In the first CSR Breakfast roundtable, hosted by Ethical Performance and London-based consultancy Lumina, an invited group of senior fashion industry CSR professionals discussed the ethical issues facing their brands’ international supply chains. To encourage open dialogue and help identify solutions, Chatham House rules applied and none of the quotes are attributed
Another year, another set of Champagne-fuelled parties: fashionistas know how to celebrate away from the catwalk. And why not? Fashion is big business: the British fashion industry, for instance, is worth an estimated £21bn ($33bn, e26bn).
Set against the glamour, wild parties and personalities, the continuing trickle of stories about child labour, below-subsistence wages and questionable sourcing practices suggests an industry that cares little about workers lower down the food chain. And though no scandal-hit fashion brand has yet suffered a killer customer backlash, just how long can this last?
Increasingly, fashion brands do promote ethical values, but face powerful forces that maintain the status quo of low pay, uncertain business and slim margins. But it’s also clear that management leadership and some rethinking of key points in the business, brands can make a significant difference.
The buyer-supplier relationship
One such key point is the buyers’ relationship with developing-world suppliers, a relationship that intersects a cultural and economic chasm. On the one hand, buyers have little or no direct knowledge of production processes, working conditions, costs and challenges, or of how and where materials are sourced. On the other, suppliers and workers are dependant on the buyer for their livelihoods and so, by extension, becomes seen as a means of achieving ambitions, dreams and aspirations that are, in most cases, unobtainable. Thus follows a merry dance in which neither understands the other.
This “unequal power dynamic between brands and suppliers”, as one CSR professional put it, is in large part a function of trading uncertainty and the lack of a living wage for workers. So while suppliers constantly look to impress buyers and demonstrate their business virility during visits in a bid to cement their position, the buyer may draw different conclusions. She said: “Suppliers want to make you feel they’re successful. They might rent a car for a week, show you around and look after you. We then feel they’re clearly doing very well so are able to give us a better margin. But we need to know the cost price. Would they or their workers take the hit?”
Sharing such information could be problematic between two companies in the same culture, let alone between such unequal partners. Said a colleague: “How can we see our suppliers’ open costings? We wouldn’t provide open costings ourselves – and, even if we did, they [the suppliers] wouldn’t know what they were looking at.”
Though brands are becoming more engaged with these issues, the dialogue about margins and the cost of improving working practices and facilities is often fraught, particularly where the supplier fears the loss of business to a competitor which has made no investment in CSR but can offer a better margin.
This uncertainty often means that a supplier, operating in a market where workers are employed on casual daily contracts, is not willing to invest in its workforce and factories. “Many workers are happy,” said one CSR manager. “The staff are looking for growth opportunities and will stay if they can see them. In Indian factories, for instance, you can really see the true cost of that, with HR departments constantly having to handle recruitment and departures.”
Workers typically have little contact with buyers, yet their role and expertise is a crucial part of the production process. Their casual status deprives them of a voice. “This is where the benefit of organised labour comes in,” said one brand CSR manager, “where workers have the nous, capacity and knowledge in the business to be able themselves to say ‘our wages have gone down, you need to pay us more’. How do we work this? We’re always trying to manage things top-down, but it must be bottom-up too if it’s all going to come together.”
Workers pay and rights is a thorny issue for western brands, in large part due to history and the mutual mistrust between management and some of today’s unions. There is also a fear that allowing labour in developing economies to unionise will simply empower a hitherto silent underclass to further an agenda of undeliverable demands.
“Most [brands] look at the labour movement as completely terrifying,” said one CSR manager. “They’re scared about what the people can’t have.” And another added: “There’s a lack of understanding about what unions can do. It’s a misconception. For many, unions equal strikes. We need a better union set-up. Many unions [in the UK], for instance, don’t help themselves. The quality of their engagement on the issues is poor. They need to stop seeing retailers and brands as the enemy.”
