations revealed greater famil-iarity in the apparel industry than in agriculturewith the issues at the heart of the study. With theexception of the London convening, the meetingswere better attended by apparel buyers than byagricultural buyers. The consortium believes thatthis is because of greater familiarity, greater atten-tion to the issues, and a longer track record ofaddressing the issues in the apparel sector. In gen-eral, suppliers in the apparel sector were quiteexperienced in working with codes of conduct,whereas participants in the agricultural sector

Summary of Buyer Consultations

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Table B1 Buyer ConsultationsSan Francisco New York London Hong Kong, China New Delhi

Group 8 7 8 24 7Interview 5 6

The consortium invited approximately 160 buyers to participate in the consultation process; of these 60 apparel buyers and 8 agricultural buyers were consulted in course of the study.

A N N E X

appeared much less experienced. While this hasobviously impacted the quality of input providedfrom each of the consultation groups, it is proba-bly also quite reflective of the discussions ongoingin the respective industries. In addition, the decen-tralized nature of apparel sourcing means that buy-ers are more attuned to the need for developingbroad solutions, given that many of them havecome to understand directly the inherent limita-tions of individual approaches.

The distribution of buyers consulted through thisprocess both does and does not represent an accu-rate cross-section of buyers. First, we noted a self-selection process through which the buyers that aremost engaged in addressing the issues involved inthe study were the most likely to step forward. Thisresulted in a filtering out of those buyers that arenot yet engaged or uninterested in addressing theissues at hand. Second, more companies based inthe United States and the United Kingdom werewilling and able to step forward to participate.Third, the buyers consulted represented partici-pants in most or all of the major multistakeholderinitiatives (for example, SA8000, ETI, FLA), aswell as numerous companies that have chosen notto participate in any of these initiatives.38

In the consortium’s opinion, buyers’ views reflecteda changed perspective from that which manyvoiced a few years ago. There was broad accep-tance of the value of partnering with civil societyorganizations; a broadly stated interest in grassroots solutions, such as greater “ownership” ofCSR by suppliers; acceptance and eagerness toidentify ways to empower workers; and recogni-tion of the need to have greater local governmentenforcement of local laws.

There also was a divergence of views betweenbuyers’ representatives at headquarters andthe local level. The experience of implementingbuyers’ compliance policies at the local level ledlocal staff to somewhat different perspectives fromthose of their colleagues at headquarters. Indeed,the strong presence of extensive local staff dedi-cated to CSR work reflects a fundamental change

in approach by apparel buyers in recent years, andthere are vibrant networks of such staffs in HongKong, China and India. No such development isevident in the agriculture sector.

In summary, the general feeling of the consortiumis that buyers, especially those in the apparel sec-tor, are prepared to adjust their approach to CSR insupply chains to achieve greater, more cost-effec-tive, and more sustainable improvements.

KEY CHALLENGESOverall, buyers agreed with many, but not all, ofthe points raised in the key challenges articulatedby the Bank, and did so to widely varying degrees.In general terms, buyers did not agree that the pro-liferation of different codes themselves presentedthe most significant barrier to implementation,instead stating that the variances in implementa-tion were the real duplication and inconsistencyproblem. Still, many buyers were not convincedthat these problems were real barriers to imple-mentation of social and environmental standards atthe supplier level.

Buyers did conclude that the top-down approachwas a problem that needed to be addressed, point-ing in general to the need for capacity building at thelevel of suppliers and local government, workerempowerment, and more collaborative effortsinvolving civil society, including trade unions. Buy-ers generally observed that the present system ofimplementation had been stretched to its limits, notholding much promise for further improvements inimplementation of codes of conduct. Some buyers,however, noted that they had been forced to takethis approach because of suppliers’ unwillingness toacknowledge social issues as being important. Morethan one buyer expressed frustration at having toencourage or require their suppliers simply to com-ply with local laws.

In terms of the business benefits of addressingCSR, opinions varied. Many buyers noted themixed messages sent by their own companies,with CSR staff sending clear messages about theimportance of compliance, while their own col-leagues from merchandising often emphasizingpurely commercial considerations in selecting sup-pliers. Many buyers’ representatives acknowl-edged that this makes it more difficult for suppliers


38 A number of buyers declined to participate in the study ref-erencing their participation in several other ongoing studiesand surveys.

Summary of Buyer Consultations 81

to perceive business benefits resulting from a vig-orous approach to CSR. In addition, a number ofbuyers were themselves skeptical about the poten-tial business benefits associated with the imple-mentation of good CSR practices. Other buyers,however, felt that the basic principle of conductingbusiness lawfully should be sufficient incentive forsuppliers.

Key Challenge 1: What Buyers SaidBuyers did not in general view the number of dif-fering codes to be a substantial problem, insteadviewing the variations in interpretation and appli-cation to be the most significant issue. In fact, someof the buyers consulted actually took the contraryview, and noted that the duplication of effort wasbeneficial, in that repeated efforts were necessaryto sensitize suppliers to the importance of address-ing code-related issues. At bottom, however, buy-ers expressed the view that in the majority of cases,codes had the main practical impact of restating theneed to comply with applicable local laws. Buyersdid acknowledge, however, that because of themessages provided by monitors in particular, sup-pliers might view this issue differently.

Agriculture buyers were less engaged in this dis-cussion because the number of codes in that sectoris lower than in apparel.

Inefficiencies and Confusion� There was some recognition of inefficiencies,

including duplication of monitoring, but for themost part buyers did not view this as being theprimary source of difficulty in enforcing appli-cable provisions.

� Confusion was, however, acknowledged, particu-larly in the realm of implementation practices.This arose in terms of differing implementationguidelines established by buyers, differingapproaches to local law, and different approachesand interpretations by monitors.

� In Hong Kong, China, one participant estimatedthat codes were 80 percent the same as stated bybuyers, but that monitors might apply them insuch a way as to make suppliers see only 50 per-cent similarity. More than one buyer also opinedthat suppliers might seek to exploit relativelysmall differences to avoid the broader questionof full compliance.

Underpinning Assumptions1a) Multistakeholder Initiatives: Overall, buyersdid not frequently reference the multistakeholderinitiatives, even though many of the buyers con-sulted were participating in one or more of theseefforts. When referenced, they were generally ofthe opinion that these initiatives could contribute togreater harmonization; however, this was not asubstantial theme of the discussions. Those whodid express views on the subject encouraged thenotion that the multistakeholder initiatives couldand should contribute to harmonization/conver-gence. Some buyers expressed the view that indus-try-specific codes contribute to this goal. Note alsothat some buyers expressed the concern that har-monization could contribute to the unintended con-sequence of lower standards.

1b) Code Convergence around ILO Conven-tions: Those buyers who expressed an opinion onthis topic noted that most codes were already basedon ILO conventions and local laws. It was not clearfrom the consultations that buyers saw furtherwork in this direction as being a high priority.

1c) Human Rights and Environment: Few buy-ers saw additional human rights principles (apartfrom labor rights) as being a likely area of futuredevelopment of codes. Similarly, few opinionswere expressed on environmental standards, likelyowing to lower levels of experience with such sub-jects among those consulted.

1d) Effect of Multistakeholder Initiatives: Asnoted above, these did not factor into the discus-sion to the degree that might have been expected.It should be noted that, along with the older andmore widely known initiatives, three industry sec-tor initiatives, the FCD-France, AVE-Germany,and International Council of Toy Industries initia-tives received some mention, generally positive,from buyers’ firms participating in them. These arenot multistakeholder initiatives in that they involveprimarily industry participants.

1e) Standardization of Implementation Practices:The assumption that divergences multiply within andbetween companies was supported by the consulta-tions with buyers. There was no consensus aboutwhether this would be desirable or meaningful. Somenoted that even harmonization of implementationwould not lead to desired results because if compa-

nies continued to respond to monitoring findings dif-ferently, that would perpetuate a de facto differencein approach. That said, buyers remained inter-ested in further attempts at harmonization, whichis addressed in the section on emerging options.

1f) Risk of Lowest Common Denominator:Concerns about this issue were raised in severalcases, although the prevailing view was that ILOand local legal provisions would remain the basicbenchmarks. Buyers’ representatives working inChina and India noted the strong view that locallaws were unrealistic and very difficult to apply aswritten. In India, the laws were viewed by many asanachronistic, and in China they are widelyviewed as being completely out of step with exist-ing practice.

1g) Business Risk Concerns: Buyers stated theirwillingness—and in some cases a strong desire—to see further consolidation, although some notedongoing concerns that sharing responsibility forapplication of codes could not be implemented tothe degree that brand protection was entirely out-sourced to others. Buyers also expressed a lack ofconfidence in monitors, such that this couldundermine confidence in a shared responsibilitysystem. One buyer suggested that his companywould be interested in a system in which buyersjointly sourced an audit, but would not accept asystem based on blind sharing of monitoringresults.

1h) Role of Government: Buyers generallyfavored a stronger imprint by governments. Sev-eral years after buyers have undertaken to addresscode-related issues, there is a general fatigueamong many buyers, and a sense that they havegone as far as they can without a more vibrant pub-lic sector role in enforcing labor laws. Many“brands” (see explanation below) noted that theycould be effective only where government is play-ing its proper role. As was noted in the summaryof the London buyers’ convening: “All partici-pants believed that lack of government capacity inenforcement, training and capacity building wasthe key source of codes of conduct; and itremained the key barrier to improved implemen-tation. Codes of conduct could not in the long runaccomplish that which was the responsibility ofgovernment. Government was ultimately the keyplayer. Some participants believed that this should

mean greater focus on compliance with local leg-islation as a first step.”

Industry and Country ParticularitiesAs noted above, apparel buyers were moreengaged in the debate than agricultural suppliers,and buyers’ local staffs tended to look more tacti-cally at issues, while headquarters-based stafftended more often to look for structural solutions.

In addition, there is a divide in some cases betweenmass retailers and “brands,” representing a smallernumber of product lines. Retailers appeared insome cases to look at a broader system that couldprovide a clear framework for action, while brandstended to think more about innovative models toimprove current systems. Another critical variableis the size of the sourcing base for a given buyer,because the nature of the relationship with suppli-ers, and the degree of resources needed to makeprogress, will vary substantially according to suchquestions.

Key Challenge 2: What Buyers SaidBuyers generally agreed that a top-down approachhad characterized efforts to date, although India-based buyers’ representatives did not agree withthis statement. Those viewing the system as beingtop down believe that opposition to change bysuppliers had necessitated this approach. Most—but not all—buyers expressed the desire to see thetop-down approach change, stating the oft-expressed view that “the current system is not sus-tainable,” and some buyers described currentefforts to do just that. Some noted that until “thehearts and minds” of suppliers changed, this goalwould not be fully realized.

In summary, buyers agreed with the statement ofthe challenge as articulated by the Bank, butwished to add that the top-down approach mayhave been necessary at one point, even if its limi-tations are now more widely recognized.

In at least one buyers’ convening, the view wasexpressed that the very concept of a top-downapproach makes incorrect assumptions, in that itassumes a two-way relationship, between buyerand supplier, when in fact the most progress can bemade through a more multidimensional web ofrelationships, involving government, workers and



their representatives, civil society, and others inaddition to buyers and suppliers. It is also worthnoting, however, that in another convening theconsensus view was that the best approach is not toremove the top-down approach, but instead to shiftit, from buyer–supplier to government–supplier.

