From Words to Action: A Business Case for Implementing ... · of Corporate Services S. Partha Sengupta. Throughout the case research process, the patience and interest of Senior Manager

Center for International Private EnterpriseSocial Accountability International

From Words to Action:A Business Case

for ImplementingWorkplace Standards

Experiences from Key Emerging Markets

The Center for International Private Enterprise (CIPE) strengthens democracy around the globe through private enterprise and market-oriented reform. CIPE is one of the four core institutes of the National Endowment for Democracy and a non-profit affiliate of the U.S. Chamber of Commerce. For 25 years, CIPE has worked with business leaders, policymakers, and journalists to build the civic institutions vital to a democratic society. CIPE’s key program areas include anti-corruption, advocacy, business associations, corporate governance, democratic governance, access to information, the informal sector and property rights, and women and youth.

EditorAnna Nadgrodkiewicz

Case Study AuthorsMartin MaJohn Tepper MarlinEileen Kohl Kaufman

Case study editingAleksandr ShkolnikovOscar AbelloMoira Saucer

Research AssistantLeslie Wiesman

Design and layoutOscar Abello

Contact CIPE:Center for International Private Enterprise (CIPE)1155 15th Street NW, Suite 700 Washington, DC 20005ph: (202) 721-9200 • fax: (202) 721-9250www.cipe.org • e-mail: [email protected]

Contact SAI:Social Accountability International (SAI)15 West 44th Street, 6th FloorNew York, NY 10036ph: (212) 684-1414 • fax: (212) 684-1515www.sa-intl.org • e-mail: [email protected]

The case studies published here were conducted by Social Accountability International, a non-governmental, international, multi-stakeholder organization dedicated to improving workplaces and communities, with a vision of decent work for all. SAI convenes key stakeholders to develop consensus-based, voluntary standards, conducts research, provides training and technical assistance, and assists corporations in improving social compliance in their supply chains. In 1997, SAI launched SA8000 [Social Accountability 8000] – a tool for implementing ILO and UN workplace conventions and verifying compliance with them – which is currently used by business and governments around the world and recognized as one of the strongest workplace standards. SAI partners with trade unions, local NGOs, other multi-stakeholder initiatives, business, organic, fair-trade and environmental organizations, development charities, and anti-corruption groups to carry out ground-level and international research, training and capacity building programs. Its work has been supported through funding from organizations including CIPE, the U.S. Department of State, USAID, UNIDO, the U.S. Department of Labor, the EU, and the GTZ.

© 2009Center for International Private Enterprise andSocial Accountability International

From Words to Action:A Business Case

for ImplementingWorkplace Standards

Experiences from Key Emerging Markets

Center for International Private EnterpriseSocial Accountability International

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Foreword

Introduction

The Story of Ying XieDemocratic Workers’ Representation in

China as a Tool for Better Business

The Case of Tata Steel Including Contract Workers as India’s

Integral Business Stakeholders

The Experience of Topkapi IplikBetter Workplaces in Turkey through

SA8000

Table of Contents

AcknowledgmentsSAI and CIPE are extremely grateful to the companies – managers and

workers alike – profiled here for their openness and assistance; they gave generously of their time and expertise to make this project possible.

India. SAI and CIPE are most grateful to everyone in Jamshedpur. We thank particularly Tata Steel’s Managing Director B. Muthuraman and Vice President of Corporate Services S. Partha Sengupta. Throughout the case research process, the patience and interest of Senior Manager of the Business Excellence Group Priyadarshini Sharma, were key in explaining company history, processes, systems, and goals. We would also (but not exclusively) like to thank: Raghunath Pandey, S. N. Ghatak, S. K. Paul and Seemi Mishra, Avneesh Gupta, Mahmood Hassan and M. K. Singh, Dinkar Anand and Amitava Chandra, Satish Pillai and his team, Rekha Seal, Meena Lall, Siddhartha Shah, Rajesh James, L.M. Bakshi, Dr. K. J. Parekh and S. K. Roy Chowdhury, Mjr. K. Satyanarayan, Harbans Singh, S. K. Singh, P. N. Singh and B. P. Rama, and the staff of Basera.

Turkey. SAI and CIPE would like to thank those listed here, as well as many others, at Topkapi Iplik who made it possible for us to understand and document the company’s activities and evolution; they gave generously of time and knowledge, both on site and during extensive follow up. We thank Mahmut Akinci, president; Seher Akinci, vice president; Seyhan Yilmaz, sales and marketing; Nihat Koksal, human resources; Ramazan Asik, worker representative, and other workers who spoke with us without management present. We also thank Alice Tepper Marlin, president and CEO of Social Accountability International; Dundar Sahin, SA8000 certification auditor; Benan Vey, vice president of marketing and CSR for the Hey Group; Ali Nasuh Mahruki of AKUT; Yasemin Basar of Yeşim; Vic Thorpe and Michael Murphy of the JO-IN project; and our interpreter, Nurhayat Dalgiç of Enterkon.

China. SAI and CIPE sincerely thank all those who have contributed to this project. The tremendous efforts made by workers and managers of Timberland, and SAI partners such as ITGLWF, ICO, CWWN, Toys “R” Us, and Eileen Fisher made this project a success in spite of challenges. We extend profound thanks to: The Ying Xie Team: Three elected chairs of the worker committee Cuiling Wang, Hui Yang, Jingwei Zhang; management representatives President Bugang Lai and General Manager Yisheng Zhang. The Timberland Team: Cheryl Merihugh, Gordon Peterson, and Jill Foo, Timberland Asia Compliance Director; and P.K. Lo, Timberland China Compliance Manager. ICO Team: Xin Deng, Jianhua Chen, Zhiai Huang, and Huinian Li. CWWN Team: Pun Ngai, Yuxin Li, and Xiaofen Yu. SAI would also like to thank the architects of the China program, whose vision, leadership, and guidance made it possible: Neil Kearney and Raja Gopal of ITGLWF; Tom DeLuca of Toys “R” Us; and Amy Hall and Eileen Fisher; and Anita Chan of Australia National University.

Center for International Private Enterprise | 1

ForewordCorporate social responsibility has many different

dimensions and definitions. Yet, while companies, governments, consumers, and NGOs may disagree on the scope and impact of corporate engagement in societies, few will deny the fact that the private sector plays an increasingly important role in development. In emerging markets, the issue of corporate social responsibility is especially relevant, as poor governance and weak rule of law put a greater pressure on companies to ensure that their operations are conducted according to the highest of standards – both international and local. The dilemmas are many: What can you do to make sure your employees do not pay bribes in a highly corrupt environment? How can you guarantee that workers are treated well in an environment where labor regulations are non-existent or not enforced? What measures can you put into place to ensure the ethical practices of your suppliers?

Companies around the world can no longer afford to avoid such questions. They have to find solutions and implement them. They have to be good citizens in the communities in which they operate, and their actions must keep up with their stated commitments to be ethical and responsible. In other words, companies must ensure that good corporate citizenship is part of their business strategy. This publication takes a closer look at how companies can effectively implement high workplace standards in places where rule of law is lacking. More importantly, it is not just a question of good will – we show that businesses can realize concrete benefits from ethical, responsible practices.

This series of three case studies has been prepared by Social Accountability International (SAI) and the Center for International Private Enterprise (CIPE). The cases look into different aspects of improving workplace conditions and analyze the benefits of voluntary implementation of better workplace standards for workers and businesses. The companies profiled differ in maturity, scale, industry, and geographic location; nevertheless, SAI tools have been useful to each in carrying out their policies and programs. Each of these companies reports on real

change and benefits, demonstrating a business case for implementing workplace standards. The successful results and learning in these cases can be used by other types and sizes of businesses, as they document the positive return on investment in implementing workplace standards and improving workplace quality.

