Raising Human Rights Standards: Global Companies Lead More Than You Know
By Brad Hansell, Skytop Associate / December 16th, 2021
Maureen Kline is a board member of Pirelli North America Inc. and a member of the company’s pension benefits committee. She chairs the board of the Tire and Rubber Association of Canada, leads the Sustainability Task Force of the US Tire Manufacturers Association, is on the Corporate Responsibility Steering Committee of the Detroit-based Automotive Industry Action Group, and the Standards Advisory Group of the Sustainability Accounting Standards Board (SASB). At the Public Affairs Council, she is a board member and chairs the CSR Network. She is currently a columnist for Inc.com writing on the topic of sustainability. She is an adjunct instructor with Clarkson University, teaching Enterprise Sustainability to engineering professionals in the MSEM program.
Alice Tepper Marlin is the Founder and President Emerita of Social Accountability International. Alice has served as an Adjunct Professor of Marketing and Ethics at New York University Stern School of Business, which honored her as a Citi Distinguished Fellow in Ethics and Leadership in 2007. She has been a frequent public speaker on corporate accountability, appearing on CNN, Good Morning America and the Today Show. She has been profiled in various publications, including People, Time, The New York Times, and Vogue.
Tu Rinsche is a member of the Verité board of directors. Previous roles include Director, Social Impact and Global Responsibility at Marriott International and Manager, External Engagement and Collaboration at The Walt Disney Company, where she developed and led a multi-million dollar social innovation fund that supports human rights projects in promoting ethical sourcing, particularly within the consumer products industry. She is also the recipient of Nomi Network’s 2019 Corporate Social Responsibility Award. Tu recently founded All Rights Advisors, a new global, human-centered, rights-based agency committed to catalyzing action around environmental and social sustainability.
Cameron Munter is a retired diplomat, academic, executive and Skytop contributing author. He is Senior Fellow at the CEVRO Institute in Prague, and Non-Resident Senior Fellow at the Atlantic Council in Washington. He was U.S. ambassador to Pakistan 2010-2012, and to Serbia 2007-2009. He led the first Provincial Reconstruction Team in Iraq in 2006. In Baghdad he was Deputy Chief of Mission 2009-2010. He also served as Director for Central Europe at the National Security Council in the Clinton and Bush White Houses. He taught international relations at Columbia Law School and at Pomona College. In 2015 to 2019 he was President and CEO of the EastWest Institute in New York. He is a member of the Council on Foreign Relations and the American Academy of Diplomacy, and serves on corporate boards and nonprofit boards.
Outsourcing Triggers Change
When outsourcing, companies face a multitude of problems to overcome or avoid entirely. They may be in product manufacturing with issues like faulty, toxic, or counterfeit goods, or in human rights with worker conditions or compensation. Many recall the Nike scandal that set the table for a conversation about the responsibility of large multinational U.S. or European companies who are expected to manage against an emerging global standard, largely driven by the West.
However, shareholders and human rights advocates have had to balance the process of achieving a set of basic operating guidelines for uplifting human rights in historically challenging countries.
Cameron Munter, who served as an American diplomat in such dicey situations as Eastern Europe, the Balkans, the Middle East, and South Asia, notes that it’s a question of knowing what’s right and what’s possible. He notes that these need not be contradictory. “Doing what you must now, in a way that makes it possible or even likely to get what you want later, is the essence of good diplomacy.”
According to Maurine Kline, Chief Sustainability Officer for Pirelli Tire, “ the increase of labor standards is often a side effect of company outsourcing where one region triggers moving to a less developed region, bringing wage increases and other standards within the relocation.”
She further adds, “Globalization moves fast. You may start with a factory in China, where labor standards and wages rise, and your outsourcing costs more than it would to have that factory in Vietnam. So you move but those higher labor standards you brought with you to China stay, thus positively affecting the worker’s rights of that country. The same will happen in Vietnam as you hypothetically move elsewhere when wages rise. Globalization is positively affecting the world in that regard as the U.S. and U.K. bring higher labor standards to countries where they outsource labor. Hypothetically child labor will eventually be eradicated as companies achieve compliance with global labor standards.”
Worker Rights Radiate Outward
In addition, there are a slew of other problems a company might face when trying to compete internationally. U.S. laws notably hold employers to a higher standard on worker rights and when applied internationally may render U.S. companies as uncompetitive on the global stage.
One example is in the area of bribery and corruption rules.
China’s rules are relaxed when it comes to competitive concerns, allowing for practices that are considered illegal by U.S. standards. Bribery only recently became illegal (2011) under Article 163 of China’s Criminal Law.
A greater percentage of corruption occurs during the corporate or supply chain procurement process, often leading to fraud or embezzlement. China serves as one of many examples of foreign competitors with laws that allow for a lower standard of expectations when regulating bribery and corruption as well as worker’s rights and compensation laws. Other laggards include India, Russia and Brazil. “Make the effort to understand your partners. They often don’t know how you propose to deal with issues like labor standards. You have to have the patience to understand why the situation is what it is,” states Munter.