One important caveat in this section is that Chinaand India-based buyers’ representatives tended toreflect very different views, and greater skepticismabout this issue than did their colleagues at head-quarters level. In India, buyers’ representatives didnot accept fully the view that compliance had beena top-down matter, while in China there was littleconfidence that an alternative to a top-downapproach would work.

The Bottom-up Approach, Capacity Building, andWorker Empowerment� The Top-Down Approach Has Been But-

tressed by Monitoring: The opinions expressedon this issue tended to concur with this point.Most participants from the various buyers’ con-venings noted that too many suppliers take theview that their primary goal is to pass audits, andthat what happens in between audits is of lessimportance. It is noteworthy that buyers, whichestablished this system, have acknowledged theshortcomings of the approach. As the consor-tium has noted throughout the project, most con-stituencies have not tended to focus on their ownrole in creating systems and approaches thathave not worked to maximum effect.

� Achieving Empowerment Strategies: Buyersoften noted the value in developing newapproaches that would involve a wider array ofparties. This principle was stated in the U.S. andEuropean buyer consultations, and honored inthe breach by the recognition in the Hong Kong,China, convening that weaknesses in civil soci-ety and free trade unions in China could hampersuch efforts there.

� Conflicts of Interests by Monitoring Firms:While concerns about an overreliance on moni-toring were stated frequently, few addressed thequestion of whether commercial monitoringfirms could or should offer capacity-buildingservices, and whether this would create a con-flict of interest.

� Creating Public–Private Partnerships: Thissubject did not arise frequently in the convenings

either. While there was strong interest in gettinglocal governments more engaged, the notion ofsharing information with public sector entities, assuggested in the assumptions of the Terms of Ref-erence, generally was not addressed explicitly.

� Coordination among Buyers: This topic arosefrequently and positively, although more oftenin the discussion of emerging options than keychallenges. We will therefore address this topicin greater detail in that part of the report.

� Initiative Fatigue: While not addressed explic-itly, the consortium received the sense that thisis a factor in the thinking of buyers. Concernsexpressed about the speed with which the multi-stakeholder initiatives might proceed reflect thesense that individual institutions might haveinternal constraints that could limit the imple-mentation of approaches proposed through thisstudy.

n Generating Support for the Bottom-UpApproach: At the outset, it should be noted thatnot all buyers agree that this is the proper goal.Perhaps because of this, there was little discus-sion about how to generate additional supportfor the bottom-up approach, often referred to as“ownership” by suppliers and workers for inter-est in addressing CSR. The discussion that didensue took note of the widespread supplier dis-satisfaction with the current system. In this dis-cussion, the divide between top management ofsuppliers and middle, or line management, wasnoted as a barrier. Many buyers have come tobelieve that the owners of suppliers’ businessesunderstand the imperative to address CSR, butthat this message does not get communicatedeffectively to line management, where both thegreatest problems and opportunities exist.

It should also be noted that China-based buyers’representatives did not see a top-down approach asbeing problematic. Instead, there was a widespreadview that the top-down approach should shift itsemphasis from buyers to the government in enforc-ing standards.

� Capacity Building: Many of the buyers’ repre-sentatives view capacity building as an impor-tant part of the solution going forward, and somehave engaged in such efforts. There is a desire tosee capacity strengthened in a variety of institu-tions and constituencies, with workers, govern-

ment, and factories’ line management receivingthe most frequent mention.

� Worker Empowerment: This issue is ofincreasing interest to brand representatives atheadquarters. China-based buyers’ representa-tives did not share the enthusiasm for this con-cept, concluding that the vast oversupply oflabor, and the predominance of migrant labor, inChina will counteract any effort to empowerworkers, since the workers will conclude that therisks of acting on their rights will be too great.

Key Challenge 3: What Buyers SaidBuyers’ representatives had extremely mixed opin-ions on whether business benefits of addressingCSR were (a) present, and (b) well understood.Opinions ranged from not seeing business benefitsto seeing them mostly through anecdotal evidenceand pilot projects, to seeing growing acceptance bysuppliers that they exist. Many buyers’ representa-tives noted that there was no extant methodology foranswering this question in a comprehensive andmethodologically rigorous manner. Some buyers’representatives volunteered the view that CSR actu-ally could make suppliers less competitive becauseof the costs incurred.

It was fairly widely agreed that maintaining busi-ness with buyers was a primary business benefit,though many in referring to this benefit concludedthat it was not sufficient to change suppliers’ per-spectives to be more proactive.

Buyers also acknowledged that price pressures anda lack of long-term commitment by buyers tomaintain business with their suppliers couldundermine the business case for CSR.

Some buyers’ representatives noted that “short-termism” affected the decisionmaking of manysuppliers, and that this presented a challenge todemonstrating the business benefits of CSR, giventhat the costs are often incurred at the outset, andthe benefits delivered later. This view wasexpressed in both buyers’ convenings in exportingcountries (that is, China and India).

� Tensions between CSR and Purely Commer-cial Criteria: Buyers widely agreed with theassertion that their companies sometimes sendmixed messages to suppliers about the relative

importance of CSR and traditional criteria formeasuring supplier performance (price, quality,timely delivery, and so forth). At least one buy-ers’ representative noted that some suppliers “goshopping for the answer they want,” suggestingthat suppliers manipulate the mixed messagesthey receive from buyers to justify their actionsand shift responsibility to buyers. Whatever theresult, all buyers’ representatives touching on thisissue agreed that the mixed messages were aproblem. The discussions with buyers’ represen-tatives did not support the view that a disparity insophistication somehow led suppliers to acceptterms of trade that they did not understand.Rather, buyers are often of the opinion that sup-pliers will accept orders and then determinewhether they can fulfil them in a manner consis-tent with codes and applicable laws.

� Codes As Nontariff Trade Barriers: Thisissue did not arise directly in the dialogue.However, from the perspective of buyers’ rep-resentatives consulted, this view does not seemlikely to play a critical role in the debate. Mostbuyers’ representatives stated the view thatcodes essentially applied local laws, and anycriticism of standards was directed by India andChina-based buyers’ representatives, whofound local laws to be unrealistic. The link toglobal trade was not generally made, with theexception of discussion of the impact of theplanned phasing out in 2005 of the quotas asso-ciated with the Multi-Fibre Agreement.

� Transparency Supporting Recognition of theBusiness Case: This idea was not raised in theconsultations, and it is possible to infer opposi-tion to this assertion given the skepticism ofwhether, and to what degree, the business caseexists from the perspective of suppliers.

� Lack of Critical Mass of Buyers: This viewwas widely supported in the buyers’ consulta-tions. It is another element of the mixed mes-sages suppliers receive from the market.

� Perception That Codes Are “Western-centric”: This did not arise frequently in buy-ers’ consultations; however, this may be under-standable as the participants in these dialoguesrepresent Northern organizations that estab-lished the codes. While not coming out in pre-cisely this language, some wondered whetherthe standards are always beneficial to workers.The case of overtime was cited: many workers



seek overtime to help them make ends meet.Also cited were basic needs issues for workers,which are not sufficiently addressed in thesechallenges. When faced with lack of drinkingwater or sufficient housing, how important is theimplementation of seemingly unrelated policiesto a worker?

Other Key ChallengesIn addition to the challenges and underlyingassumptions established in advance of the projectby the Bank, buyers’ representatives raised otherissues in the course of the consultations. Theseadditional barriers included:

� Global Governance: In addition to the questionof local government action, some noted the lackof institutional accountability for dealing withthe root causes of these issues, including theWTO, Wall Street, the U.S. government, andmultilateral organizations.

� Consumers: Some participants questioned thedegree to which consumers are willing to pay forcompliance, despite polling evidence that theywill. The influx of low-cost, discount retailerspushed competition and forced other retailers tobecome more cost sensitive. Consumers wereresponsible for this development.

� Lack of Benchmarking Information: Someparticipants cited the absence of credible dataand methodology to evaluate and track trends ofcompliance.

� Supply Chain Management: Some partici-pants also cited the complexity of their supplychains as hampering efforts to ensure good prac-tice. A number of participants believed that thesheer challenge of improving labor conditions inthe entire supply chain was a barrier in itself, inparticular when discussions focused on subcon-tractors and home-workers. In addition to this,participants pointed to the present difficult eco-nomic business climate and the costs of workingwith auditing and monitoring, and so forth.

� Inconsistent External Pressure: The view alsowas expressed that the uneven and inconsistentnature of external pressure led to a disparity inthe way a company or industry felt they neededto act. For example, in the United States, agri-cultural companies have felt relatively less pub-lic pressure, creating less internal incentive for

action. In addition, it was noted that to the degreethere is a correlation between participation in ini-tiatives and their perception of increased publicrisk, this is a disincentive for action.

OPTIONS AND SOLUTIONSOverall CommentsThe buyers’ representatives participating in the con-sultations proposed a broad range of options. Someof these options were presented in direct response toone of the key challenges described, but most ofthem developed out of the comprehensive sense ofthe issues as understood by participants. A summaryof the most frequently cited options presented in thebuyers’ consultations is as follows.

� Affecting Local Government: Most of the par-ticipants advocated the strengthening of localgovernments’ willingness and ability to play aconstructive role. Details about how this wouldhappen were not widely forthcoming in the dis-cussions, but there was wide agreement that thegoal was worthy. Some suggested that progresscould be made, including in China, via “state-to-state pressure” or multilateral agencies thatcould advocate for better enforcement andengagement.

� Legislation in Buyers’ Home Countries: This isneeded to hold companies responsible for whereand how they source. (Earlier comments weremade about “free riders,” or companies that donot pursue CSR because they are less scrutinizedby the public.) Deterrents at the consumer end,such as a consumer act for responsible sourcingare as important for CSR implementation asdeterrents at the sourcing end.

� Assessment and Allocation of Costs: Furtherstudy of the true costs and benefits of adopting arobust approach to CSR would greatly benefit thiseffort, given the lack of reliable information avail-able currently. In addition, the costs of CSR imple-mentation should be divided among all actorsinvolved: buyers, suppliers, and government.

� Intangibles—An Environment of Trust: Cre-ate an environment of trust that allows balancingCSR with commercial business requirements.

� Worker Awareness: Efforts should try to cre-ate more worker awareness and conditions forthem to express or demand their rights.

� Supplier Capacity Building: Efforts to furthersupport the development of supplier expertiseand commitment to achieving better perfor-mance on CSR are essential.

� Harmonization: Buyers’ representatives pre-sented differing views on the wisdom of seek-ing to harmonize standards. Some saw this as anessential part of the solution, while others ques-tioned the utility of such a step, noting again theimplementation challenges. Strong interest wasexpressed in this potential solution in somelocations where we conducted consultations,and in India for example, the suggestion of seek-ing local cooperation, rather than comprehen-sive solutions at headquarters level, wasstrongly supported.

� Approaches Other Than Compliance: Asmany participants identified the compliancemindset as one of the barriers to progress, somesuggested ways to transcend compliance as the

model for obtaining progress. For example, itwas suggested in India that progress bench-marks could be developed, as part of a develop-mental approach.

� Educating Suppliers: Some suggested theneed to provide additional education and train-ing about good CSR practices.

� Deeper Into the Supply Chain: A future goalwould be to impact more factories throughoutthe supply chain, although many buyers backedaway from taking on this challenge, noting thesheer scale and scope of the challenge and theefforts required.

� Environmental Issues/Legal Liability: Buyersneed to also consider environmental impacts. Forexample, just as happened in the United Statesand Europe, there might be unanticipated liabil-ity and the costs of cleanup might go to the com-pany with the “deepest pockets,” which in somecases might be the brand rather than factory.