Investment in the workforce
Managing expectations, however, is a potentially explosive process that most brands avoid. One CSR manager said that workers at some foreign factories are “allocated to a dormitory, which they share with eight other people. They want to work more so they can save their money and get home – they can be working 80 or 90 hours a week. What they really want is a good job where they can get training and have their families with them. We are imposing western standards on people who are not able to achieve them.”
Increased investment in the workforce is seen by many as an essential precursor to improving supplier businesses as high staff turnover comes at a cost. Suppliers are not in a position to value, retain and build on their workers’ skills and knowledge. From a position of greater economic strength comes the prospect of a stable supply chain in which skills can be developed through training. Greater staff engagement also helps to create efficiencies, though suppliers often need convincing of this.
Training the buyers
M&S blazed a trail when it launched Plan A in January 2007, and one lesson quickly learned was that greater engagement between buyers, managers and suppliers brought significant business benefits. But if engagement is to work, brands also need to look at their own skills base.
A former M&S CSR professional said: “M&S had a really strong engagement programme with suppliers. It included HR training for middle managers and rights training for workers in factories. M&S saw amazing results. Absenteeism dropped 30% and there was a 20% drop in staff turnover. That engagement really seemed to work. It’s not cheap, but it quickly pays for itself, through better productivity, lower recruitment costs and time.”
The high cost of CSR
Despite its cost, CSR managers believe comprehensive buyer training would benefit the brand-supplier relationship, because the resulting cultural awareness would engender a more sophisticated business approach. One ethical brand CSR manager said: “The relational aspect of our supply chain is really important because businesses do not deal well with human messiness.”
And another added: “In most cases, the buyers have never seen the production process. There is a tendency to under-estimate their desire to see it. Buyers receive training on fashion and design, but not on the ethical side. This needs to change, but promote it and you can easily find yourself screaming into the void of margin reduction.”
And therein lies the problem: if a brand implemented everything on the CSR agenda, the costs could easily price the product out of the market. This and the limited contact between buyer and supplier has an economic logic that, left to its own devices, reduces the supply chain to a set of commodities.
Measures of change
Humanising the process, however, is not easy as many key indicators are difficult to measure, as evidenced by CSR managers’ mistrust of auditing processes. One admits to giving up on auditing altogether because it is not a reliable means of identifying factors that, for instance, affect worker performance.
Said a CSR manager: “At one factory, we discovered the workers have never had access to water. Had I ever noticed that? The auditing process seems to be more of an information gathering exercise.” Another simply added: “We don’t do audits – it’s all so subjective.”
Many believe audits must become more sophisticated and wide-ranging to become a process that drives improvement. Said one: “The problem with auditing is it’s take, take, take. There is nothing, for example, that rewards companies for training. If we are going to be better, we need to understand more. We need to find better ways of measuring training and the results.”
Despite the apparent slow progress on these issues, there are real grounds for hope. M&S showed that, where supplier engagement is driven by senior management, shortcomings around auditing and the mismatch of expectations, skills and market realities can be reduced. Many CSR managers feel that senior managers have the power to drive change. Said one: “If there are clear directions from the top and a structure that gives power to buyers, then they can take this stuff and run with it.
“We need buyers that love fashion and what they’re doing. We need to put them in programmes where they can use materials and help someone become a fully functioning supplier. It’s humanising.”
Given the very human role that fashion plays, such an ethos can become a powerful brand strength, reflected in its marketing, product positioning and merchandising. One CSR manager concluded: “This is a way of selling. Every business worth its salt is looking at how to manage itself better, but we tend to think in narrow ways. It really has to come from within and has to be price orientated. Then the output will be right. Forging networks and relationships outside could be the way forward and there should be placements to help junior buyers get out and see a factory. Think of the value of a buyer having that as part of their training.”
CSR Breakfast is an invitation-only roundtable discussion of ethical issues. This report reflects the discussions at the first event, on the fashion industry, in April. For details, visit the CSR Breakfast LinkedIn group at www.linkedin.com
• Originally published in Ethical Performance in June 2012