The • China case focuses on capacity building, internalization, and ownership of compliance programs by workers and managers inside a garment factory.

The • India case, focused on a world-renowned steel manufacturer, traces the usefulness of SA8000 in managing contract workers and vendor companies that supply contract labor, even to a company with a long history of responsible labor practices.

The • Turkey case analyzes the key drivers for and results of SA8000 certification for workers, managers, and customers of a textile company.

These cases illustrate that an ethical, compliant workplace is better for both workers and businesses. Since workforce is a key asset of every company, improving and maintaining high workplace standards cannot be just an afterthought or a promotional public relations exercise. Instead, it must be a core element of good corporate citizenship and business strategy of particular importance to the socially responsible development of emerging markets. Of course, keeping and attracting employees and customers, and being socially accountable, are relevant for all businesses wherever they are located and whatever their scale. Those elements of sustainability apply across borders, industries, to small and medium-sized entreprises and multi-national corporations alike. The companies that assisted with these case studies hope their experience will be useful to others and build on the lessons learned.

John D. SullivanExecutive Director, CIPE

Center for International Private Enterprise A Business Case for Implementing Workplace Standards

2 | Center for International Private Enterprise

Corporate social responsibility, or corporate citizenship, is being redefined as corporate sustainability in today’s globalized world. This report focuses on three examples of positive experiences in implementing labor standards in the workplace in China, India, and Turkey; these are part of an expanding global community of practice in ethical performance and risk management.

Business attains corporate sustainability when all three bottom lines – financial, environmental, and social – are addressed in an integrated fashion, because stakeholder and shareholder value are inextricably linked. Workplace standards are a crucial part of this equation. But how does a business see its incentives for good corporate citizenship? What is the “business case” here? The purpose of the cases presented here is to illustrate the ways in which companies around the world can better achieve their goals through stronger implementation of workplace standards.

Workplace Standards and Corporate Sustainability

Improved business outcomes of ethical and responsible behavior on the part of a company provide the best incentive for that company to maintain good corporate citizenship. In light of this connection, we should recognize that corporate sustainability includes business assets that are not only financial, but also comprise reputation, employee commitment and skills, customer loyalty, and community acceptance. Both customers and employees have expectations that play out in product and labor markets.

A company will meet these expectations more effectively if the responsibility agenda is well integrated with the overall corporate strategy. A business case for doing so means that there are identified, documented, and replicable benefits for companies that recognize their employees’ rights and integrate policies to support those rights with their other operating

Introduction

A Business Case for Implementing Workplace StandardsSocial Accountability International


procedures. These benefits involve more business and a better-quality product, as success in competitive international markets increasingly depends on price, product quality, timely delivery, and workplace quality.

Responsibility and accountability are all too often perceived as burdens to business rather than necessary ingredients for better performance. However, viewed as corporate sustainability, they are opportunities: to enlist stakeholders in improving and carrying out business strategies that attract and retain customers and employees and to manage risk, to actively engage with problems, and invest in solutions. A variety of voluntary international standards have been developed to help businesses guide their policies and performance. The three examples here are emblematic of thousands of organizations that find accountability, sustainability, and responsibility to lead to better results across the board.

There is a growing global realization that all organizations are accountable to their stakeholders – employees, communities, shareholders, civil society, and business partners – to function ethically and sustainably. Risk-based approaches are combined with approaches seeking positive change. For many international companies, environmental sustainability was understood early as a key responsibility and concern; lately, responsible performance focused more on supply chains, as international companies venture into countries where formal legal frameworks are either ill-defined or weakly enforced. But accountability is not, of course, limited to foreign sites: the framework for conducting responsible business applies everywhere a company operates.

Local as well as multi-national businesses share the challenges of making their operations socially responsible and ethically sound. They also share the challenge of how to know, and then credibly demonstrate, that they are meeting that goal. Progress toward corporate sustainability needs tools and stakeholder engagement. Voluntary standards are a useful tool for meeting environmental, social, and ethical responsibilities of business. They can promote a culture of compliance and the rule of law by providing

systematic ways to help improve day-to-day conduct of business.

Voluntary Standards as a Tool for Better Business

Corporate social responsibility was first commonly equated with philanthropy, only later developing into a structured way to manage a variety of risks and address the “triple bottom line.” But the realities of the global economy call for a broader approach that encompasses a wide range of issues vital for businesses as members of society. Most companies start by focusing on the impact their operations have on the environment and the community. Yet it is equally important to address internal issues such as governance and corruption, supply chain ethics, stakeholder engagement, and health and safety of workers.

Responsible and ethical business conduct has a multiplier effect. It makes the entire business environment of any country more transparent and accountable – and therefore more conducive to achieving sustained economic growth and development. Creating such virtuous circles of mutual reinforcement between responsible conduct of individual companies and greater economic and social benefits is of particular importance in developing countries. The way businesses – both foreign and domestic – operate in those countries is crucial to making globalization work for everyone. These case studies focus on one key aspect of good global corporate citizenship: human rights at work.

A business is only as strong as its employees. Investment in human capital has a high rate of return not just for an economy as a whole, but also for individual businesses, because healthier, better trained, and more loyal staff drives quality, productivity, innovation, and sustainability of enterprises. In contrast, the lack of proper attention to workplace quality issues leads to high recruitment and training costs, lower productivity, wasted resources, and tarnished reputation, thus depleting a key asset that can attract and retain customers, employees, and investors. The international product quality movement has, in fact, expanded to include workplace quality; experience shows that the two are closely intertwined.



Yet the question remains: What are the minimum requirements to meet these workplace standards? How can they be fulfilled, and how can we demonstrate they have been fulfilled?

Most countries have labor laws and regulations meant to ensure compliance with International Labor Organization (ILO) and other standards for the workplace. However, those provisions often remain on paper due to authorities’ inability or unwillingness to enforce them. This situation highlights the usefulness of voluntary codes of conduct and international reporting or performance guidelines such as the United Nations Global Compact, the Organisation for Economic Co-operation and Development’s Anti-Bribery Convention, AcountAbility’s AA1000AS, Transparency International’s Business Principles for Countering Bribery, the Global Reporting Initiative, the Ethical Training Institute (ETI)’s Base Code, InterAction’s Private Voluntary Organization Standards, or the International Organization for Standardization’s draft ISO 26000 guidelines for social responsibility. This report concentrates on the use of one tool for implementing workplace standards: Social Accountability International (SAI)’s SA8000.

Social Accountability International and SA8000

SAI is an international non-profit organization dedicated to promoting workers’ rights around the world, with a vision of decent work being the norm throughout the world. It is engaged through multi-stakeholder, multi-national, and multi-industry efforts to develop and provide tools to improve the social performance of businesses and their supply chain facilities. SAI promotes workers rights through the use of its SA8000 workplace standard; partnerships with businesses, trade unions, and other NGOs; and training and capacity-building for workers, supply chain managers, labor inspectors, auditors, factory managers, investors, and others. In partnerships with SAI, various national and international organizations work to create an enabling environment for realization of worker rights and the Millennium Development Goals. SAI works in alliances with other stakeholders to make a variety of social standards more useful and effective. It also works with business in corporate

programs to build capacity and learning for responsible supply chain management.

In 1996, SAI convened an international multi-stakeholder advisory board to develop and oversee the implementation of SA8000, a voluntary standard for workplaces based on ILO and other human rights conventions. Published in 1997, with revisions in 2001 and 2008, the SA8000 standard and verification system provide tools for creating, managing, and sustaining ethical workplaces. SA8000 certification requires auditors to find evidence of compliance, revisit periodically to confirm continuing compliance, and follow up with certified organizations to see that any identified problems are addressed. An associated organization, Social Accountability Accreditation Services, oversees certification providers through a structured accreditation and surveillance process of the auditors themselves.