This annex provides a summary of perspectivesand opinions offered by stakeholders con-

sulted in the process of implementing this studyand, as such, were not subjected to analysis by theconsortium that was responsible for preparing thereport. The organization of the annex follows thestructure of the key challenges and their underpin-ning assumptions as defined by the World Bank inthe Terms of Reference; please refer to these inannex A. The structure is designed to allow thereader to see how the participants related to eachof the outlined challenges and underpinningassumptions.

OVERVIEW OF CONSULTATIONSThe Numbers The consortium consulted stakeholders in Europeand the United States, as well as in four exportingcountries: China, Honduras, India, and Kenya. Fourcategories of stakeholders took part:

1) Intergovernmental organizations

2) Multistakeholder initiatives

3) Local and international trade unions

4) Local and international NGOs, representinghuman rights, labor, and environmental interests

The table below shows the number of participantsin the various locations.

Stakeholders were consulted by means of work-shops as well as in-person interviews.39 Where like-minded groups could be assembled, and where it

was clear that dialogue would be enhanced ratherthan hindered by their common perspective, thestakeholder consultations were conducted in work-shops of four to six hours, ranging from 2 to 11participants. Individual interviews were conductedin situations where the stakeholders were believedto hold a unique and highly specialized perspec-tive, or where it was believed that the stakeholderswould not be able to speak freely in a group setting.Interviews ranged from 1.5 to 3 hours. In particular,representatives from all participating intergovern-mental organizations were interviewed individu-ally. Several representatives of international tradeunion federations were also consulted on an indi-vidual basis. Consultations with NGOs and multi-stakeholder initiatives were typically conducted ingroup workshops.

With the exception of Honduras, the overall num-ber of stakeholders participating in the study wasextremely good, possibly reflecting the interestthat wider civil society holds in the issue of CSRimplementation. In Honduras 24 stakeholderswere invited, but only 2 attended.

Overall Comments on Consultations All stakeholders were engaged and open in dis-cussing their views, and the dialogues in work-shops as well as interviews flowed naturally. Assuch, we believe the views of each stakeholdergroup were fairly and accurately represented.

Some participants clearly had more experience inworking with companies (both buyers and suppli-ers) on the development and implementation ofcodes of conduct and were able to immediatelyenter into the discussion of the key challengesposed by the study. Others, who were not as famil-iar with these issues, tended to focus more on the

Summary of Stakeholder Consultations

F

87

39 The methodology for selecting the stakeholder participantsand for conducting the individual interviews and group work-shops is explained in chapter 1 of the report.

A N N E X

larger economic and societal factors that set thecontext for any initiative to improve worker wel-fare. Although the latter group of stakeholderswere less knowledgeable about codes of conductand the intricacies of the buyer–supplier relation-ship, they nonetheless offered a fresh and valuableperspective on the key challenges and the assump-tions underpinning them, as well as the broaderissues of the study.

In a few cases, most international trade unions dis-agreed so profoundly with what they saw as thebasic premise of the study, namely that codes ofconduct could be an instrument to improve work-ing conditions, that it proved impossible to initiatea focused discussion on the key challenges andoptions for overcoming them. The discussion inthese cases tended to focus on the role that gov-ernment should play in strengthening rights pro-tection under national law and on the flawsinherent in the international economic system as awhole.

The consultations demonstrated that stakeholdershad difficulties in developing practical and novelsolutions to strengthen CSR implementation inglobal supply chains. On the whole, participants

were less inclined to discuss options, and whenfacilitators attempted to steer the discussion in thatdirection, participants tended to raise new problemareas, or barriers, rather than solutions. Therefore,it proved difficult to use the dynamic of the work-shop setting to assess the feasibility and viabilityof the options presented. No single set of “agreed-upon” options could be said to have emerged fromany of the stakeholder workshops, althoughwidespread agreement existed across institutionaland geographic lines in the analysis of manyissues.

The explanation for this paucity of options is dif-ficult to ascertain, but it should probably beascribed to a combination of the following rea-sons:

The lack of options for overcoming the first chal-lenge is undoubtedly a reflection of the fact thatmany stakeholders did not agree to this challenge.In addition, it is mainly buyers and suppliers thatfeel the alleged burdens stemming from the prolif-eration of codes. For that reason, stakeholders,with the possible exception of some multistake-holder initiatives and unions, lack the practicalexperience necessary to explore possible solutions


Table C1 Stakeholder ConsultationsUnited States Europe Honduras Kenya China India

Group 1 1 1Intergovernmental interviewsorganizations Individual 7interviews

Group 3 5Multistakeholder interviewsInitiatives Individual 1interviews

Group 1 2 1Local and interviewsinternational unions Individual 7 1interviews

Group 10 13 2 9 4 6Local and interviewsinternational NGOs Individual 1interviews

Group 3Other interviewsorganizations Individual 2 2 1interviewsTotal number 17 36 4 13 6 8

In the United States, stakeholder group consultations were held in San Francisco and Washington, D.C. In Europe, stakeholder group consultations were held in Amsterdam, Brus-sels, Geneva, and London. The consortium invited approximately 143 stakeholders to participate in the consultation process; of these 84 were consulted in the course of the study.

Summary of Stakeholder Consultations 89

to this barrier. In addition, many of the consultedNGOs are advocacy oriented and, as such, haveless experience in working with companies, includ-ing suppliers, to develop practical solutions to theproblems at hand.

More generally, some of the unwillingness toexplore options probably stems from the fact thatmany of the stakeholders believed the study wastoo focused on narrow technical solutionsanchored in codes, while the situation could onlybe improved if some of the more fundamentalproblems at the systemic level are addressed.

KEY CHALLENGES With the exception of the first challenge, stake-holders overall agreed with the key challenges out-lined by the Bank. However, not all challengeswere considered equally important.

That being said, the majority of the stakeholdersbelieved that the barriers identified by the Bankwere too narrow. While they accurately describedsome of the key challenges, they did not go farenough. The general feeling was that the Terms ofReference for the study were too focused on cor-porate action, implying that technical solutionsfocused on codes would remedy the situation.However, a narrow definition of the problemswould necessarily produce narrow solutions. Inshort, stakeholders believed the study gave insuffi-cient attention to the overarching economic andsocial factors contributing to the problem of poorworking conditions in developing countries.

Moreover, the majority of stakeholders questionedwhat, in their view, was the most basic assumptionof the study, namely that codes of conduct are theway forward. Codes are no substitute for govern-ment regulation. Yet, some of the stakeholders, inparticular NGOs but also a few trade unions, rec-ognized that while the promotion of good gover-nance in the developing world is the ideal wayforward, codes are probably a good interim solu-tion. In addition, codes could, in fact, be used topromote the rule of law. Other stakeholders, mostnotably (and forcefully) trade unions, simplyargued that codes could never become an instru-ment to improve working conditions.

This division among the stakeholders did not fol-low any clear institutional or geographical pattern.

All the unions, however, were skeptical of codesbecause in their view companies sometimes usethem as a substitute for engagement with the work-ers. Nonetheless, some of the unions believed thatcodes could be helpful if they promoted collectivebargaining and freedom of association. Otherunions argued that codes could never be an answerto the two fundamental problems at hand, namelyweak unions and the lack of enforcement of laborlaws in many countries.

Key Challenge 1: What Stakeholders SaidGeneral Comments

Stakeholders disagreed among themselves on theaccuracy and importance of the first challenge.These differences of opinion did not follow anyclear pattern. Stakeholders agreed that any prob-lems stemming from the plethora of codes are notassociated with the content of codes, but ratherwith the implementation, including differences inthe quality and specifics of monitoring, auditing,and remediation.

Approximately half of the stakeholders agreedwith the challenge, although they noted that theproliferation of codes is only a significant prob-lem to SMEs. The other half of the stakeholdersbelieved that the problems stemming from theplethora of codes are exaggerated and mainlyused as an excuse on the part of suppliers andbuyers for not complying. This group questionedthe assumption that all suppliers want to comply,but are simply hindered by technical issues. Thegroup agreed that codes often have differentrequirements with regard to implementation, butat the same time stressed that the implementationof codes is no different from the implementationof other standards, such as quality control or newmanagement systems. As one participant put it,“CSR should simply be part of the cost of doingbusiness.” Stakeholders in Kenya noted that theproblems vary from sector to sector. While thetea sector has only one code, an increasing num-ber of codes are being applied in the horticulturalsector, potentially giving rise to inefficienciesand confusion.

Overall, stakeholders did not seem to believe thatthe challenge was very important; either it was nota problem at all, or it was only a minor problem.

Inefficiencies and Confusion� Stakeholders did not provide any clear-cut

quantification on the scope of the burdens asso-ciated with the proliferation of codes. Accord-ing to one participant, some large suppliers inthe developing world spend as much as 180days a year hosting auditors. Another partici-pant claimed that some large suppliers are sub-jected to 60 audits per year. However, several ofthe multistakeholder groups argued that suppli-ers do not necessarily mind social auditsbecause they are often conducted simultane-ously with quality inspections.

� Another negative side effect of the multitude ofaudits, according to one stakeholder group,mostly NGOs, is that the quality of the auditssuffers. Instead of pooling resources into a fewhigh-quality audits, the standards of companiesvary, providing little consistency in the resultsof the audits. Other stakeholders noted thatSMEs often have such poor management sys-tems in place that it has proved costly andalmost impossible for them to comply with thecodes.

� Finally, several unions argued that the prolifer-ation of codes is not only a burden to suppliers,but also to the unions. Thus, when asked to par-ticipate in the verification of codes, unions haveto do so at the expense of traditional unionwork. Moreover, the different requirements ofthe various codes make it difficult to standard-ize the training of workers.

� Overall, stakeholders agreed that suppliers arenot confused, but know perfectly well how todemonstrate compliance. Several stakeholdersargued that in the majority of cases, supplierswould be able to comply with all the codes bysimply adhering to the highest standard. In fact,the plethora of codes should make suppliersmore proactive in developing practices thatmeet the highest standards, as this would solvemost of the problems.

� However, a few qualifications to this generalargument were offered. Representatives from anintergovernmental organization argued that it isnot the proliferation of the codes itself that is thesource of confusion. The confusion is mainly aresult of the fact that many codes are too vaguein their provisions and often do not include anyimplementation guidelines. Some of the Kenyan

stakeholders, meanwhile, believed that the con-fusion stems from the fact that codes are basedon Western standards and do not take into con-sideration the traditions of the Kenyan people.The “unreasonable” child labor standards inmany codes were cited as an example. Finally,some NGOs argued that while the plethora ofcodes might not be confusing to suppliers, theyare definitely confusing to consumers who areunable to distinguish between good codes andcodes that are no more than window dressing.

Underpinning Assumptions 1a) Multistakeholder Initiatives: Few stakehold-ers offered any opinions on this set of assumptions.However, representatives of unions and intergov-ernmental organizations noted that while the vastmajority of individual buyer codes are useless, thewell-established multistakeholder codes have anadequate coverage of ILO core labor standards.Therefore, private codes should converge aroundthe multistakeholder codes.

The multistakeholders described the dialogue thatis currently taking place among themselves (withthe participation of SAI, ETI, FLA, CCC, FWF,and WRC) on the possibilities of coordination andcooperation. The end result would probably not bea single code (although this was generally consid-ered less of a challenge to actually accomplish),but rather a set of best practice guidelines withregard to content as well as implementation ofcodes of conduct. According to the multistake-holders, this initiative would hopefully lead togreater convergence, not only among multistake-holder codes, but also among the much largernumber of individual buyer codes.

