October 9, 2020
Rethinking MSIs: Restructuring MSIs to Improve Social Compliance in Supply Industries
Posted by Zobaida Khan
After the devastating and avoidable collapse of the Rana Plaza in 2013 in Bangladesh, two innovative multi-stakeholder initiatives (MSIs) emerged: the Alliance for Bangladesh Worker Safety (“Alliance”) and the Bangladesh Accord on Building and Fire Safety (“Accord”).
They engaged a diverse group of regulatory actors (local suppliers/producers, foreign buyers, the International Labor Organization, the national government, and activist networks), regulatory mechanisms (for operating, financing and monitoring safety inspections), and detailed standards or rules in order to ensure factory safety for garment workers. Moving beyond voluntary codes of conduct and “Do No Harm” policies, these MSIs introduced significant institutional changes in corporate responsibility. They included stronger sourcing policy, improved safety of factory premises, and public reporting of corporate compliance. Indeed, unlike traditional international standard-setting MSIs, the Accord’s terms were legally binding between brands and trade unions. This is the first time an MSI allowed legal enforcement of its provisions and obligations in a transnational labor regulatory setting. Although the terms of both programs have ended, these MSIs attempted to address the regulatory deficiencies created or overlooked by the national government and the supplier factories.
Yet, with continued evidence of a race to the bottom for wages and working conditions in supplier factories, brands offering cut-rate sourcing prices, and recent reports on the costs to the jobs, health and work entitlements of millions of laborers due to COVID-19-related supply contract cancellations, academic and policy debates are focusing on MSIs’ structural and functional effectiveness and the possibility of restructuring these to deliver social justice oriented results:
How could MSIs be more inclusive in their formation?
How could MSIs lead to long-lasting influence on corporate sourcing policies and improvement of work conditions and entitlements?
Although these issues appear separate, I argue that to properly address diverse compliance challenges in supply chains, there needs to be a coherent and connected restructuring of MSIs that both strengthens their participatory mechanisms and influences the transformation of our liberal market system’s dominant business model.
Greater participatory space
While some have argued that MSIs aggravated the post-World War II labor disempowerment process by excluding true representation of labor in their governance, the aforementioned initiatives created participatory governance models in supply chain businesses. Both insisted on unionization and greater participatory space for laborers in supplier factories, promoted strong labor standards in their monitoring processes, or influenced the corporate codes of participating brands. Yet, after years of MSI involvement, shadow unions that are constantly under threat and have slim worker representation are still the norm in garment supply industries. The sourcing brands (some of which are participants in these initiatives) provoke the continuance of these anti-union practices and lack of respect for associational rights through their search for lowest-cost producers/suppliers. Additionally, by relying on ineffective audits and failing to take corrective action when clear violations are detected, some brands incentivize further violations.
More surprisingly, these initiatives precluded any form of collective strategic response from laborers, failing to provide enough space for discussion or information-sharing between different labor representatives working with different suppliers. To make it more complex, in supply chain businesses it is difficult to ensure compliance at the supplier level unless managers of factories formally adopt these standards in their internal management. Therefore, any effort to redesign/rethink the MSI model should incorporate plans for A) effective factory-level unionization; and B) creating more space within the MSI model for laborers to connect themselves with others working with different suppliers and to challenge the initiatives’ governance arrangements that affect them.
Better business model
Although greater participatory space helps to generate collective demands for appropriate labor rights and ultimately leads to institutional strengthening, meaningful and long-term structural change that benefits laborers needs to focus on the possibility of transforming the existing model of doing business. The underlying connection between these issues is obvious: realization of the one depends on the other. For example, if sourcing brands are allowed to shut down production firms abruptly, unilaterally terminate supplier relationships, or source from lowest-cost producers/suppliers, then what would prevent producer/supplier companies from searching for less regulated markets and “better” deals? If the buyer-dictated supply contracts continue to put downward price pressure on the suppliers, what would prevent the suppliers from minimizing or falsifying their social compliance efforts? My own data-based research showed that elaborate safety and social compliance demands from brands, declining sourcing prices, and increase of garment laborers’ wages in Bangladesh are seriously affecting or undermining factory managers’ social compliance willingness and capacity.
Therefore, only by connecting the fairness in supplier relationships with a model of employment where labor has ownership and/or greater participatory space, would it be possible to create the potential to support and sustain labor rights for a longer period of time. In other words, MSIs regulating supply chains need to focus on transitioning towards a better business model (by participating brands of MSIs) and a better employment model (at producer/supplier companies). I present here some relevant ideas:
Fairness in supplier relationships should be maintained both at the time of negotiation of the supply contract and during and after the supply process. While a steady supplier relationship, minimum benchmark of labor rights, and participatory, transparent sourcing and pricing policies would positively impact factory level wages, work conditions, and entitlements, a similar effort is necessary for the post-supply monitoring phase. Reportedly, rather than conducting rigorous assessments, sourcing brands often rely on simple box-checking and calculating how much money was spent on monitoring or sustainability reports on the social, economic, and environmental impacts of corporate operation. Such ineffective, non-transparent audits exacerbate the sourcing challenges that result from the asymmetric power of brands over suppliers. In its place, independent post-supply monitoring should include a formal process for mapping and reaching out to the suppliers and receiving feedback on sourcing policies, the nature of the business relationship, and barriers to social compliance. For example, it might be useful for audits to analyze whether and how sourcing prices incentivize standards compliance. Some of the expenses incurred to conduct these reputation-focuses sustainability reports or social audits would be better used.
With deep power imbalances between capital and labor, it is time to rethink how the participating stakeholders at MSIs could influence the existing business model at the producer/supplier level. While corporate structures until now have focused mainly on increasing shareholder value, an important discussion point is the ownership of companies by laborers in different forms: laborers having a share in capital, profit-sharing, and finally, a voice in decision-making. These alternative employment models, such as cooperatives and ESOPs, mostly operate to benefit direct employees of corporations and not all workers in the supply chain. In order to replicate these models in the factories of supply chains, some crucial questions need further research: if supplier companies can avoid unionization by forming shadow unions or by maintaining two different books relating to wages, work conditions, and indirect sourcing policies, how could it be ensured that corporate structures actually accommodate meaningful representation of laborers? If the export-focused national policies continue to prefer underfunded labor ministries and to sideline enforcement of codified labor laws, how could the worker representation/ownership MSIs insist on actually be implemented at the supplier companies?
Although there is no quick-fix solution, only with a collective effort that connects the brands’ (participating in the MSIs) and factories’ business and employment models and participatory strategies would it be possible to boost social compliance prospects in labor-intensive supply industries. Despite significant limitations, if the safety initiatives could introduce the concept of safety, i.e. the workers’ right to refuse unsafe work or to work in dangerous conditions, and engage powerful brands in accepting joint, mandatory responsibility in financing and overseeing factory inspections, there is ample space for future MSIs to utilize positive sourcing influences as a means to redesign the existing ways of doing business.
Zobaida Khan advises on research projects at Chicago-based Corporate Accountability Lab (CAL). At CAL, she designed an independent research programme that focused on designing a worker-focused corporate responsibility framework from the perspective of the lessons from Bangladesh’s garment sector. She completed her doctoral studies in law from McGill University, Canada.
This is the eighth contribution in a joint blog series by the International Human Rights Clinic and MSI Integrity. The series critically examines the role and value of MSIs in business and human rights; it coincides with a new report, Not Fit-For-Purpose, which compiles experience and insights over the last decade and explores cross-cutting trends and lessons learned about MSIs, as a field, from a human rights perspective.