The rationale for creating SA8000 was to provide a unifying framework for various workplace codes of conduct and verification methodologies. As companies started to develop their own codes and audit supplier performance, numerous methods emerged for defining and checking compliance. This resulted in considerable confusion because there was no easy way for consumers or wholesale customers to know whether the goods they purchase were manufactured in ethical workplaces. Meanwhile, suppliers faced the hassle of multiple audits on behalf of customers who apply different standards. SA8000 addresses these issues by being based on international

SA8000 Standard and ComponentsSA8000 has nine sets of requirements covering:

Child laborDiscriminationDisciplineWorking hoursFreedom of association and the rightto collective bargainingForced laborWagesHealth and safety Management systems.

For details, visit www.sa-intl.org.



norms and designed to be auditable for certification of compliance. Compliance with SA8000 includes compliance with ILO conventions, local and national law, openness to worker concerns, and a commitment to continuous improvement.

Codes of conduct, just like laws, are not necessarily followed. Incentives are key and the challenge is to find a way for compliance to trump avoidance. In order to achieve that, moral arguments are rarely enough. Systems are needed wherein it is more rational to meet high standards than avoid them, where the benefits of compliance are as visible as the costs, and where mature industrial relations and social dialogue are an integral part of a basic business model. Therefore, SAI partners with many types of organizations to share workplace best practices, support enabling environments for workers to exercise their rights, and help build communities of ethical practice around the world. SAI training programs address the techniques

of meeting workplace standards in over a dozen countries annually. Today, over one million people in 68 countries and 67 industries work in SA8000-certified enterprises. Many other organizations and businesses are working toward SA8000 and using its tools to improve performance.

SA8000 implementation, as illustrated in the following cases, demonstrates that effective corporate citizenship is not just a knee-jerk reaction in response to public pressure fueled by this or that incident. Rather, it stems from company values and is a result of a natural maturation process during which a company sees that the success of its business mission depends on a holistic worldview. In the long run, doing business profitably is inseparable from conducting it ethically.

Eileen Kohl Kaufman Executive Director, SAI



Executive Summary

China’s booming economy all too often comes at the price of insufficient consideration for workers’ safety, well-being, and representation. In the past decade, in a large part due to the pressure from foreign importers of Chinese goods, efforts to improve this situation have focused on the promotion of workplace codes of conduct. Since Chinese labor law is weakly enforced, compliance with codes of conduct has become an additional requirement to stay in business for many Chinese suppliers to major Western buyers. Yet, over-reliance on social audits limits most of those compliance programs. The missing link in efforts to achieve quality and sustainability of such programs is grassroots participation in workplace governance by motivated management and informed workers.

This report presents a successful pilot project on improving worker-manager cooperation and introducing more responsible business practices. In this project, Social Accountability International (SAI) and its partners at a Ying Xie factory assisted in creation of the first independently elected workers’ committee in China’s garment industry. Although the project focus was on a more democratic space for workers to participate in shaping their work environment, SAI realized at the outset that supportive and committed management was vital to the sustainability and replicability of the program. In order to obtain management’s support, a moral argument for better work conditions and greater empowerment of workers

would not have been sufficient. SAI had to show that important benefits could be derived not just by workers, but also by the company: better productivity, greater worker loyalty, and more profitable business.

This initiative has resulted in significant improvements in Ying Xie’s working conditions. The majority of them were the direct result of activities of the elected workers’ committee, a primary actor within the program. At the same time, management witnessed a reduction in worker turnover rates, better productivity, and reduced operational costs.

The success of the program spurred interest elsewhere in China. Ying Xie workers are now helping colleagues at another factory establish democratic representation with the full approval from management, proving that the gains their company made can also be achieved by others. But more importantly, the Ying Xie case demonstrates that in a rapidly developing Chinese economy a company does not have to choose between being profitable and socially responsible. In fact, these two goals are complementary and can be mutually reinforcing as part of broader corporate citizenship. Responsible business conduct does not have to be a cost-increasing burden imposed on Chinese firms by their foreign customers; it is a good business strategy well worth adopting not only by large multi-nationals, but also their local suppliers.

The Story of Ying XieDemocratic Workers’ Representation in China as a Tool for Better Business

Martin MaChina Program Director, Social Accountability International



Overview: The Rationale for the SAI Initiative

Ying Xie Garments Ltd.1 is primarily a supplier of outdoor wear for Timberland. Ying Xie employs 500 workers from all over the country and is considered a typical company in China’s 20-million-worker garment industry, in which 80 percent of firms are small and medium-sized enterprises (SMEs). By October 2006, SMEs accounted for 99 percent of all registered companies nationwide, 58 percent of Chinese GDP, and 68 percent of the total export value. SMEs also recruit over 70 percent of China’s labor force.

In response to growing pressures for greater social responsibility from its foreign customers, Ying Xie began undergoing external social audits in 1998. However, like in most other garment factories in China, Ying Xie’s management perceived auditing as a nuisance at best and considered the implementation of the codes of conduct required by clients as little more than additional costs. SAI2 teamed up with international and local partners on a project meant to change this attitude and use codes of conduct as a gateway toward more democratic worker representation and greater cooperation between workers and employers. This project falls within the broader scope of SAI’s work, which includes engaging companies, consumer groups, non-governmental organizations, workers and trade unions, and local governments to promote human rights for workers around the world.

Social Accountability International and Better Workplace Standards

SAI is best known for SA8000, a comprehensive system for managing ethical workplace conditions. SA8000 is an auditable certification standard based on the workplace norms of International Labour Organization (ILO) conventions, the Universal 1 Ying Xie consists of two factories, Chai Da and Ying Xie, owned

by interests from mainland China and Hong Kong, respectively. Hereafter this two-company group is referred to as Ying Xie. It was called Chai Da during the training period, but customers are now asked to use the other name at the owners’ request.

2 For more information, see www.sa-intl.org.

Declaration of Human Rights, and the United Nations Convention on the Rights of the Child. It covers issues such as child and forced labor, health and safety, freedom of association, collective bargaining, discrimination, working hours, compensation, and management systems. SA8000 benefits workers and also brings concrete advantages to businesses that implement the standard, including improved employee recruitment, retention, productivity, and enhanced company and brand reputation.

A common criticism of codes of conduct is that they remain vague on crucial issues such as freedom of association and that few workers understand their content and intent. That is why SA8000 requires content training and the election of SA8000 representatives by workers, along with specifications for freedom of association and the right to collective bargaining, and substantial engagement between workers and management. The SA8000 certification structure also requires auditors to follow up on problems and monitor solutions in order to conduct effective company assessments.

In the past few years, an international consensus has emerged on how to overcome limitations and strengthen codes of conduct implementation. Improving worker participation and management engagement in better workplace governance is a core strategy. The SAI program described in this paper is one of the first attempts to implement such a strategy in China, building upon SAI’s extensive experience with SA8000 certification. It was not meant simply to certify the Ying Xie factory for SA8000 standards, but instead used the principles of several internationally recognized codes of conduct as well as the Chinese labor law to create a foundation for a set of principles a workplace voluntarily and democratically chooses to follow.

In April 2004, SAI began this pilot training program to facilitate more effective communication between managers and workers, and to demonstrate to the management that improving working conditions can also translate into measurably better business outcomes. Chinese companies came to rely on infrequent, external auditors for implementation



of codes of conduct of which workers rarely had knowledge. In contrast, this project was one of the first attempts to help workers play an active, informed role in monitoring company working conditions and engage in a constructive dialogue with management on issues vital to business.

Table 1. SAI Training Program Profile Funders: U.S. Department of State (principal funder), Timberland, Eileen Fisher, Toys “R” Us

Training Team: SAI and the International Textile Garment and Leather Workers’ Confederation, with support from the Chinese Women Workers’ Network (CWWN, Hong Kong) and the Institute of Contemporary Observation (ICO, China).