1b) Code Convergence: In general, stakeholdersagreed that most codes overlap, although the con-tent is not necessarily modeled on ILO standards.The representatives of the intergovernmental orga-nizations agreed to some convergence around ILOstandards, but underscored that many privatecodes continue to give poor coverage to core laborissues. Even when all the important issues are cov-ered, the coverage itself is inadequate. In addition,many codes focus on issues with a certain con-sumer interest, such as child labor, while otherissues, such as freedom of association, are gener-ally left out. A model code needs to address all theimportant issues.



The majority of the multistakeholders, on the otherhand, claimed that codes were generally convergingaround ILO standards on labor issues. However, itremained unclear whether the multistakeholdersactually had an overview of the large number of indi-vidual buyer codes, or whether they were merelyextrapolating from their own experiences.

Stakeholders disagreed among themselves on thepossibilities of code convergence. Some Northernstakeholders, particularly the multistakeholder ini-tiatives, were optimistic that codes will converge.According to them, buyers are willing to harmo-nize. Some of the Southern stakeholders, mean-while, expressed skepticism that codes could beharmonized. The Hong Kong stakeholders citedthe unified toy industry code as a positive example,but were otherwise skeptical of code convergence,as certain interests were already “locked in.” TheKenyan stakeholders argued that the best way toensure convergence would be to have individualcountry codes, such as the agricultural code inZimbabwe. Moreover, such codes would allowcountries to compete on a transparent basis.

1c) Human Rights and Environment: Overall,stakeholders agreed that environmental and humanrights issues do not converge around a set of corestandards.

Several reasons were offered to explain why codesvary so much in the environmental area. Accordingto the multistakeholders, provisions with regard tothe environment vary because companies werefaced with different environmental issues depend-ing on their activities. Some of the internationalunions argued that the problem is that there are nostandards corresponding to the ILO conventionswithin the environmental field. The NGOs alsodrew attention to what they saw as an overempha-sis on labor in existing codes, and argued that thisstems from the fact that the debate on the environ-ment has already taken place. However, the NGOswere skeptical of any positive spillover effectsfrom the environmental debate into other areas.The problem is that many environmental issuesattach themselves directly to the product and thusbecome an issue of consumer safety. Labor issues,however, tend to “stay at home” in the country ofproduction.

As to human rights, the majority of stakeholders,with the exception of organizations working directly

within this field, seemed to believe that humanrights and labor rights are one and the same thing.If that interpretation is representative, it couldprobably explain the overall lack of attention givento human rights in most codes of conduct.

1d) Indirect Influence of Multistakeholder Ini-tiatives: See 1a).

1e) Standardization of Implementation Prac-tices: Stakeholders agreed that standardization, or atleast coordination, among buyers of implementationpractices was desirable. However, few stakeholdergroups offered any views on the possibilities of stan-dardization.

According to the multistakeholder initiatives, buy-ers are increasingly willing to share informationabout audits. In the past, the sharing of such infor-mation had been seen as a competitive issue, butthis is no longer the case. Thus, multistakeholderinitiatives in Europe as well as the United Statesnoted that brands increasingly collaborate infor-mally to share information about factory condi-tions at specific locations. This allows others todiscern whether a particular factory is worth doingbusiness with as well as helps focus the monitoringand remediation efforts on critical areas.

As to monitoring, some of the Southern stakehold-ers expressed severe criticism of commercial third-party monitoring. According to these stakeholders,it is very problematic that these auditors are notsubject to either professional standards or legal lia-bility in conducting inspections.

1f) Risk of Lowest Common Denominator:Some stakeholders, particularly those from devel-oping countries, were worried that the convergenceof codes would lead to a lowering of standards.Thus, the Hong Kong stakeholders argued that thepurpose of code convergence should not be toreduce inefficiencies, but to set a minimum floorfor codes. This would stop the present race to thebottom.

1g) Businesses Concerned About AdoptingInternational Standards: Not applicable.

1h) Role of governments: Stakeholders disagreedamong themselves on whether the public sectorhad a role to play in clarifying expectations andhelping reduce confusion and inefficiencies. Somestakeholders, in particular the NGOs and some of

the Southern stakeholders, argued that the role ofthe public sector is clear: governments shouldenforce the laws rather than waste time on strength-ening the implementation of codes of conduct.

The representatives of international organizationsbelieved that governments and international organi-zations could play a key role in helping reduce con-fusion and inefficiencies. International organizationscould facilitate a consensus process at the regionallevel on the content and implementation of codes ofconduct. Governments and international organiza-tions could also play a role in educating publicauthorities and consumers on social purchasing. Fur-thermore, public authorities could play a role indefining skills for social auditors, possibly throughcertification schemes. Finally, international organi-zations could screen and certify codes in accordancewith internationally agreed-upon standards.

Southern stakeholders disagreed among them-selves on the proper role of the public sector. TheHonduran and Kenyan stakeholders stressed theneed for governments to play a greater role in theenforcement of codes. Hitherto, governments haveneglected their responsibilities; for example, bywaiving some of their labor laws in export pro-cessing zones. The Hong Kong stakeholdersargued that the focus of governments should be onenforcing labor laws rather than codes. With theexception of Kenya, Southern stakeholders werepessimistic about the capacity of governments toundertake any role in relation to codes. Publicauthorities were seen as suffering from corruptionand lacking the necessary skills; therefore, capac-ity building would be needed before governmentscould play a constructive role.


Stakeholders agreed overall that the top-down,buyer-driven approach to codes of conduct oftenfails to bring about commitment on the part of sup-pliers and hinders the involvement of local stake-holders, including workers, unions, and NGOs.However, stakeholders’ perspectives covered awider range on the questions of how to achieveshared ownership of codes, and on the effective-ness and appropriateness of the top-down versusother approaches to CSR implementation.

Although stakeholders in general agreed with thechallenge, two important qualifications were made:Representatives from an intergovernmental organi-zation cautioned against an overly generalized char-acterization of codes being implemented top down.According to them, companies are currently under-going a steep learning curve, and there is a lot ofgrassroots work within and outside companies thatcontradicts the above-mentioned characterization.

The Honduran and Indian stakeholders noted thata more fundamental problem of attitude had to beaddressed before suppliers would become willingpartners in the process of CSR implementation. InHonduras, suppliers not only try to escape com-plying with codes of conduct, but also with thelocal laws. “Suppliers lack a culture of compli-ance,” as one participant put it.

Bottom-Up Approach, Capacity Building, and Worker Empowerment� Top-Down versus Bottom-Up Approach:

Stakeholders had mixed views on this point. Allstakeholders recognized the need to bring suppli-ers and local stakeholders on board in the imple-mentation of codes. However, many stakeholdersadded that the system has to be top down to someextent, reflecting the buyers’ ultimate responsi-bility for the way their products are produced.Therefore, the buyer-driven approach is not nec-essarily inappropriate. The ideal is some combi-nation of a top-down and a bottom-up approach.Other stakeholders, particularly the unions,believed that a bottom-up approach, character-ized as genuine freedom of association thatallows workers to organize to ensure rights, is theonly way to improve working conditions.

As to the first position, it was argued that the top-down approach is justified for at least three rea-sons. First, working with buyers is the onlypossible way to push the CSR process forwardquickly. Second, workers and local stakeholdersoften do not know their rights and what they want.Consequently, sufficient demand would nevercome from the bottom. Third, CSR is about brandreputation and, as such, is driven by Western con-sumers. Therefore, codes have to be introduced topdown and will, by definition, entail some imposi-tion of the customers’ values, but this is the realityof a market determined by supply and demand.



Unions, meanwhile, expressed skepticism of codesthat are not negotiated bottom up. Unilaterallyadopted codes are flawed in the sense that there isno shared ownership of the process. Sometimes,unions are consulted after a code has been drafted.While this is better than nothing, codes should benegotiated bottom up because the process itself isvery important. Even if the end result would be thesame, the participation of suppliers and local stake-holders in the drafting of codes facilitates imple-mentation. Workers should never feel thatstandards are imposed. And while negotiationsshould always depart from international standards,it is important that codes are kept simple so thatworkers on the ground are able to understand them.

Unions also argued that the weakness of the moni-toring industry is that it does not maintain a con-stant presence at the workplace. Therefore, unionsshould be involved in the ongoing monitoring pro-cess, whereas periodic audits can be performed byoutside independent parties. In addition, unionsshould be able to give advice on how to improvethe situation, if problems are detected during anaudit of a factory.

The Southern stakeholders stressed that buyersoften do not have enough knowledge about localindustry conditions, and that codes usually do nottake into account the local culture. In their view,there is no global “best solution,” but rather a num-ber of local ones. Companies, workers, and NGOsshould be involved in a process of national consul-tation so that codes and their implementation couldbe developed through consensus, instead of beingimposed from buyers. According to several stake-holders, individual country codes for specificindustry sectors would be the best way forward. Itwas also argued that codes often unnecessarily dis-place local procedures and capacity. Therefore,buyers should, to the extent possible, build onexisting capacity in implementing their codes.

Finally, several stakeholders drew attention to theproblem that many buyers have extensive supplychains, which may hinder shared ownership inpractice. Developing long-term, equitable relation-ships may work for more high-skilled, capital-intensive industries, but for “transient sourcing,”typical in the apparel sector, it is not realistic. It isequally difficult for agricultural companies thatbuy many of their products on commodities mar-

kets, which results in an inability to identify theoriginal source.

� Capacity Building: Stakeholders recognizedthe need for capacity building, but generallyoffered few comments on the specific capacitiesneeded to achieve shared ownership of codes ofconduct.

Stakeholders believed that capacity building at themanagement level of suppliers is important, asmany suppliers do not even understand local laborlaw, and much less codes. Several stakeholdersadded that this problem is particularly relevant forSMEs. A representative from an intergovernmen-tal organization stressed that the general approachto capacity building must be “total responsibilitymanagement,” a system in which everyone in thecompany is involved in creating good labor prac-tices. The training and technical assistance pro-grams of the ILO, which help build managerialcompetencies and at the same time explain to sup-pliers what ILO standards mean in concrete terms,were cited as a good example of capacity building.

As for unions and workers, it was pointed out thatwhile local unions have a fairly good understand-ing of labor standards, participation in implemen-tation of codes of conduct requires a much broaderunderstanding, for example of corporate pricingand procurement principles. Several NGOs under-scored the need for training of women workers, asthe work force in many developing countries isbecoming increasingly feminized. Moreover, themethodology of capacity-building approachesshould also be suitable for women’s needs.

� Worker Empowerment: Stakeholders agreedthat efforts had to focus on workers and unions.Today, workers do not know their rights: they donot know the local laws, they do not know inter-national human rights law, and they do not knowthe content of the codes that apply to them. Tosubstantiate this claim, one stakeholder cited arecent survey of 12,000 workers, conducted bythe Global Alliance for Workers and Communi-ties, which concluded that the vast majority ofworkers do not know their rights. The challengeis to raise awareness among workers and toempower them. Then workers could improvestandards for themselves. In the long run, it wasbelieved that this would be more effective thancodes of conduct.

As to the role of codes, unions strongly empha-sised that codes should not become a substitute forcollective bargaining. According to the unions,codes of conduct are only appropriate if they pro-mote freedom of association and thereby helpworkers to help themselves. In other words, codesshould create the space for local consultation andagreement. For that reason, codes should not betoo detailed, but merely outline the fundamentallabor rights enshrined in the ILO conventions.Other workplace issues should be settled throughcollective bargaining.