Devil’s Bargain with India
The U.S., a staunch ally of India, finds itself in a devil’s bargain. Dealing with women’s rights and child labor presents its own set of challenges, made more complicated by the fact that U.S. companies are among the violators of human rights. Alice Tepper Marlin, Chairman of the Board of Social Accountability Institute, argues that, “As such, this will be a challenge for the Biden Administration to overcome. With a heavy reliance on the State Department and Department of Labor, the Biden Administration will have to increase its diplomatic efforts to effectuate change.”
A question looms unanswered. Will the U.S. speak up for human rights in India, whether the country is an ally or not? Cameron Munter shares that, “At the diplomatic level, among officials in the capital, of course the United States will speak up for human rights. But more fundamentally, will that be seen as just words by out-of-touch elites who don’t know the situation on the ground? The key here is honest communication between U.S. government representatives and U.S. businesses, in which an embassy informs the company what it stands for and the company informs the embassy the best way to integrate those policy stances into concrete and useful support at the local level.”
Tepper Marlin speaks on India’s current situation due to COVID-19, “Back to India, because of COVID-19, unemployment rose drastically and now people face malnourishment, on top of issues they were having with religious discrimination. India is largely reliant on the U.S. for help in getting back on its feet, specifically in vaccines to help the economy get back up and running. If they don’t recover, there will be more child labor and corruption experienced.
Federal Law Prevails Outside the U.S.
This problem poses a danger to U.S. companies. Domestic companies are liable in federal courts for their outsourced third parties’ activities, even if unaware of the third parties’ illegal practices or if those practices aren’t illegal in the country in which the practices occur. An example is Nestle, a global company that has had occasional encounters with labor laws illegal in the United States. In 2020 the Supreme Court held hearings with food giants Nestle and Cargill where a lawsuit was filed after claims of both knowingly buying cocoa beans from farms in Africa that used child labor.
Mitigates Risks and Maximize Outcomes
An investment in quality assurance is an important aspect in mitigating company risk. The risks may involve outsourced products of shoddy quality due to cutting costs, poorly managed production, or illegal procurement or manufacturing practices.
Quality assurance and quality control are often conflated. However, the two occur on opposite ends of production. Quality control refers to the testing of products for functionality and form, typically happening directly before the product hits the shelves whereas quality assurance is the process that takes place before, during, and after manufacturing, to assess compliance with company standards. Quality assurance is a system for improving and refining processes.
Kline sheds more light into how quality assurance is managed at Pirelli, “In Southeast Asia, Pirelli harvests rubber from rubber tree farms set up in Singapore, in which of course Pirelli carefully traces the supply chain of that rubber. We do this by teaching sustainable practices to our rubber farmers, such as not deforesting and trying to cut down on farmland while increasing the amount of rubber harvested from each tree. On top of sustainability practices, Pirelli gives scholarships to the children of rubber farmers to pursue formal education.”
Vetting Suppliers Does Matter
Getting involved early is critical in choosing an outsourced, foreign manufacturer. A good first step is to audit potential partners to detect corrupt, illegal, or morally unprincipled activity. Key concerns are to know where they get their employees and if they are certified or adhere to any international standards. Do they have acceptable documentation? What problems have the potential partners faced in the past and how have they moved beyond them?
Setting up clear and frequent communications between the potential partner and the company is important. Any company should then finalize their relationship with an overseas partner by providing a list of company standards and requiring them to adhere to these standards. Random onsite inspections should also occur to ensure those standards are being adhered to.
Kline explains how Pirelli vets their prospective overseas manufacturers. “In terms of vetting for quality assurance? Pirelli has two sectors, one is Human Rights due diligence, the other, environmental. Environmentally, Pirelli teaches farmers sustainable practices and is part of the Sustainable Natural Rubber Collective in Singapore, with some other companies who also harvest rubber in the area. Pirelli has 12 Human Rights Pillars, company standards set that everyone involved in the supply chain complies to. Pirelli, apart from the Sustainable Natural Rubber Collective, publishes their public policy, a code of ethics, and a following, much lengthier, implementation manual for managers working in quality assurance abroad.”
Logistically, a company should be knowledgeable on the foreign country’s documentation, customs, and laws surrounding business practices and human rights.
“More important– a company must spend the time to find out when laws are actually followed. This requires a cultural sophistication that is usually the result of experience and keen observation. One of the great failures of American efforts in recent decades to export ‘rule of law’ programs has been an inability to understand the local importance of laws — whether they are taken seriously, whether they can be enforced — and to assume that something that appears on the books is in fact a description of what happens in real life,” adds Cameron Munter.
Companies Seed Competitive Labor Markets
When debating globalization, one of the most discussed topics is global trade and workers’ rights. Countries that want access to global markets should adhere to basic human rights standards. Globalization can be used positively in that as the United States and European Union expand globally, so expands the domain of human rights for workers.