Participants: Entire workforce of 500 at Ying Xie and 30 managers representing all levels.

Timing

Nine hours for each group for three initial sessions

Eight total hours for election preparation

Forty total hours for follow-up session to elected workers’ committee

A Business Case for Participatory Implementation of Workplace Standards

In the past 20 years, millions of Chinese migrant workers have left their home villages hoping to find a job that will move them out of poverty. Garment factories – as well as factories in other labor-intensive sectors – have largely taken the plentiful labor supply for granted. Consequently, most of the Chinese factories today are resistant to or at best passively implementing codes of conduct or external social audits. The prime reason for this is an almost universal belief among factory owners that genuine implementation increases unit costs. Yet few have ever calculated the benefits of treating workers better. For instance, according to a SAI survey conducted in November 2006 among 78 business owners and senior managers in the garment and toy industries, 99 percent responded that worker retention had been a problem for them. However, only 25 percent of the managers had any idea of the actual monthly turnover rate at their factories. This discrepancy suggests that

two-thirds of owners either did not fully realize that worker turnover costs companies money or they did not have a tracking system to monitor the situation.

Among the 25 percent who did know the turnover rate, the reported monthly rate was as high as 7 percent, suggesting that within a year they might lose as many as 80 percent of the workforce. Even if they could not cite a specific figure, business owners in labor-intensive industries are increasingly coming to realize that this high level of turnover represents a significant drain on their operations:

“As the profit margin is decreasing and the Chinese yuan is appreciating day by day, we have to pin down all the figures and find all possible ways to reduce operation costs. Regarding labor costs, the longer a worker stays with us, the more we save.”– Interview with Bugang Lai, business owner,Ying Xie Garments, March 2007

This situation suggests that there is a strong business case for improving working conditions and profitability simultaneously, as Chinese businesses slowly recognize the value of workers’ loyalty. In the course of the program, SAI helped the management at Ying Xie build a new monitoring system for tracking the costs and benefits of improving working conditions. The results clearly showed that the new mechanism for democratic workers’ participation in creating a better workplace also brought about significant business payoffs in terms of workforce retention, efficiency, and company reputation.

Better Workplace Standards as a Part ofGood Corporate Citizenship

The debate on social responsibility of business is not new, but it has gained increased attention in recent years in light of anti-globalization movements, corporate scandals, and the continued plight of many developing countries. Globalization has indeed redefined the way companies operate and the role business plays, since companies are no longer confined in their operations (and in being exposed to external scrutiny) by the traditional boundaries. This is particularly true in China – the “world’s factory” –



where so much of internationally consumed goods are produced and/or assembled.

In today’s competitive global business environment, businesses are not solely economic entities, since their success depends not only on their ability to find the most efficient way of producing goods and services, but also on their ability to address social concerns. Contemporary businesses exist in complex socio-economic structures where they are subject to economic efficiency pressures of owners and competitors and to the social responsibility pressures of governments, civil society groups, and consumers. Better described as corporate citizenship,3 the appropriate response to these pressures is more than simply engaging in philanthropy or cause marketing. In order to be successful, socially responsible business policies have to respond to the concerns of all stakeholders – customers, managers, employees, the community, and society in general. SAI’s project focused on the labor aspect of corporate citizenship and demonstrated how good practices can be internalized in a form of democratically elected workers’ committees, and how they can benefit the company by becoming part of its culture and everyday operations.

The case for corporate citizenship is often made for large multi-national corporations, which have been the drivers of socially responsible business practices. In many countries, however, SMEs constitute a large share of economic growth – for instance, in China’s booming textile and garment industry. A firm’s adherence to fair, responsible, and transparent conduct is imperative for advancing corporate citizenship worldwide, regardless of size. The reason is simple: multi-national companies may try to remain transparent and responsible, but if their suppliers and partners in developing countries choose to ignore good corporate citizenship practices, these efforts are simply wasted. That is why Timberland’s partnership with SAI on the Ying Xie imitative was an important example of a large, multi-national company successfully helping its offshore supplier become a better corporate citizen, fruitfully concerned with the well-being of the workers. 3 See “The Business Case for Corporate Citizenship” at

http://www.cipe.org/publications/papers/pdf/IP0410.pdf.

Corporate citizenship can be defined in a variety of ways; in addition to ensuring fair labor practices, it deals with a variety of other issues such as honest and transparent business contracts, environmental protection, and product safety and quality. However, good business is above all about building internal and external structures that reward good behavior and punish careless actions. The need for good corporate governance stems from recognition that businesses do not operate in a vacuum – they operate in environments (both inside and outside of the factory walls) that they must protect and help develop. The case of Ying Xie factory shows how workers and management can work together to improve a work environment in a participatory and cooperative manner that is highly advantageous to all parties involved.

Background: The Local Context

The Chinese Textiles and Clothing Industry

The textiles and clothing industry is China’s number one industrial sector in terms of employment. In 2005, the registered workforce reached 19.6 million,4 making it China’s largest employer.5 In the same year, total Chinese textiles and clothing exports reached $117.5 billion, accounting for 24 percent of the worldwide trading value, up from 10.3 percent in 2000, representing an annual growth rate of more than 20 percent between 2000 and 2005.6

This stunning growth was made possible by strong industrial infrastructure, especially in China’s coastal areas, as well as established trading links via Hong Kong and Taiwan, and government subsidies in the form of export tax rebates.7 The backbone of this powerful industry comprises migrant workers, who accounted for over 70 percent of the registered 4 2006 estimates: 20 million workforce and $147 billion exports

and 26 percent of worldwide total [Financial Times].5 State Development and Reform Commission, People’s Republic

of China, “The 11th Five-Year Plan of the Chinese Textiles & Garments Industry,” 2006.

6 WTO statistics; China’s 2005 textiles exports accounted for 20.2percent and clothing for 26.9percent of world trading value.

7 The VAT rebate was lowered to 11–13 percent as of September 2005.



workforce by 2005, and who for the most part endure low wages and excessive overtime under poor health and safety conditions. The most convincing evidence to that effect was offered by the Chinese Government. In 2005, under the direction of the State Council, 17 ministries and 8 provincial governments initiated a comprehensive investigation among thousands of migrant workers nationwide. According to the final report released in April 2006, the major attributes of a migrant worker’s life are low wages, long hours, and generally hazardous workplaces.

Table 2. Wages and Working Hours of Chinese Migrant Workers

Monthly Wage % of Workers

Below 300 yuan [$37.50] 3.58

300 –500 [$37.50–$62.50] 29.26

500–800 [$62.50–$100] 39.26

Over 800 [>$100] 27.9

Daily Working Hours % of Workers

Below 8 hours 13.7

8–9 hours 40.3

9–10 hours 23.48

Over 10 hours 22.5

Source: State Council of P.R. China, 2006

The report also revealed that only about 50 percent of migrant workers secured legally required labor contracts from their employers, and about 15 percent of migrant workers did not even know what a labor contract was. Only 47 percent were paid on time, and just 15 percent had insurance against workplace injuries.8 All this is happening despite the fact that Chinese labor law is among the most stringent in the world. However, when it was promulgated in 1994, China’s economy was still dominated by state-owned companies. Thus the law is a typical “socialist” code promising workers – at least in theory – comprehensive protection.9 However, there is a general agreement, even among Chinese officials, that the law is weakly enforced, constituting a de facto preference 8 Presumably even fewer migrant workers receive medical

insurance, and neither unemployment nor pension is available. 9 Interview with Mr. Xing Xinmin who served on the working

group drafting the Chinese Labor Law.

for companies operating in China. This practice has contributed to the persistence of poor working conditions among most Chinese factories, especially in labor-intensive industries such as textiles and clothing.