As to the possibility of NGOs playing a role inempowering workers, the majority of unions werefirmly opposed to NGOs taking on what they sawas the role of unions, even if the local unions areunable to do their job. Although some of the inter-national union federations recognized that localunions do not always represent vulnerable groups,such as women workers, the alternative, in theirview, is not to bypass the unions, but instead towork with them to make them better. At the end ofthe day, unions are the only sustainable solution tothe problems.

The Indian stakeholders stressed that empower-ment activities should not just focus on the orga-nized sector, but also the informal sector thatconstitutes the overwhelming majority of theIndian labor force.

Underpinning Assumptions 2a) Lack of Services to Support a Bottom-UpApproach: None of the stakeholders related tothis assumption.

2b, c) Organizations Best Positioned to Lead onCapacity Building and Empowerment Strate-gies: The unions argued that they are best posi-tioned to take the lead on capacity building andempowerment of workers. International unionscould play an important role when local unions areweak or nonexistent.

Other stakeholders agreed that unions have animportant role to play in training and educatingworkers. However, some NGOs and representa-tives of multistakeholder initiatives emphasizedthat the challenge to the international unions is topersuade their local affiliates that this is the wayforward, noting that some unions in developing

countries are caught up in internal strife, or side-tracked in promoting political programs. There-fore, as argued by the Kenyan stakeholders, unionsneed to become more democratic and transparentin order to fulfill their potential.

The Kenyan stakeholders further suggested theestablishment of an association of shop stewardsto undertake monitoring and assist in the imple-mentation of codes. This would increase overallmonitoring and strengthen ownership of the pro-cess among key stakeholders.

The NGOs and the multistakeholder initiativesbelieved that in the absence of effective unions,multistakeholder initiatives or skilled NGOsshould take the lead on capacity building andempowerment strategies. As to the financing ofsuch initiatives, stakeholders agreed that compa-nies should not directly finance the work of NGOs,or multistakeholder groups, as this would under-mine the credibility of these organizations.

All stakeholders agreed that commercial auditorsor consultancies should not play a role in capacitybuilding or empowerment of workers and otherstakeholders at the local level. There was alsosome skepticism expressed by NGOs and unionsregarding the appropriateness of commercial audi-tors in the monitoring and auditing of codes. It wasbelieved that the “business/client” relationshipcould result in a biased and partial assessment ofthe company’s CSR performance.

2d) Public–Private Cooperation: Some NGOssuggested that buyers and MNCs [MultinationalCorporations] could assist local governments inupholding the law. Other stakeholders challengedthis idea, arguing that companies usually did theexact opposite, such as demanding exemptionsfrom certain labor laws as a precondition forinvesting in a particular country.

From the “Southern” side of the table, the Honduranstakeholders also found public–private collabora-tion inappropriate. Buyers sharing information withlocal labor inspectorates might be seen as imperial-istic, in that local governments could be perceivedas “working for” foreign companies.

Overall, stakeholders expressed considerableskepticism of the public sector’s capacity to coop-erate with private actors in strengthening the



implementation of codes of conduct. In addition,many stakeholders believed that governmentsshould focus on enforcing the law rather thanspending resources on the development andenforcement of a private law.

2e) Coordination Among Buyers Would IncreaseLevel of Compliance: Not many stakeholdersrelated specifically to this assumption. However,stakeholders clearly believed that suppliers wouldincrease compliance if they received a consistentmessage from the buyers. One of the multistake-holder initiatives gave examples of buyers thatcooperated, for example through common guide-lines for implementation of codes, in dealing withshared suppliers, resulting in definite improvements.

2f) Initiative Fatigue: Stakeholders did not seemto believe that companies suffer from initiativefatigue. In fact, one group of stakeholders arguedthat the problem is not fatigue, but rather a lack ofreal incentives to engage in efforts to strengthenCSR implementation. Another group of stakehold-ers argued that the commercial monitoring indus-try has vested interests in the existing system,which could be a barrier to new initiatives.


All stakeholders agreed that the business rationale—or how it is perceived—plays a fundamental rolein determining the willingness and motivation ofsuppliers and buyers to undertake CSR invest-ments. Moreover, stakeholders agreed that thethird challenge is by far the most important of thethree key challenges outlined by the World BankGroup.

However, stakeholders had mixed views onwhether greater clarification of the business ratio-nale would promote CSR implementation. Thedivision of opinion did not follow any clear geo-graphic or institutional pattern.

Approximately half of the stakeholders believedthat suppliers (and buyers) have insufficient under-standing of the business rationale and believed thatgreater clarification would increase the willingnessto make the required investments. Some stake-holders added that suppliers do not see the businessrationale because they operate on such tight mar-

gins that they do not have the luxury to explore thepotential benefits.

The other half of the stakeholders surveyed believedthat the problem lies more with the absence of incen-tives rather than lack of awareness. Often, the busi-ness case for making CSR investments does not existin the sense that the benefits simply do not outweighthe costs.

A few stakeholders, including the Hong Kongstakeholders, mentioned that even if suppliers weregiven the right incentives, they would not neces-sarily comply. Some factory owners will notimplement practices that are cost-effective andgood for the workers because they do not think thatworkers should “rise above their station.”

Finally, the majority of stakeholders underscoredthat good labor practices should be followedregardless of the business case. Ensuring decentworking conditions is a legal and moral responsi-bility, not something that should be dependent onthe potential business benefits.

Business Rationale and Unresolved Tensions between Buyers’ Requirements The Business Rationale for CSR Implementa-tion: Stakeholders related to this issue not onlyfrom the perspective of suppliers, but also from theperspective of buyers. In addition, stakeholderscommented on the more fundamental problems ofthe existing business model. As a general point,they noted that the business rationale for undertak-ing CSR investments depends very much on theindustry sector, and where companies are posi-tioned in the supply chain.

Stakeholders outlined a number of benefits thatsuppliers could realize, if they would undertakeCSR investments. However, it was recognized thatthe business case is not equally obvious for alllabor and human rights issues. Compliance withprovisions on reasonable working hours and healthand safety will automatically translate into lessabsenteeism and higher productivity, while thebenefits of respecting freedom of association is lessclear-cut. Several stakeholders underscored theneed for examples and role models to raise aware-ness of the benefits of CSR implementation, aswell as a medium through which these examplescan be exposed to all concerned.

While many stakeholders acknowledged that sup-pliers could benefit from increased productivityand less employee turnover by implementingCSR, many were skeptical that these benefits aresufficient. Numerous stakeholders argued that thebusiness case is most directly made through audit-ing and the ultimate threat that contracts are tied toCSR performance. On the negative side, severalstakeholders noted that suppliers are also underpressure from their peers not to raise standards.This made it more difficult to persuade hesitantsuppliers to comply with CSR requirements.

With regard to the buyers, stakeholders recognizedthat brand-sensitive firms have a clear incentive toinvest in CSR, while companies engaged in busi-ness-to-business, service, or small parts tradeshave less incentive, because CSR benefits aremainly of a reputational character. The main prob-lem, according to several stakeholders, is that“good” companies do not obtain a substantialadvantage in the marketplace. While the “good”companies experience difficulties in translatingtheir resource-demanding ethical policies into tan-gible business benefits, the “bad” companies arenot doing too badly. Another problem, mentionedby one NGO stakeholder, is that buyers can onlybe 99 percent in compliance with their own codes.Nonetheless, the remaining 1 percent will oftenexplode and cause reputational damage to thecompany. Therefore, NGOs should adopt a morerealistic approach that takes into account that therewill always be something wrong somewhere.More generally, “good” companies should begiven more credit for their efforts; otherwise, thecritics of CSR in the “good” companies will gainthe upper hand.

As to the pressure of buyers down the supplychain, some stakeholders underscored the need forindustrywide solutions. It is not sufficient that buy-ers put pressure on one supplier. Instead, entireindustries should work together to find solutions.It was further suggested that national trade andindustry associations and employers’ confedera-tions could take the lead.

Many Northern stakeholders emphasized that theultimate problem rested with the consumers at thetop of the supply chain. Until consumers signalwillingness to buy socially sustainable products,the present situation will continue. For that reason,

NGOs could play an important role in educatingconsumers.

Finally, many stakeholders drew attention to whatthey considered to be serious flaws in the existingbusiness model. The business benefits of CSRimplementation are long term. However, the exist-ing business model relies too heavily on shiftingsupply chains and short-term shareholder returns.Therefore, suppliers often do not have the luxuryto run their operations with long-term goals insight. Price variations lead buyers to movequickly, keeping pressure on suppliers to movequickly. In addition, consolidation among buyershas put pressure on prices, which again has pro-voked a race to the bottom. The only successfulmodel, according to several stakeholders, is thefootwear industry where the business case existsowing to a combination of influential buyers, long-term relationships, and many functions that cannotbe subcontracted because the machinery is tooexpensive and specialized. Other industries, how-ever, do not have the same conditions. Moreover,trends in purchasing through reverse auctions andInternet bidding work against further advances onthe CSR front. Other stakeholders argued that theproblems of managing a large supply base shouldnot be overstated. If buyers are able to managequality control standards across a multitude of sup-pliers, then CSR should be no different.

Unresolved Tensions between Buyers’ Require-ments: All stakeholders agreed with the existenceof unresolved tensions between the delivery timeand price and the CSR requirements of buyers. Buy-ers are simultaneously promoting compliance whileinsisting that prices should be lower, deliveriesfaster, and lead time shorter. So far, “there has beentoo much focus on nasty suppliers and too littlefocus on the responsibility of buyers,” as one par-ticipant put it.

According to the stakeholders, buyers shouldaccept shared responsibilities in CSR implementa-tion by making sure that codes are taken intoaccount in their purchasing decisions. Specifically,buyers should not impose unrealistic deliverytimes on suppliers. Additionally, the cost ofimproving labor standards should be part of theprice suppliers charge buyers for their products,recognizing that being a good employer costsmoney.



According to the stakeholders, these tensions stemfrom the flaws in the overall business model, asdescribed above. Changes in the business modelshould not just come from the buyers. Consumersand retailers must also understand that they cannothave it both ways. Retailers, acting on consumers’demand for cheaper products, are driving pricesdown, squeezing factory profits, and ultimatelynarrowing the margin available for CSR invest-ments at the supplier level.

Underpinning Assumptions 3a) Greater Awareness of Tensions Will PermitIndividual Buyers to Make More InformedChoices: The majority of the stakeholders did notseem to believe that greater awareness of the tensionsbetween delivery time and price and CSR require-ments would lead buyers to make more realistic pur-chasing decisions. Ultimately, buyers are judged onlow prices and quality, not CSR compliance.

3b) Tensions May Be Resolved throughImproved Integration of CSR within SourcingPractices and Business Policies: Stakeholdersagreed that buyers should do more to coordinatethe demands of their buying teams with thedemands of the CSR departments. At present, thereis often no coordination between the CSR depart-ments and the purchasing departments of compa-nies. Some stakeholders added that CSR peoplerarely have a business background, making it moredifficult to communicate with their colleagues inpurchasing. As a possible solution, one group ofstakeholders suggested the establishment of pro-fessional standards for purchasing officers to takeCSR into account.

In the end, however, stakeholders remained skep-tical that the tensions could be overcome byincreasing the coordination between the CSRdepartments and the purchasing departments. Theproblems are intimately linked to the flaws in theexisting business model.

