Thursday, February 16, 2012

Overseas Factory Abuses are a PR Nightmare for U.S. Companies

By Richard E. Nicolazzo

Hasn’t the time finally come for U.S. corporations to clean up their acts when it comes to overseas supply chain abuses?

A long-simmering problem, the issue bubbled up recently with the announcement by Apple that an outside organization has begun to audit working conditions at the plants where the bulk of iPhones, iPads, and other Apple products are built.

The news comes on the heels of stories in the New York Times and a 60 Minutes piece that sharply criticized the “notorious” Foxconn City plant in Shenzhen, China, which human rights advocates claim has 230,000 employees subjected to long hours, coerced overtime, and other deplorable working conditions. Not surprisingly, Foxconn disputes the allegations.

How bad is this place? The 60 Minutes story showed video of nets surrounding the building to prevent suicidal workers from plunging to their deaths from the roof. And it’s not just Foxconn. Quanta and Pegatron, two other plants that make products for Apple, are also under fire. These and other facilities build goods for almost every other major electronics company, including Dell, Hewlett-Packard, IBM, Lenovo, Motorola, Nokia, Sony, and Toshiba.

This particular problem is not new for Apple. Two years ago, 137 workers at an Apple supplier in eastern China were injured after they were ordered to use a poisonous chemical to clean iPhone screens. Last year, two explosions at iPad factories killed four and injured 77.

Apple’s move to get outside help verifies that public relations fallout from factory abuses is real and can damage highly-successful companies. Allowing these horrible working conditions goes far beyond the numbers.

Sure, with a current market value of more than $469 billion, Apple is the largest company in the world. But what good is that if the company is perceived as being complicit with operators of plants that are sending manufacturing back to the early days of the industrial revolution? It’s difficult to precisely measure how much this negative press might hurt Apple’s stock, but this week the shares dipped $10.

What is going on in China and other Far East countries is reminiscent of the textile industry in the U.S. during the early part of the 20th Century. After relentless pressure from human rights advocates and brave souls like Norma Rae, who defied Dickensian conditions in North Carolina factories, the industry cleaned itself up.

The sheer size of Apple and the pervasiveness of its products around the globe have magnified the issue to the point where something might actually get done to address the problem. Now there’s a new twist: After years of resisting, Apple has started to divulge information on its website and in regulatory filings that cite some of the abuses it has uncovered.

Problems for Decades

A number of high-profile U.S.-based companies have been criticized for decades for their overseas manufacturing processes. Giants like Nike, Reebok, the Gap, and Disney have all had flare-ups that sound a lot like what is happening to Apple. If current news reports are on target, and there’s reason to believe them, the Far East sweatshops have been paying lip service to the problem.

The decision by Apple could be just enough to kick off major changes in the manufacturing industry, since many companies use the same suppliers. There is also the halo effect because it’s Apple. Given its prowess, how can other companies afford not to follow the current king of all electronic gadgets?
Some have already jumped all over Apple because the Fair Labor Association (FLA), the group now inspecting the factories, is partly funded by American companies. Judy Gearhart, executive director of the International Labor Rights Forum, has been quoted as saying, “The FLA is part of a corporate social responsibility industry that’s totally compromised. The auditing has proven to be weak, and real solutions need a lot more than auditing. It takes empowering workers.”

Gearhart and other critics have a point. In my view, corporations should have these inspections conducted by totally independent organizations. Benchmarks are also required. Outside groups need to survey the plants, speak directly with employees on the line, understand current conditions, and return a year later to perform the same survey again. Otherwise, how can the public be assured that actual changes and improved working conditions have been implemented?

Profits aside, most people want to do business with companies whose supply chain employees are treated humanely. Let’s hope Apple’s new initiatives and efforts by other large multinationals make a meaningful difference in working conditions. Otherwise, companies run the risk that “corporate irresponsibility” will cost them billions in sales from consumers who’ve had enough of this despicable behavior.

Richard E. Nicolazzo is Managing Partner of Nicolazzo & Associates, a strategic communications and crisis management firm headquartered in Boston, Mass.


Joe M. Grillo, partner, and Linda Harvey, director of client services at Nicolazzo & Associates, contributed to this blog.

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