The Debate on Workplace Codes of Conduct

Pressured by labor rights and consumer groups in the West, international companies have become major players in the push for better working conditions in their entire supply chain. In 1991, Levi Strauss & Co. became the first multi-national apparel company to issue Global Sourcing and Operating Guidelines, an ethical code of conduct for its offshore contractors, and many other companies followed. Many trade unions and non-governmental groups argue that such codes cannot effectively improve working conditions if drafted by corporations themselves. Internal company codes of conduct, critics point out, are designed primarily to serve the needs of corporations over those of workers. Furthermore, because internal compliance teams are responsible for monitoring and verifying compliance, and because little information is shared with the public, it is questionable whether these codes are actually implemented.

Independent workplace codes or standards such as the SA8000, the Ethical Training Institute’s Base Code, and the Fair Labor Association’s Workplace Code of Conduct tend to have more rigorous content and monitoring processes, but are not totally immune to criticism. A vocal and recurrent criticism of all codes of conduct – whether internal or independent, multi-stakeholder codes – is that workers, whom these codes intend to empower and protect, have little or no opportunity to participate in the verification or implementation processes. Thus, despite the fact that the Base Code and SA8000 call strongly for worker representatives and freedom of association, some critics view these monitoring and verification schemes as being “labor rights without labor.”

In China, it is easy to see the validity of this argument: How can anyone implement codes of conduct that require respecting freedom of association in a country where the rights of independent trade unions and collective bargaining are restricted? A



representative of the American Federation of Labor and Congress of Industrial Organizations suggested that until political change occurs in China, workers will not be empowered in any way and “companies operating inside China with a code of conduct that includes freedom of association are in fundamental violation of their own codes.”10

Whether codes prioritize workers’ fundamental rights and interests is central to most criticism. It is often unclear whether external auditors have sufficient understanding of worker rights and needs, and whether they have the ability to gain workers’ trust in order to gather necessary information. Others argue that because China already has a comprehensive national labor law, the codes of conduct movement may deflect, or even replace, efforts to enforce the national law.

The case of Ying Xie, however, shows that voluntary standards and codes of conduct can serve as a useful instrument of strengthening the rule of law and initiating change even if the general enforcement of national laws remains weak. It also suggests that workers appreciate two opportunities – to learn about their rights and interests and to practice safeguarding their rights and interests – even in advance of government action to encourage or allow them to do so.

Despite their limitations, voluntary codes of conduct help create a platform where multiple parties such as trade unions, non-governmental organizations (NGOs), and corporations can join efforts to explore practical solutions to challenging problems, and create a culture of compliance and political support for enforcement of labor laws. If used correctly, voluntarily adopted codes of conduct such as SA8000 can be a powerful tool, and can serve as a crucial entry point for fundamental change in a company’s management system.

The Status of Workers’ Representation in China

China’s trade union law prohibits workers from forming independent unions or organizing 10 P. Fisherman, Statement to the United States Congressional Executive Committee on China, 2003.

collective bargaining activities outside the All-China Confederation of Trade Unions (ACFTU), long considered a “transmission belt” of the party’s orders. The majority of companies operating in China have been resistant to welcoming ACFTU branches, a move that requires them to pay 2 percent of total payroll as a union fee. As a result, the vast majority of Chinese companies in the private sector do not have a union presence. The ACFTU in recent years has accelerated its efforts to form branches in foreign-invested companies. The unionization rate has increased from 33 percent in 2000 to about 60 percent at the end of 2006 as a result.11 A more important and challenging task is to make sure that in those factories where a union structure exists workers are effectively represented.

In general, effective worker representation is rare in Chinese factories. However, de facto collective bargaining does occur and is encouraged by the Chinese Government. Per the 2000 Directive No. 9 of the Ministry of Labor, workers in workplaces without a union may elect bargaining representatives as long as more than half of the workforce votes. These workers’ representatives can then engage in “collective consultation” with employers over wages.12

International companies have also been active in strengthening workers’ representation in China. As early as 2001, Reebok initiated a project through which workers in two large footwear factories conducted independent elections for union representatives. Though still working within the framework of the ACFTU, this represented one of the earliest attempts to give workers some say in choosing their own representatives13 and the opportunity to voice their concerns through a formal channel within their factories.

According to Reebok, some of the difficulties experienced in the process included inconsistent support from management and also pressure exerted on worker representatives, which made it difficult for

11 Interview with Mr. Wencai Guo, ACFTU, by the 21st Century Economic Report, January 22, 2007.

12 Ministry of Labor and Social Security, Provisional Measures on Collective Consultation on Wage, 2000.

13 Financial Times (London), December 12, 2002, 1.



them to fully perform their duties.14 The SAI program successfully addressed similar hurdles to effective worker representation at Ying Xie by demonstrating the benefits of increased workplace democratization to the management.

Ying Xie Factory Profile

Ying Xie Garment Factory is located in Kaiping City in Guangdong province. Its major products are outdoor outfits, such as goose down jackets and ski clothing. Over 90 percent of its products are for export, supplying clients such as Timberland (70–80 percent of production) and Michael Kors (15 percent). The remaining 10 percent is sold domestically in order to keep the workers (especially core experienced ones) busy during the low season. As in most coastal area garment factories, over 98 percent of Ying Xie’s 500 workers are migrants from poor provinces such as Anhui, Henan, Hubei, Jiangxi, and Sichuan. As of November 2004, only 54 percent of workers were females, a relatively low figure among typical garment factories. Ying Xie also had a young team: nearly half of the workers were younger than 25 years old. At the same time, many of them were well-educated: more than 86 percent had at least attended middle school.

Ying Xie began receiving social audits in 1998. The management was not proactive and only sought to meet the minimum requirements for implementing clients’ codes of conduct. In order to make substantial improvements in working conditions, the management had to overcome a significant obstacle: net profit margin. As in many other garment factories, the profit margin had been steadily declining from roughly 15 percent to about 4.8 percent in 2004. According to Ying Xie’s general manager, net profits from 200,000 garments sold in 2004 were equivalent to the profits from 40,000 garments in 1996.

Audit reports cited major non-compliance at Ying Xie, including some workers being paid below the legal minimum wage and excessive overtime during peak seasons. As a consequence of poor social performance, 14 Essay on freedom of association, Reebok Human Rights Program, http://www.reebok.com/static/global/initiatives/rights/text-only/business/essay_fa.html.

Chart 1. Regional distribution ofYing Xie workers

Regional distribution (283 respondents)

Jiangxi19%

Sichuan16%

Anhui13%

Hubei12%

Henan11%

Other provinces29%

Chart 2. Age distribution ofYing Xie workers

Age Distribution (283 Respondents)

16-2026%

21-2529%

26-3024%

Above 3121%

Chart 3. Education level of workersEducation level (283 respondents)

Elementary 6%

High School16%

Tech. School5%

College2%

N.A. 8%

Middle School63%

Chart 4. First year of employment atYing XieEmployment commencement (283 respondents)

2002 and before23%

200319%

200447%

N.A. 11%

Source: Survey of 283 respondents, November 2004



worker turnover rate became a serious issue. An SAI/Institute of Contemporary Observation (ICO)15 survey conducted in November 2004 indicated that about 47 percent of the workers were new to the factory that year, suggesting an extremely high turnover rate.16

Timberland/Ying Xie Partnership for Change

Timberland, Ying Xie’s main client, has for many years made corporate social responsibility an integral part of its business.17 Timberland also believes that social auditing, though necessary, is not sufficient for initiating effective and sustainable changes in offshore factories. As early as 2003, the company had developed an innovative global compliance program centered on the themes of partnership, factory ownership, and worker involvement. In developing such a program, Timberland adopted an “open door” policy. It established partnerships with NGOs such as Verite and SAI, and global trade unions such as the International Textile Garment and Leather Workers Federation (ITGLWF). Subsequently, Timberland worked with these organizations to help them gain access to its factories, educate workers on their rights, and increase participation. Partnering with NGOs, in principle, has long been a well-accepted approach to ensuring the quality and transparency of compliance programs. But in practice, it still is a rare phenomenon.