3c) A Credible Framework for Analysing Costsand Benefits of CSR: Stakeholders had mixedviews on the need for a credible framework foranalyzing costs and benefits of CSR. Somebelieved that it would be helpful to develop an ana-lytical framework that could quantify the businesscase for CSR implementation. It was further sug-gested that academics could play an important role

in establishing such a tool. Others argued that clar-ity is not the problem, nor the mechanism for solu-tion. According to these stakeholders, there arealready credible ways to measure the impact ofcodes. The real problem, again, is that the benefitsdo not exist.

3d) Increased Transparency May Support Busi-ness Benefits: Many stakeholders emphasized thatthe only way to make the business case to suppliersis to increase visibility in the supply chain throughmore information and certification. In that way,good suppliers will be rewarded, and bad ones pun-ished. At present, investors, consumers, and evenprospective employees are unable to distinguishbetween the CSR performances of companies.

Several stakeholders also argued that governmentscould play an enabling role by penalizing bad prac-tices and supporting good ones. Governments couldgive tax deductions for CSR investments, or putpressure on suppliers and merchandisers throughtheir own procurement policies. Belgium, for exam-ple, has recently adopted a plan for integrating socialconsiderations into public procurement.

3e) Lack of Critical Mass and Commitmentamong Buyers: Stakeholders overall agreed thatbuyers presently send mixed signals to suppliers. Itis difficult to make the business case to supplierswhen so many buyers do not care. Several stake-holders argued that the only way forward would beto get an agreement at the international, or at leastEuropean level, on the responsibilities of buyerswith regard to CSR. This would level the playingfield and prevent competition over social standards.

3f) Western-Centric Codes and Codes As Non-tariff Barriers: With the exception of those inKenya, the stakeholders surveyed did not believethat cultural imperialism is a real issue. Althoughthis argument is sometimes heard from suppliers, itis only an excuse for not complying with the codes.Stakeholders, Northern as well as Southern, under-scored that the majority of codes are based on inter-national standards, such as the ILO conventions,which have been agreed upon in a legitimate inter-national forum, and as such are binding on allstates. The Kenyan stakeholders did not funda-mentally disagree with the above-mentioned argu-ments, but nevertheless stressed that codes often donot take into account the local culture.

Other Key Challenges Stakeholders drew attention to a number of addi-tional key challenges to successful CSR imple-mentation in global supply chains, as listed below.A good number of stakeholders agreed that thethree key challenges, as outlined by the WorldBank, accurately represent the main barriers toCSR implementation when considered from themore immediate perspective of the buyer–supplierrelationship. Others believed, however, that suchan approach was too narrow, resulting in a numberof important external barriers being downplayed inthe study.

� Stakeholders agreed that the ultimate barrier toimproved implementation of existing CSRschemes is the fact that consumers are notdemonstrating a commitment to these issueswith their purchasing power.

� Nearly all stakeholders believed that one majorbarrier to CSR implementation in global supplychains, as well as to improved working condi-tions in general, is the lack of governmentcapacity and willingness to enforce the laws.Corruption is a major problem. In addition, gov-ernments are unwilling to take responsibility forenforcing existing laws, and often lower stan-dards to attract investment. They sometimeshide behind foreign company codes. Finally,many governments in the developing worldwere said to lack the resources to enforce thelaws. In this context, a number of stakeholdersnoted that the World Bank should be more dis-cerning with policies calling for liberalization ofthe public sector in developing countries.

� A number of stakeholders argued that the inter-national trade regime acts as an important bar-rier to strengthening CSR implementation inglobal supply chains. The WTO allows dis-crimination against a product if it has a healthimpact at the consumer end, but not if theimpact is located at the producer end. In short,the WTO hinders the development of positivepublic purchasing policies and national importpolicies that could strengthen the case for CSRinvestments at the supplier level.

� Many stakeholders believed that the lack of seri-ous commitment from the business communityis a crucial barrier to improved CSR implemen-tation. MNCs often enter into agreements with

governments on investments, requiring that thelatter not impose “constraints,” such as higherlabor standards, during a specified period. Alter-natively, MNCs simply ask for exemptions fromvarious social regulations as a precondition forinvesting in a particular country. Moreover, someof the international unions noted that MNCsoften refuse to take part in employer organiza-tions, and do not participate in the normal tripar-tite structures of countries. This undermines theseorganizations and structures, as governments donot take employer organizations seriously whenthe big players are missing.

� A number of stakeholders, including represen-tatives of unions and intergovernmental organi-zations, argued that some NGOs are behavingirresponsibly. They do not understand that CSRis a long-term process, but want it all doneovernight. Moreover, when they force compa-nies to cut their relations with noncompliantsuppliers, it has disastrous consequences for theworkers. Finally, NGOs are alienating the com-panies and making them hold back on CSR. Itwas suggested that NGOs should adopt codes ofconduct outlining their responsibilities in thesame way companies do.

� Finally, several stakeholders believed that thestudy did not address important micro-questionssurrounding codes of conduct in general, suchas (a) how far down the supply chain shouldcodes be applied? (b) Can a “one-size-fits-all”solution take into account the more limitedcapacities and narrower profit margins ofSMEs? (c) Can a one-size-fits-all solution takeinto account the differences between the needsof exporting versus domestic industries? (d)Can codes be made to cover the informal sector,where most of the new jobs in the developingworld are created? Indeed, would such a codeactually have the reverse effect, and disem-power some workers by forcing them from thehome into more formalized work structures?

ConclusionsWith the exception of some dissenting opinion ofthe first key challenge, the consulted stakeholdersoverall agreed with the three challenges. In sum:

� Stakeholders disagreed among themselves onthe accuracy and importance of the first chal-



lenge. In general, however, stakeholders did notseem to believe that the challenge was veryimportant; either the inefficiencies and confu-sion stemming from the proliferation of codesare virtually nonexistent, or they only constitutea minor problem, expect perhaps for the SMEs.

� Stakeholders agreed with the second challenge.However, many stakeholders, in particularNGOs in the North, recognized that the alterna-tive to a top-down approach is not necessarily abottom-up approach. The ideal is some combi-nation of the two. All stakeholders recognizedthe need for worker empowerment and capacitybuilding at the level of suppliers, including train-ing of managers, supervisors, unions, and out-side stakeholders.

� Stakeholders agreed to the third challenge. How-ever, many stakeholders believed the problemhas more to do with the lack of a business casealtogether rather than lack of awareness of thepossible benefits. The business case thereforehas to be made more straightforward and tangi-ble if suppliers are to be convinced of the meritsof CSR.

OPTIONS AND SOLUTIONS Key Challenge 1 Harmonization of Codes

The majority of stakeholders agreed that an effortto reach agreement on a single baseline code at theinternational level is not the answer. It would be oflittle use, since it would necessarily have to bevague to cover so many different industry sectorsand countries. An effective code, it was stressed,has to be adapted to the individual business situa-tion and focus on implementation.

Some of the unions, as well as representatives ofintergovernmental organizations, argued that auseful model might be that of framework agree-ments negotiated between employers and globalunion federations. Such agreements tend to coverbasic labor issues such as freedom of associationand minimum wage better than codes, and the veryprocess of negotiating a framework agreement pro-motes constructive dialogue between the employerand workers’ representatives.

Several stakeholders, including some of the South-ern stakeholders, suggested that the solution to

overcome the plethora of codes is to set up a gov-ernment department to undertake monitoring at anational level, and then have one country code foreach industrial sector.

Implementation of CodesRegarding the problem that provisions for imple-mentation often vary among codes, one of themultistakeholder initiatives noted that some oftheir companies share one supplier manual, whichgives guidance for suppliers on how to complywith codes.

As to the problem of overlapping audits, the samemultistakeholder initiative had developed adatabase that allows members to see how suppliersperform in terms of CSR compliance. Supplierspublish information about audits conducted at theirfacilities. This allows buyers to make a proper riskassessment before they place their orders. Interest-ingly, the companies that had performed the auditsare not anonymous in the database, and accordingto the representative of the multistakeholder initia-tive, this had not presented a problem.

Monitoring of CodesAs an example of best practice, one of the interna-tional unions drew attention to an agreement thathas been negotiated between a textile union and anumber of employers in Belgium. The agreementenvisages the establishment of a fund to pay someof the monitoring costs, if companies do not havethe means themselves. Employers are thus givenincentive to implement and monitor the code inaccordance with the standards laid down in theagreement. In the past, the costs of monitoring havebeen used as an excuse for not complying.

As to the need for independent monitoring, somestakeholders suggested that companies could payinto a fund to ensure that there is no direct rela-tionship between monitors and buyers.

Finally, some stakeholders noted that many com-panies source from so many suppliers that in-depthmonitoring is practically impossible. It was sug-gested that the solution might be to carry out one-day inspections. This approach is not perfect andcannot serve as verification, but it is still useful asa risk assessment. One of the multistakeholder ini-tiatives had developed rules for such one-dayinspections, which involve human rights groups

and labor unions shadowing and commenting onthe people performing the inspections.

Role of GovernmentsStakeholders, particularly the representatives ofintergovernmental organizations, offered a num-ber of suggestions on how governments and otherpublic and international authorities could helpreduce confusion and inefficiencies stemmingfrom the plethora of codes.

First, governments and international organiza-tions, such as the EU, could level the playing fieldby sanctioning codes of conduct as being in accor-dance with the international standards.

Second, governments and international organiza-tions, including the EU, could play an importantrole in defining and clarifying to consumers andpublic authorities what social purchasing meant. Atthe moment, consumers are confused and lack ade-quate information. One way to do this would be forpublic authorities to recognize or establish sociallabels. In addition, stakeholders recognized the needto level the playing field with regard to social labels.At the moment, some of the labels are based on self-evaluation and, as such, lack sufficient credibility.As an option to overcome this problem, govern-ments and international authorities, such as theEuropean Commission, could forbid or limit the useof codes by companies as a marketing tool. Therecent Nike case was mentioned as an example.

Finally, public authorities could play an importantrole in defining the skills needed to become asocial auditor. Governments could issue such cer-tifications and thus recognize, for example, certainauditing firms, multistakeholder groups, or NGOsas qualified auditors.

Key Challenge 2Capacity Building At the Worker Level

Several stakeholders underscored that shop stew-ards should be included in the education andawareness-raising process. It was further sug-gested to set up associations for shop stewards tomonitor what is happening both inside and outsidethe company.

With regard to the funding of workers’ education,it was suggested to establish a central fund, to

which companies could donate, and which wouldthen assume the responsibility. In that way, thecompanies did not directly fund the organizationsthat provided the education.

Some participants suggested that the World Bankcould help support workers’ aid organizations toprovide a forum for workers to become better edu-cated about their rights. The Bank could also fundthe identification and capacity building of civilsociety groups to develop them into effective inde-pendent monitors.

Capacity Building At the Management Level Several stakeholders stressed that the solution liesin employers’ organizations and governmentsworking together to provide management trainingfor suppliers. At the international level, the train-ing and technical assistance programs of the ILO,which help build managerial competencies and atthe same time explain to suppliers what ILO stan-dards mean in concrete terms, were cited as goodexamples of capacity building.

It was also suggested to initiate pilot projects infactories so that factory management would beencouraged to take them over when they realizedthat it was not too difficult or costly. One stake-holder cited the example of a health clinic that anNGO had started in a factory, which was graduallytaken over by the factory management when theyrealized that it was a valid need that could be ful-filled with relatively little effort and expense ontheir part. This option would seem to presentavenues for buyers as well, and could be success-ful in bringing ownership of compliance-orientedactivities without extensive investments on thepart of the buyer.