Of course, a more profit driven perspective might keep labor standards low, allowing a country to maintain competitiveness but at a direct cost to its own producers and consumers. China, for example, might reject a trade deal that has enforceable labor laws, but is enticing otherwise. However, this creates an unfair market advantage for countries with lax labor laws compared to those with stronger labor safeguards. If a global minimum standard was set on workers’ rights, it would be much more economically sustainable than totally abandoning it in a race to the bottom fueled by cutting production costs. “This argument for higher global labor standards can be looked at empirically rather than with just a battle of morality”, Tepper Marlin shares.
She adds, “SAI is working on implementing compliance standards all over the world with great success, with over 2 million workers compliant worldwide in factories and farms, etc. From the China example, hopefully, there will be no hesitation in speaking up for human rights, whether the country in question is an ally or not. Another angle that compliance must grow into is the private sector, specifically strengthening commitments to robust standards, managing supply chains, and managing the impact of COVID-19 on the global market.”
Minimums Don’t Count
Baseline standards are set through the International Labor Organization (ILO), the only tripartite United Nations agency that was made to advance social and economic justice through setting international labor standards. Tu Rinsche, former corporate responsibility executive at Marriott and Disney, adds in “For countries, the first step is to ratify the relevant ILO, particularly pertaining to modern slavery, human trafficking, and/or forced labor. Once ratified, implementing labor standards require national laws that address the full scope of the issues, not just on one aspect of it.
The big challenge for many countries is around enforcement of existing laws that protect workers. Another area for improvement is insufficient penalties and poor prosecution actions. For companies, meeting basic country-specific compliance isn’t enough. The key will be for companies to consistently implement their corporate human rights policies, applying the strongest standards, across their global operations beyond the first tier.”
If a complaint is filed against a member State, the ILO launches an investigation into the alleged perpetrator and publicizes its findings. The ILO can investigate alleged violations even if the nation or manufacturer isn’t ratified in the freedom-of-association conventions or doesn’t recognize the ILO.
While the ILO can’t apply sanctions or penalty/retaliatory trade measures, it can provide counsel or technical assistance to countries to bring their labor laws into compliance. Due to the ILO’s inability to punish offenders with sanctions or trade measures, many are skeptical of its effectiveness globally. Tepper Marlin supports, “ILO conventions set standards, and strong ones at that, both robust and tactical, for every country in the world. Implementation is the problem; ILO standards haven’t been as widely adopted as they’ve hoped.”
Digging Out of the Rigidity Ditch
Besides the ILO, the U.S. has its own standards set by the U.S. Trade Act of 1974, which defines “internationally recognized worker rights” to include “acceptable conditions of work with respect to minimum wages, hours of work, and occupational safety and health.”
Workers do have this right to acceptable conditions of work with respect to wage, hours, safety, and health, but that right may come at the direct cost of production efficiency, which is where foreign competitors that don’t need to comply with U.S. standards of acceptable worker conditions gain an advantage.
Insisting that other countries follow American standards can be counterintuitive in some cases.
An ILO standard often criticized is their standards for child labor. Wealthier countries like Luxembourg, Switzerland, Norway and the United States restrict children’s participation in the job market so that they can gain an education and prepare to become skilled workers in the labor force. That seems perfectly sensible, but in countries where the GDP per capita is much lower, such as Belize, Pakistan, Nicaragua or Nigeria, children’s earnings are a crucial family resource for necessities, or education might not be as readily available when compared to high GDP per capita countries.
These restrictions aren’t necessary. “The question is whether the short-term needs of families — which leads to things like child labor — is more important than the long-term needs of a society, in which the ongoing influence of the foreign investor contributes to the prosperity and general welfare of the host country, making such practices as child labor unnecessary,” remarks Cameron Munter.
Tepper Marlin shares, “Most countries that struggle with child labor, gender inequality, hours of work etc., struggle with enforcement and culture compliance, with the biggest overall problem/driver, being poverty. Countries that get out of these ruts find success largely in the increasing education of girls, who when entering the workforce, play a significant role in standards of company culture compliance.”
Global Standards Yet Local Variances
Of course, the children in those lower socioeconomic status countries merit those rights. It’s just a different set of standards, which makes a global standard difficult to implement.
With all these factors, it’s still up to the firm to decide where to outsource, and it will speak to your brand image whether your factory or office is based in Norway or Nicaragua. In a world where investors are beginning to care more about ecology and a company’s environmental impact, boards should also consider the opinion of investors when choosing the labor standards of where they conduct their business.
Ignorance Is Not a Credible Defense
Of course, if U.S. based, you’ll still have to comply with the standards set by the U.S. Trade Act of 1974, but there are clear high and low roads, and it’s becoming obvious which companies have invested in company quality assurance and which haven’t.
Rinsche summarizes, “Do your human rights due diligence. Understand the laws that may directly impact your company’s registration and operations in countries where you have a presence or do business. Collaborate with your corporate peers on supplier engagement and remediation efforts at the local level with credible civil society organizations. Nowadays, there is absolutely no excuse for a company to not know what modern slavery is nor how to integrate global labor standards within its policies and operations.” Mandatory human rights due diligence will become the norm so companies can either get ahead of it or be a straggler and play catch up–a negative for shareholder value, cost of capital and access to markets.
The point: think globally yet act locally and expect to straddle the gap between what’s desired and what’s possible to advance forward.