In 2003, when SAI approached Timberland to nominate a garment factory for the pilot training program, its global compliance team responded

15 The Institute of Contemporary Observation, is one of SAI’s three local partners in this project.

16 There was no major expansion of the workforce in 2004. In Chinese garment factories in the coastal areas, a 7-8 percent monthly turnover is common.

17 Timberland, Corporate Social Responsibility Report, 2005.

immediately. Ying Xie was recommended based on the criteria developed by SAI – a small or medium-sized factory that could represent the majority of Chinese factories in the garment sector. It was seen as a model factory that had recognized problems with working conditions, and whose management demonstrated a willingness to seek change.

Building on Timberland’s support, SAI invested significant time and effort into negotiating with Ying Xie’s senior management. The management was open to making changes to address problems such as high turnover rate, but the sheer intensity of the proposed program (training the entire workforce and a commitment of at least 12 months) made them wary. To address these concerns, SAI developed a series of arguments and a preliminary cost-benefit analysis of investing in better working conditions, and promised to keep the training dates flexible in order to minimize potential interruption to production. Ying Xie’s managers finally decided to sign on for a trial program in early 2004.

SAI Program Description:Training Methodology and Process

A Participatory Model IncludingWorkers and Managers

SAI designed the program after careful analysis of the political context in China and the applicable Chinese legal framework. The objective was to initiate workplace change, and the challenge was setting up the workers’ representation mechanism and facilitating activities of the workers’ committee so that, on one hand, worker representatives would be as independent and proactive as possible, and on the other hand management would remain supportive. The SAI training served as a tool to design a durable platform for communication and constructive dialogue between workers and managers as a goal in and of itself. As the first step, a group of trainers met with factory management and workers and outlined the features of the program. At the outset, the team attached great importance to enlisting as much participation from workers and managers as possible. Some key tactics included:

“Many apparel and footwear companies seem to reduce human rights to a code of conduct to be applied to suppliers and audited or assessed to ensure compliance. A few companies engage in human rights work beyond the factory walls in efforts like Timberland’s to partner with non-governmental organizations (NGOs) that focus on educating workers….” – Theresa Fay-Bustillos,executive director of the Levi Strauss Foundation (Levi Strauss & Co., Voices of Challenges, 2005)



Clarify the role of trainers. Since the primary goal of the program was to jump-start a process in which workers and managers can work together to identify and resolve problems, the training team needed to refrain from solving problems themselves or acting like compliance auditors seeking quick fixes. This strategy was crucial for workers and managers to maintain ownership of the program. By maintaining the role of a facilitator, the training team was able to keep a reasonable distance from the process.

Use effective language. For a program of this nature, trainers needed to present in-depth knowledge of labor issues, ILO conventions, Chinese labor law, and respect for fundamental workers’ rights. It would have been difficult for the audience (particularly workers who had recently arrived from the countryside and managers who were preoccupied with production) to fully benefit from the program if trainers simply lectured. For this reason, SAI and its partners involved in the design of training materials paid great attention to identifying effective terminology and clear language fitting the cultural and educational background of the audience.

Present true-to-life cases. The training team used a number of case studies to generate dynamic discussions within training sessions. Most cases came from Chinese factories in the Guangdong province, where the Ying Xie factory is located. Additionally, facilitators spent significant time asking workers and managers to conduct a gap analysis identifying problems at Ying Xie and comparing them to the benchmarks of good labor conditions such as the ILO conventions, the Chinese Labor Law, and the SA8000. The training team taught these three benchmarks in a comparative fashion, stressing the general agreement among all three and then highlighting which one is most stringent regarding a specific issue.

Role plays and group discussions. At the beginning, the workers were reluctant to speak out in training sessions, especially in a relatively large class of 30 or 40, but trainers knew that interaction would be a key to understanding workers’ genuine concerns. In order to encourage workers to speak out and contribute ideas,

trainers organized group discussions or role plays in each session. Those were as simple as games or as complicated as a mock negotiation in which workers acted as managers and managers acted as worker representatives. Breaking the class into smaller groups also proved effective, since workers clearly felt more relaxed talking within a smaller circle than talking to trainers in front of the whole class.

In planning for managers’ training sessions, SAI discovered that it was effective to organize mock debates among participants on subjects such as child labor and overtime. Thus, trainers were able to increase the level of manager participation and offer managers opportunities to look deeper at root causes and possible solutions to factory problems. For example, before a series of debates was held, most managers thought overtime was necessary in order to meet delivery schedules. After the debates, many realized that overtime could be brought under control with better management practices and improved production efficiency. At the same time, trainers found that they could more effectively convey messages through this method since one group of managers (those assigned the role of arguing against overtime) actually built the arguments.

Trainers’ Workshop

Building capacity among local workers’ organizations was an important objective of the SAI program, which concentrated on how to promote genuine worker representation inside factories despite the fact that the Chinese Government does not allow independent trade unions to exist. With the support of ITGLWF, SAI organized a training program for 12 staff members from its local partners – including ICO and the Chinese Women Workers’ Network – prior to launching the program. Training included background on the international trade union movement, the Chinese legal context, participatory training methodologies, and support for worker representatives and grievance procedures. SAI and its partners adopted a participatory model for this training as well, and asked local partners to take part in developing the curriculum and determining a work plan for the upcoming worker/manager training.



A Five-Stage Program

Because the Ying Xie program was meant to go beyond simple training and initiate real changes in the factories, SAI and ITGLWF developed a five-stage structure meant to guide workers and managers to be more proactive. By the end of 2004, the training team had conducted all five stages.

Plenary session. This session was a one-hour briefing by the training team to the entire workforce about the goal and arrangement of the project.

Initial sessions. Trainers conducted three initial three-hour sessions for the entire workforce by dividing them into small groups (40 workers in each group). Workers and managers gained exposure to information on the legal, ethical, and market demands for acceptable working conditions. They were also provided opportunities to conduct gap assessments against the benchmark international and Chinese workplace standards and examine case studies on conflict resolution. Groups of 10 workers were asked to identify the problems or discrepancies at the factory against these benchmarks. At the end of this initial segment of the program, workers and managers jointly made the final decision on how to resolve problems identified in the factory.

In-depth session. Trainers next presented to workers and managers various options for better communication and problem solving. Subsequently, facilitators asked the management to decide on setting up a permanent mechanism. When presented with three options for a mechanism of worker representation – forming an ACFTU branch, setting up a working group to address health and safety issues, or creating a workers’ committee to take care of a whole range of issues – all 12 production groups unanimously voted to set up a workers’ committee through a free election. The trainers then guided the participants to discuss the best ways to prepare for the next step, conducting an independent election of worker representatives.

Nomination and election. Each production group of workers cast ballots to nominate candidates for the workers’ committee. The candidates had time to

campaign for positions on the committee. The final election took place two weeks after the nomination.

Follow-up training. The training team offered follow-up training and technical assistance to the elected worker representatives. These sessions included guidance on drafting the list of responsibilities of the workers’ committee, preparing an overall work plan, soliciting worker opinions, researching any outstanding questions, establishing better factory communication, negotiating with management, and reporting back to peer workers. These follow-up sessions were indispensable to ensure the proper functioning of the workers’ committee. Although forming a workers’ committee through free election was daunting, ensuring that the committee functioned independently and effectively was the more difficult task.

Overcoming Challenges Encountered during the Training Sessions

Challenges to mobilizing workers. Prior to the SAI program, some workers at Ying Xie were exposed to a limited number of training modules on health/safety, HIV/AIDS prevention, and other social issues. SAI’s program was far more intensive: first, it covered an entire range of issues related to working conditions and workers’ rights; second, the program was delivered to the entire workforce of 530 (managers and workers), instead of a selected group.