Complaint-Based SystemsMany stakeholders supported complaint-basedinvestigations as a means to improving labor con-ditions. Procedures, where workers could go tocourt or take other measures to enforce good prac-tices in companies, are the best way to help work-ers help themselves.

Some stakeholders suggested that the World Bankshould encourage the development of such sys-tems, including looking at best practices in termsof complaint procedures in national legislation.



Several participants, particularly the unions, stressedthat it is important to use existing systems, such astrade unions, for complaints, and to build on theircapacity, rather than creating new mechanisms.

Stakeholders also drew attention to the need formultiple channels of information. At present, infor-mation about working conditions is top down.Additional information channels could be openedby allowing unions, NGOs, or governments toenter workplaces and run labor law talks on the fac-tory floor, and providing an outlet for complaints.As noted elsewhere, however, unions were gener-ally opposed to seeing NGOs do what was consid-ered union work.

Step-by-Step ApproachesA good number of stakeholders underscored thatlabor standards could not be improved overnightand that there is a need for step-by-stepapproaches. The feeling was that this is the onlyway to achieve sustainable, shared ownership ofCSR initiatives. One of the international unionscited the International Cocoa Initiative as anexample of best practice. While the purpose of theinitiative is to abolish child labor in cocoa produc-tion, it is also recognized that this is impossible toachieve within a short time span. Therefore, buy-ers and international trade unions have begun tocertify the process instead of the impact. Theimportant thing is that companies have processesin place to get rid of child labor in the long run.

Another suggestion was to adopt an approach,whereby buyers and suppliers would agree on afew core issues that would be considered zero tol-erance and would need to be achieved right away,with the rest of the issues in the code being cov-ered over a longer time frame. This approachwould call for a longer-term relationship betweenbuyers and suppliers and possibly increased expo-sure on the part of the buyers during the longertime frame.

Key Challenge 3Incentives for Suppliers

With regard to clarifying the business rationale ofCSR to suppliers, the training and technical assis-tance programs of the ILO were cited as examplesof best practice. The programs help build manage-

rial competencies and at the same time demonstrateto the suppliers that CSR would in fact improvetheir productivity as well as the working atmo-sphere in the companies, and that it need not beexpensive.

Several stakeholders argued that buyers shouldmake a public commitment to good suppliers. Acommitment of ongoing business for good suppli-ers would provide the needed incentive for suppli-ers to comply with standards. If that commitmentwere made publicly, suppliers would likely mar-ket themselves as socially responsible in order toguarantee continued business. It would alsodemonstrate to other suppliers that companies arewilling to create long-term business partnerships,and signal the importance of CSR in their choiceof suppliers.

Finally, some stakeholders argued that in order tocreate more business benefits for socially respon-sible suppliers, buyers should reduce the quantityof suppliers and develop more committed rela-tionships to suppliers that meet their standards. Inthe agriculture sector, for example, it wouldrequire companies to move away from commod-ity markets and buy directly from farms. Otherstakeholders did not believe that shorter supplychains are the way forward. The worst abuses takeplace in domestic industries. Therefore, moresuppliers, including SMEs, should be invited intothe exporting industries.

Tensions between Delivery Time and Price and CSR RequirementsSeveral NGOs argued that the language of codesneeds to be changed so that it is not just about mon-itoring suppliers, but also addresses the responsi-bility of buyers for their purchasing practices.360-degree audits, where the suppliers could auditthe buyers, so that the buyers could see the impactof their tight delivery times, might be a possibility.Another option would be to put a minimum limiton delivery lead time, so that buyers’ purchasingagents are unable to make rush orders without jus-tification. Finally, as suggested by one NGO, com-pany purchasing agents should be given an internalincentive for taking CSR into account. At present,their performance is evaluated only on their abilityto achieve the lowest price within the shortestdelivery time.

Incentives for BuyersStakeholders agreed that the incentives for CSRimplementation should be strengthened, not onlyat the supplier level, but also at the level of buyersand MNCs.

Some of the Northern NGOs suggested that com-panies should be subjected to peer pressure fromETI-types of initiatives. Thus, companies wouldlearn both the incentives and the “how-to” aspectsfrom others. In addition, NGOs and unionsinvolved in the multistakeholder initiatives couldput additional pressure on companies. It was fur-ther suggested that the World Bank should onlyprovide funding to companies—through the Mul-tilateral Investment Guarantee Agency and theInternational Finance Corporation—that havesigned up to multistakeholder initiatives.

One of the international unions described its prac-tice of working with shop stewards in Westerncompanies. The idea is to make shop stewardsinterested in the working conditions at the level ofsubcontractors in developing countries. Theywould then serve as a source of internal pressure,asking their employers to demand suppliers’ com-pliance with international labor standards.

Consumer PressureThe majority of stakeholders agreed that the incen-tive for suppliers and buyers to invest in CSR ulti-mately has to come from consumers. The mostimportant problem with regard to consumers isinformation; consumers simply do not knowwhere to start. Stakeholders presented a number ofsuggestions to overcome this problem.

A representative from an intergovernmental orga-nization drew attention to a Belgian consumerorganization that ranked, for example, sports shoesaccording to CSR standards, which made it rela-tively easy for consumers to decide. Today, labelsare too simple: “pass” or “fail.” Labels shouldhave a more graduated ranking in the same way aswashing machines, for example, which are rankedon a scale according to energy performance.

It was further argued that if all companies reportedaccording to the GRI scale, a database on the Inter-net could be established that would allow for sys-tematic comparisons among companies and theirproducts. Consumers would then be able to see if

Adidas is better than Nike, for example. Thisapproach would be more effective than the tradi-tional labels.

Meanwhile, some stakeholders expressed skepti-cism that social labeling would be the universalremedy. A lot of products are hard to label. Howcould a car or a personal computer ever be labeled,when such products consist of so many differentparts? As a possible solution, one stakeholder sug-gested that a company such as Renault should belabeled for the products under its control. In thatway, the labels would resemble the ones found inorganic food where one can say that a product is 85percent organic.

Finally, one of the NGOs advocated more focus onconsumer education campaigns. An advertisingcompany could be commissioned to survey thepublic about its priorities, and then devise a cam-paign to educate consumers about the complexitiesof corporate responsibility.

Role of GovernmentsMany stakeholders suggested that governmentprocurement policies should be made more sensi-tive to CSR concerns. Belgium, which has recentlyadopted a plan for integrating social considera-tions into public procurement, was cited as anexample of best practice.

Some of the multistakeholder initiatives suggestedthat governments could provide technical supportto suppliers that want to implement codes of con-duct, including measures for increasing productiv-ity along with CSR compliance. It was furthersuggested that government could bring togetherbuyers and “good” suppliers in forums marketedas low-risk strategy for buyers.

Inclusion of Labor Components into Trade AgreementsMany stakeholders argued that labor componentsshould be included in trade agreements. One stake-holder suggested that this should be piloted withbilateral agreements, such as the work currentlybeing done in Cambodia and Vietnam.

Some of the NGOs believed that companiesshould be encouraged to work only in countrieswith good labor and human rights practices. Thus,they argue that international trade agreements



should be revised to allow for some discriminationagainst products made in countries that do not havegood labor and human rights practices.

Competition policy is another issue. A few NGOssuggested that there should be international regu-lation making it illegal for buyers to knowinglypurchase a product for a price that is cheaper thanthe production costs.

Other SuggestionsStakeholders generally believed that increasedtransparency and public accountability is the keyway of raising standards. Some emphasized theneed for disclosing factory names, so that unionscan be aware of locations and begin organizinglocal campaigns. Others expressed concerns that

such transparency could kill the business of a localsupplier attempting to make changes, but needingmore time. A possible solution could be to delay dis-closing factory problems while allowing time for afactory to remediate within a given time frame.

The Kenyan stakeholders suggested the establish-ment of a shareholders’ association that would beinvolved in CSR implementation. In addition, theboard of directors in companies should be educatedin CSR issues to act as a check on management andto increase management’s accountability.

Finally, one stakeholder argued that there is a needto raise CSR interest in local markets. Local pres-sure could be used to bring the business case hometo hesitant suppliers.

The structure of the report below follows asomewhat different pattern than the other

consultation summaries provided in annexes D–Fin the report because the consultation process withworkers took place according to different Terms ofReference.

INTRODUCTIONThis summary is based on consultations with work-ers in China, Honduras, India, and Kenya. Inter-views with workers in addition to the reports wereundertaken from mid-June until the beginning ofAugust 2003. Local consultants or NGOs undertookthe interviews on behalf of the Danish Institute ofHuman Rights according to the Terms of Referencefor worker consultations defined by the World Bankand the consortium consisting of Pricewaterhouse-Coopers, Business for Social Responsibility, andthe Danish Institute of Human Rights.

The purpose of the worker consultations was tosolicit workers’ views on the benefits, constraints,and performance of CSR codes in operation insupplier companies.

The methodology for the worker consultationsdefined focus groups and individual interviews tobe the main mediums through which informationwas obtained. Shop stewards and managementrepresentatives were also interviewed. The work-ers participating in interviews were selected eitherrandomly from company rosters or according tocertain social characteristics (gender, occupationalexperience in company, employment category asregular or casual worker) or according to jobdescription. The Danish Institute of Human Rightshad prepared an interview guide, but the local con-sultants were specifically asked to adapt the guideto the local context.

The methodology specified one or more focusgroup meetings depending on whether for exam-ple, gender issues or relations between casual andregular workers were better dealt with in separategroups. The methodology also outlined that indi-vidual interviews could be kept at a numberbelow 10. Only five days were allowed for thework. Hence, the objective was not to make an in-depth, quantitative survey based on structuredinterviews with many informants, but rather toget a first impression of benefits, constraints, andprocesses of implementation and monitoringfrom the point of view of the workers on the fac-tory floor.

The methodology also outlined that the consulta-tions only had to take place with workers from onesupplier company. The companies were selectedwith the assistance of either PricewaterhouseC-oopers’ local representatives or in cooperationwith local representatives of Business for SocialResponsibility.

COUNTRY REPORTSIn Kenya, interviews were conducted in the agri-cultural sector (horticulture, coffee, and tea), whilein China, India, and Honduras the majority ofinterviews took place in the apparel sector. InChina, garment, shoe, and sportswear factorieswere selected, while in India, garment factorieswere selected. In Honduras, textile factories wereselected.

Some of the local consultants, while conductingfocus group interviews, also decided to conductmore individual interviews with workers and com-panies than originally planned. Thus, in China aswell as in Kenya and Honduras, altogether 60 indi-viduals participated in either group or individual

Summary of Worker Consultations

G

105

A N N E X

interviews. In all of these cases, the local consul-tant interviewed workers from three companies.

In India, the local consultant interviewed onegroup of 10 workers selected from the companyroster. Two of the 10 selected were women. Fromthis group five were chosen for individual inter-views, including the two women who hadremained silent during the group interview. InIndia, the local consultant also decided to inter-view one group of 11 workers from the apparelsector outside the company chosen in order tolearn more about conditions in smaller garmentexport factories.

In China, 23 workers were selected for individualinterviews, 16 of whom were women. Most of theparticipants in the three group discussions in Chinawere women. In India, 2 informants of 10 in themain factory were women (the factory has a 5 per-cent female employment rate), while 7 of 11 inter-viewed in the residential area were women.