The team started the first training session in April 2004. During the initial stage of the training, workers found themselves overwhelmed. ILO conventions, globalization, NGOs, and consumer groups were brand-new terms for most of them. To help them to grasp these concepts quickly, trainers used visual aids, brainstorming exercises, and question-and-answer sessions.

Worker suspicion was a bigger obstacle for trainers to overcome. At first, many thought that the trainers were brought in and paid for by the management and therefore that the trainers’ primary intent was to teach workers to behave better in the eyes of management.18 18 In fact, the program was offered free of charge. The only cost to the factory was workers’ time devoted to attending the sessions.



Participation from workers was therefore lukewarm at best during the first training session. More experienced workers did not even want to attend the sessions, as they could have made more production-rate money by staying on the factory floor. Sitting in the sessions meant that they could earn only the minimum hourly rate, which was much lower than per-garment rate earnings.

The training team had foreseen these difficulties and was prepared to address them. Each two-person training team consisted of one college-educated trainer and one former worker, both mainlanders. The trainer would focus on presenting the conceptual knowledge while the former worker would use workers’ own language to build rapport with the participants.

Eventually, workers started to speak out about numerous problems in the factory, from poor food quality and low wages to noise and heat in workshops and dormitories. As the level of trust increased, the trainers encountered a more complicated predicament: workers began to develop a reliance on the trainers for solutions and wanted them to talk to managers on their behalf.

The typical thinking of workers was that if the trainers were not meant to solve the problems, why would workers bother to identify them? In response, the trainers repeatedly reiterated their role as messengers and facilitators, rather than problem-solvers. This exchange was crucial, since the chief purpose of the program was to help workers and managers build mechanisms that would allow them to address future problems in the workplace together, not just to find quick fixes to existing problems.

Challenges to obtaining management buy-in. At the end of the second three-hour session, workers from different production groups identified up to a hundred problems in the gap assessment against the benchmarked workplace standards. Some workers approached line supervisors and other managers demanding immediate remediation. Managers, surprised by the number of problems raised, began to feel that the enlightened and mobilized workers were likely to challenge the existing management structure.

Unlike metropolitan areas such as Shenzhen or Dongguan, Kaiping (where the factory is located) is a small city that does not offer a pool of migrants from which the factory could recruit with comparable ease. When some Ying Xie workers started to pressure the management after the SAI session, managers began to worry that if workers’ demands could not be met in a timely fashion, they would slow down production and some may even quit, leaving the factory in limbo. Likely because of this concern, at the end of the third training session the general manager refused to specify a date for the nomination process, citing a busy production schedule. The management also mentioned that it needed time to study the potential legal and political consequences of the proposed workers’ committee. At this stage (June 2004), the program was virtually suspended.

The easiest approach would have been to ask Timberland to pressure the factory into setting up a workers’ committee, but taking this shortcut would have resulted in less management support for the program, even if they opened the factory doors to the training team. If that were the case, the goal to facilitate dialogue between workers and managers might not have been achieved.

With support and mediation from the Timberland compliance team, SAI decided to take a more time-consuming approach. The trainers spent a significant amount of time talking with the management in order to reduce their suspicion and asked the managers to contribute ideas on how to improve communication with workers. Three months later, in September 2004, these efforts paid off and the program resumed.

Establishing the Workers’ Committee

Nomination process. In September 2004, the training team had two additional sessions to review what workers learned in the previous three sessions. In October of the same year, workers selected 26 nominees. The workers developed the nomination procedures with guidance from the trainers. Each would vote for candidates across each of the 12 production groups instead of having a general election across the whole factory, to ensure each production



group would have an elected worker representative, and problems in every corner of the factory could be addressed. Candidate profiles were posted publicly.

General election. The general election took place on November 30, 2004. Each candidate made a brief campaign speech, addressing 500 peer workers. Some candidates were shy, some were surprisingly articulate, and some were too excited to finish their speeches. For almost all of the candidates, the election offered a chance to address a large crowd for the first time in their life. Few candidates made specific promises in their campaign speeches, but many did vow to work for the improvement of communication between workers and management and to “improve conditions step by step.”

Ballot procedures. Production groups received ballots with the candidates’ names, which were then cast into self-supplied ballot boxes. Three workers were then randomly selected to count the ballots: one read the names aloud, one took notes, and the third monitored the process. After counting all ballots, the 12 winners were announced immediately, establishing China’s first independent workers’ committee in the garment industry.

Follow-up assistance and training. According to a qualification list developed by the workers, the elected representatives should be communicative and articulate, willing to work for the interest of their peers, responsible, and fair. Based on SAI’s observations, the 12 elected representatives were the opinion leaders among the workers, all of whom were considered fair and communicative. Follow-up

sessions were indispensable to help strengthen their leadership and organizational skills to support and develop their capacity to represent workers.

Between December 2004 and September 2005, SAI and the Institute of Contemporary Observation (ICO), a local partner, conducted 10 monthly follow-up sessions, totaling 60 hours. With the trainers’ assistance, the young committee developed its responsibility list and annual work plan, and set up sub-committees to address specific issues. In addition, worker representatives gained in-depth knowledge and practical skills on how to solicit opinions from other workers, conduct research, and build arguments prior to talking with management, and lastly the importance of reporting back to their peers.

One of the challenges trainers encountered at that point was that, once drawn out, workers wanted to see immediate change. They felt that any training program was “useless” unless it provided an immediate remediation to their concerns. In other words, workers were too eager to quickly “flex their muscles”– not fully understanding the long-term process of dialogue and representation. Most workers had strong feelings about quotidian issues such as food quality, bathroom cleanliness, and the abundance of drinking water. These are important issues for ensuring worker health and safety, but they are not the building blocks of worker participation and representation. SAI’s follow-up sessions were meant to ensure that both workers and managers built lasting representative institutions and processes that would help them stay committed to long-term dialogue and cooperation.

Workers tabulating votes after the election

Elected workers representatives



Outcomes: A Business Case for Independently Elected Workers’ Committees

As a result of the program that helped to bring the workers and the managers to a new level of mutual understanding and cooperation, Ying Xie factory has experienced numerous positive changes benefiting employees and the company alike. Elected independent workers’ committees enabled better communication with management, which helped create better working conditions while simultaneously lowering the turnover rate and improving productivity.

Better Communication and Joint Ownership of Workplace Reforms

In most, if not all, Chinese garment factories, poor communication between workers and managers is a chronic problem. Managers often consider migrant workers min-gong, or transient villagers, ignoring the fact that they are instead gong-ren, workers who seek pride in their work. For two decades, millions of min-gong from poverty-stricken villages have been lining up outside the gates of China’s coastal factories hoping to get hired in any capacity. This allowed managers to develop the mentality that they were doing migrant workers a favor by merely offering them the opportunity to make money. As a result, managers treated workers as second or third-class citizens and saw no need to communicate with them. Most managers assumed that they would like nothing more than to “make quick money and go away.”

At the same time, most workers, including those at Ying Xie, rarely felt comfortable talking with their supervisors, much less negotiating with them. They were often fearful of rampant verbal and corporal punishment on production lines. The fact that migrant workers are not entitled to public resources or local resident privileges further contributed to their growing sense of inferiority and low self-esteem. Following the

SAI training program, workers at Ying Xie reported that for the first time they had the opportunity to voice their concerns without fear. Elected representatives gained more confidence and skills to engage the managers. In July 2005, eight months after forming the committee, 68 percent of workers reported that they felt much better about talking and reasoning with managers, according to an SAI/ICO survey.