In Honduras, 57 workers participated in six focusgroup interviews with workers from two factories.Of the 57 informants in the focus groups, 39 werewomen and 18 were men. In addition, a few indi-vidual interviews were conducted.

All four consultants reported seeing no child laborin the factories, and the issue of child labor did notconstitute a problem in the interviews. In India, thecompany dentist in the main company whereinterviews took place was used to certify thatemployees were over 18 years old.

In China and in Kenya, the interviews were con-ducted outside the company premises. In India,interviews in the main company were held at thecompany premises in a conference room allocatedby the company, while additional interviews wereundertaken outside the premises in a residential areawhere the garment workers lived. In Honduras, thefocus group interviews took place within the com-

pany, while the individual interviews were under-taken outside the company confines.

What types of workers were interviewed? InKenya, workers were mostly from plantations,working in planting, crop husbandry, harvest orpicking, or grading and packing. In China, most ofthe workers were women, 90 percent of whomwere from rural areas. Living conditions in Chinawere crowded with 12 workers living in 16-square-meter rooms. In India, most of the workerswere recruited by casual labor contractors in poorstates such as Bihar, Uttar Pradesh, and Orissa. InIndia, working hours were regulated according toa fixed schedule in the main factory where inter-views took place, but this was not the general sit-uation in other, smaller garment factories. InKenya, working hours during peak seasons couldalso be described as elastic with some peculiarinterpretations of overtime. In Honduras, youngwomen constituted the main work force in thecompanies. In one company, 90 percent of thework force was made up of women, while inanother 85 percent were women. About a quarterof employees in the textile industries are migrantsfrom rural areas.

The tables below show the number of workers inthe various locations.

KNOWLEDGE, AWARENESS, AND OWNERSHIPIn all of the four country cases, workers’ knowledgeand awareness of the codes of conduct were limited.The best way to describe the situation is to say thatworkers have a vague sense of what codes of con-duct mean. In China, where monitoring takes placeregularly, workers knew about the inspectors orauditors who come to the factory to examine humanrights and other issues, but they had difficulties indistinguishing between CSR inspections and qual-ity of goods inspections of buyers.


Table D1 Worker ConsultationsChina Honduras India Kenya

Group interviews 35 57 21 NAIndividual interviews 23 3 5 NA

Total 58 60 21 60NA, not applicable.

Summary of Worker Consultations 107

In India, the workers did not know about the con-cept of the codes of conduct, but they knew aboutsome components of the codes related to opera-tions through the human resource manager of themain factory.

In Honduras, the majority of workers had no, oronly a vague, sense of what the codes meant.Some of the workers had seen the codes postedon the wall of the factory. In one American-owned company, however, the codes were takenso seriously that some workers had beeninformed about the codes through engineers orsupervisors. Even tests had been conducted. Inthis factory, workers were most familiar withNike’s code. However, in another company inHonduras, the awareness among workers aboutthe codes was very limited.

Posters with the codes of conduct had been postedby management in India and in China in Englishand in the local language. Literacy capacity andeducational backgrounds, however, would seem tomake such a method of dissemination insufficient.

In Kenya, in the geographically dispersed agricul-tural sector, knowledge about CSR was found to beeven more lacking among workers. Workers heardabout the codes when they were mobilized duringperiods of auditing. Casual workers knew the leastabout the codes.

Workers in Kenya certified that the codesbelonged to the company, not to them. The work-ers saw the codes as a management instrumentthat would facilitate market access and that wouldsatisfy consumer demands. Ownership sentimentwas therefore low in Kenya. The situation inChina and India was similar. In Honduras, work-ers were more inclined to see CSR as a workers’tool. They were unanimous that workers wouldlose the most if the codes were abandoned, butthey also agreed that management benefited in anunspecific way.

BENEFITS DERIVED AND TRADEOFFS: THE PROCESS OF IMPLEMENTATIONWorkers in China were explicit in attributingimprovements in working conditions to the exis-tence of CSR. As a result of buyers’ inspections,they saw improvements in welfare and workingconditions as related to their living quarters, thesanitation status in factories with hot water instal-lation, and dining room facilities. They alsoemphasized the importance of codes in protectingworkers’ rights. The human rights codes ensuredbetter wages and decreased daily overtime work,including days of rest.

In Kenya, the workers ranked health and safetyregulation as the most important item in the codesin operation. This was because of the environmen-tal risks involved in working with pesticides andfertilizers in the agricultural sector. The regularworkers reported that they had benefited fromenvironmental regulations, such as Milieu Pro-gramme Sierteelt, and the more specific environ-mental regulations for horticulture and the flowerindustry. They had received more protection against,and information on, the chemicals that they workwith as a result of these codes. Generally, however,the workers agreed that the regular workers bene-fited more than the casual ones. This was also theview of the managers of the farms and plantations.The majority of workers held the view that the codeswere “good documents with no benefits.”

In India, workers in the factory selected for inter-views clearly benefited from a modern humanresource management policy of the company. Theworkers knew too little about the codes to verifywhether improvements in working hour adminis-tration, safety norms, welfare policies (includingmaternity benefits), free transport, and sports facil-ities were the result of code implementation or of ageneral policy of the company. Among the coderegulations ranked by workers, health and safetyregulations were most appreciated followed by

Table D2 Gender DistributionChina Honduras India Kenya

Male 17 21 9 NAFemale 41 39 12 NA

NA, not applicable.

overtime and discrimination regulations. Workersin the garment factories in the same area outsidethis particular factory reported that only a few ofthe benefits of the codes accrued to the casuallaborers.

In Honduras, workers emphasized salary regula-tions as the most important component of the CSRcodes. They also stressed that they had benefitedfrom better security and health regulations in thecompany. Workers perceived that a strong imple-mentation of regulations under CSR would con-tribute to reduce the propensity to strike. Thecodes would even make unions redundant, accord-ing to some workers.

In Kenya, some workers regretted the overtimerestrictions introduced as a result of the codes, butgenerally workers did not report on particulartradeoffs of the processes of code implementation.

THE ROLE OF TRADE UNIONSConflicts or disputes were generally muted or sup-pressed in at least three of the countries. Disputeregulation only seemed to be institutionalized inthe Indian company where a grievances committeewas operating. In India, the human resource man-ager in the selected company was in regular con-tact with workers, and responded quickly todemands raised in meetings. This was said to takeplace because of the company’s policy to avoid theformation of a trade union. Workers, on their side,did not have too much faith in trade unions.

In Kenya, the trade unions were reported to beweak. They clearly did not play important roles inthe implementation of the codes, or in any han-dling of disputes, according to the study. Workersnevertheless ranked freedom of association andthe right of collective bargaining as the secondmost important item of the codes, surpassed onlyby health and safety regulations.

In China, two of three companies tried to suppresstrade unions, and in the third, the company man-agement appointed the chairman of the union.Workers did not have any channels of redress thatthey could use, and the companies had done littleto engage workers in code implementation.

Unions also seemed weak in the Honduran facto-ries. They do not seem to have played any major

role in the code implementation or disseminatinginformation about code regulations. Managementperceived code implementation in Honduras to bea way to escape conflicts. With regard to tradeoffs,some workers in Honduras suffered from therestriction on overtime, but this was not a consis-tent complaint.

MONITORING AND THE PROCESSES OF IMPLEMENTATIONOne important point stressed in all the countrystudies is the crucial role played by the monitoringand auditing of company implementation of thecodes. It is through this kind of external reviewprocess that enforcement becomes either real orjust “eye-wash”(or cosmetic, as it was translatedliterally from Chinese in the report).

Regular buyer monitoring and auditing was onlydone with some consistency in the Chinese com-panies, with the result that the codes were givenforce in some areas. Despite this, some of the Chi-nese workers believed that monitoring was super-ficial and that issues, such as wage levels,overtime, and the protection of pregnant workerswere not dealt with. Chinese workers also believedthat auditors bypassed workers’ opinions whenvisiting the companies.

In India, regular monitoring did not take place,according to the study. The enforcement of codeswas especially weak in the smaller export compa-nies in the apparel sector.

In Kenya, auditing systems were in place, andcompany committees were being establishedunder the respective codes with a monitoring role.However, workers distrusted auditors strongly andsaw them as representatives of management.Auditing was seen as a measure of publicity, andthe committees established did not have clearterms of reference. The committees were unable toperform any effective monitoring because of lackof knowledge. Worker involvement in monitoringtherefore remained weak. The codes were seen astop-down measures in China as well as in Kenya.

Not all workers in Honduras trusted auditors, butsome workers claimed that the auditors could betrusted and that they were not in the pockets of thecompany. Others saw them as foreign representa-tive who did not speak the language. Consistent


Summary of Worker Consultations 109

with the other countries, workers in Honduras pre-ferred that their own representatives becameinvolved in monitoring.

Management in Kenya and China complainedabout the plethora of codes in existence. The dif-ferent types of regulation, and in China satisfyingdifferent audit procedures, were clearly a burdenon the companies.

CONCLUSIONS AND WORKER PERSPECTIVES OFPOSSIBILITIES FOR CHANGEIn summary, the worker consultations showed lowawareness among workers on what codes of con-duct meant. They had little specific knowledge,and did not feel ownership of the codes in opera-tion. Workers were scarcely involved in the imple-mentation of the codes and in monitoring and audit.Management saw participatory measures or theinvolvement of unions more as a problem than anopportunity and, in some cases, the workers them-selves felt no trust in the unions.

Despite these shortcomings, some workersreported that the codes had provided benefits interms of health and safety measures, welfare, andovertime regulation. Workers in Honduras appre-ciated guidelines on salary level the most. Workersin India also ranked the regulation on discrimina-tion measures as important. Generally, however,workers emphasized that regular workers ratherthan casual laborers benefited. With respect to gen-der issues, where female workers constituted ahigh proportion of the employees as in China orwhere the company made an effort to implementwelfare benefits, female workers were targetedwith relevant measures, though not in all cases inChina. Child labor was nowhere found to be aproblem. Women highlighted improvements inrelation to a former practice of hiring heavily preg-

nant women in Honduras. In the Indian case, thecompany took particular precautions to avoid theemployment of children.

In addressing prospects for improving the codes ofconduct, workers emphasized the following itemsin particular:

� Better and more wholehearted monitoring andauditing procedures are needed. This includedbuyers as well as management of the companieswho were seen to be either indifferent to theproper implementation of the codes or who usedthem mainly as publicity and marketing mea-sures. Insufficient motivation of managementand of buyers was clearly seen as a major barrierof implementation among the workers. Bettermonitoring and auditing was linked to thestreamlining of codes so that managementgroups were left with less cumbersome tasks ofcode implementation and regulation.

� Enhanced involvement of workers in the moni-toring processes was emphasized as an importantmeasure of strengthening code implementation inall of the studies, possibly as part of a tripartiteprocess, but unions would not be the right choiceof representation in all cases.

� Better information and dissemination of the con-tents of specific regulations of the codes to theworkers was emphasized as a means of strength-ening code implementation and reinforcement;this latter dimension could include training ofworkers. The current method of dissemination inuse in most companies of posting information onthe codes in posters on the factory walls wasinsufficient, not least because this method wasbuilt on an assumption that all workers had liter-acy skills to understand the text.

� Differences between benefits for casual and reg-ular workers prompted workers in the consulta-tions to reflect about the general practices of someemployers to mainly rely on casual laborers.

STRENGTHENING

IMPLEMENTATION OF

CORPORATE SOCIAL

RESPONSIBILITY IN


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October 2003

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