In Chinese factories, the relationship between a line worker and a Lao Da (line supervisor) is usually the most tense. Line supervisors, who are under extreme pressure to fulfill production quotas, typically use verbal or corporal punishment more than senior managers. One worker representative told trainers that in the past he kept to himself on the production line. Being an elected worker representative offered him the opportunity to speak out on behalf of his peers. At the beginning, his Lao Da only sneered at the issues he raised and at the usefulness of the workers’ committee. Yet, after the worker representative made multiple valid recommendations, including how to improve production efficiency, the supervisor changed his attitude and became more receptive to the representative’s suggestions.

SAI has witnessed growing program ownership by workers and managers at Ying Xie over the three years following the first training. In April 2007, the company hosted another election, which allowed inactive committee members to be replaced by more committed workers. The election was independently organized by the incumbent workers’ committee and conducted in a well-organized, exemplary manner. Managers at all levels also became more receptive to the activities of the workers’ committee. They are now convinced that better communication and industrial relations help production greatly. Ying Xie’s manager and SAI representatives jointly reported on the project at SAI-hosted conferences elsewhere in China (in 2005) and in North America and Scandinavia as well. In July 2007, Ying Xie’s manager shared this experience at an ILO workshop in Jordan.

“We are not here only for money. Sometimes we want to talk about something.”– Worker at Ying Xie Garments

“Even my Lao Da (line supervisor) changed his view on me.” – Elected worker representative at Ying Xie



Improved Working Conditions

The management at Ying Xie showed interest in improving working conditions prior to the SAI training program, under the pressures of high worker turnover rate and the persistent labor shortage in Guangdong province. The management team, however, did not know what avenues were available to relieve these pressures. One management decision had been to invest money in planting more trees in the factory, assuming that a greener environment would make workers happier. Fortunately, this plan was not implemented, as it would have been seriously off-target. During the training sessions, trainers asked all workers to write down the most crucial problems they would like to see resolved. The top three were poor food quality, a low piece-rate, and the high temperature in workshops in summer. This first-hand information helped the management adjust their budget in order to better suit the workers’ needs. Instead of investing in trees and grass, the factory invested about half a million Chinese yuan to build a brand-new cafeteria at the end of 2004. By May 2005, the factory had invested another 300,000 yuan in installing a water cooling system in all the workshops.

Wages were a more complicated issue. The management did adjust the wages of a small portion of workers who were not making the legal minimum. But a sizable raise for the majority of the workers remained a tough goal to reach. Worker representatives asked several times for a raise of the piece-rate, but their requests were rejected. The managers argued that the purchasing price from clients had been declining, while they were paying workers the same piece-rate as the previous season, leaving no room for a raise. Some workers began to doubt the usefulness of the young workers’ committee until a breakthrough was made in August 2005. Worker representatives discovered that the local newspaper published the inflation rate of the first two quarters of 2005. They used this new argument combined with a detailed report on the increase of living costs in the neighborhood, to finally convince the management to increase wages by 5 percent for 80 percent of the sewing operators. This raise, although not significant in absolute terms, provided an important boost in morale for the workers and was a real step along the path of mature, democratic industrial relations at Ying Xie.

Lower Worker Turnover Rate

For most garment factories in the Guangdong province, the Chinese New Year is a time when a large number of workers leave. In many cases, 30 percent of workers never return to the same factory, seeking better financial opportunities elsewhere. In contrast, the perception of senior management at Ying Xie was that it was the only factory in the industrial zone to enjoy negligible workforce attrition. The committee’s establishment convinced many workers to stay with the factory.

The management’s suspicion that better informed and empowered workers might leave was proved wrong. Instead, the creation of the workers’ committee turned out to be extremely helpful for retaining the workforce. In March 2005, only three months after the committee came into being, management was greatly

Table 3. Functions of the CommitteeIn July 2005, 74 workers were randomly interviewed and 89 percent believed that the workers’ committee was beneficial to workers. Among them, 18 percent said that they had already been helped one way or another. According to the same survey, workers appeared generally satisfied with the committee’s work in fulfilling its major responsibilities.

What has the committee done so far?

Positive

responses

% Po

sitive

Worked for collective interest of workers

45 60.81

Improved communication 50 67.57Organized activities for workers 28 37.84Organized training and educational programs

30 40.54

Helped workers to resolve specific problems

19 25.68

Source: Survey of 74 respondents, July 2005

That was the first time that I began to feel proud of being a worker.”– Worker representative who had been a migrant worker for more than 10 years



surprised that for the first time in Ying Xie’s history, almost all of the workers returned to the factory after the Chinese New Year. Many brought friends or relatives with them to join Ying Xie.

By July 2005, Ying Xie witnessed a steady decline in worker turnover rate and an increase in the average job tenure among front-line workers. SAI and Ying Xie management did not calculate the exact turnover rate from 2003 to 2005, using job tenure instead as an approximation. Many workers, especially those with experience, leave the factory to find temporary work elsewhere during the low season (even though the management pays them at least the legal minimum even when there is limited work available), but these workers usually return to Ying Xie once it can offer a sufficient amount of work because its piece-rate is higher than its competitors.

For that reason, turnover rate does not fully reflect the real picture of worker retention. Job tenure appears to be a better measure. Remarkably, average tenure doubled from 12.6 months in December 2003 to 25 months in December 2005. This is a significant success for Ying Xie, given the clear business benefits of having a more experienced and stable workforce.

SAI helped the management examine the turnover rate (job tenure) and then jointly developed a methodology measuring the cost of turnover. Initial findings suggested that when Ying Xie loses one experienced worker, the direct cost to the company (i.e., recruitment fee, training cost of replacement, reduced productivity, etc.) can be as high as 35 percent of the worker’s annual salary. This exercise made the management realize that improving working conditions can reduce costs, even in the short term.

Higher Productivity and Better Management System

One indication of improved productivity is that overtime has been declining steadily at Ying Xie (53.04 hours per week in 2004, 52.05 in 2005, and 51.02 in 2006), while workers’ wages increased from $125 per

month in 2004 to $140 in 2005 and $155 in 2006. At the same time, total pieces produced increased from 250,000 in 2004 to 320,000 in 2005 and 370,000 in 2006 while the number of employees remained roughly constant.

Other data SAI collected also suggests that productivity at Ying Xie improved significantly. For example, at the end of 2003, 25 percent of products were shipped by air, suggesting late delivery. By the end of 2004, air shipments were reduced to 20 percent, and starting in July 2005, not a single garment was shipped by air. This alone saved Ying Xie about one million Chinese yuan. Factory management attributed this improvement to better planning and a more stable workforce. SAI is also working with Ying Xie to develop a new human resources tracking system that could help management determine the factory’s true operating costs and productivity. The system aims to build a consolidated database to track the wages, hours worked, job tenure, skill sets, performance, and other relevant information for each employee.

On October 28, 2004, after the final training session before the nomination and election of the workers’ committee, trainers randomly interviewed about 30 workers about their expectations of the committee. Only 18, or 60 percent, believed that the workers’ committee would be “somewhat useful,” while 12 either said “won’t be useful” or refused to give an opinion. According to a more extensive survey taken after the election on November 30, 2004 – where 283 workers were surveyed – 212, or 75 percent believed that the workers’ committee “will help improve working conditions.”

Table 4. Average Job TenureAverage Job Tenure

12.6

19

25

0

5

10

15

20

25

30

Dec-03 Dec-04 Dec-05

Mo

nth

sSource: Ying Xie worker survey



Next Steps: Sustainability and Replicability of the SAI Program

Although the gains for workers and managers were important facets of the SAI program, sustainability within Ying Xie and replicability in other Chinese factories are equally important. This program turned out to be a successful model of how workers and managers can conduct dialogue in order to improve business operations and resolve problems together. The next step was to show that such a model can become an integral part of a company’s business conduct and an expression of its responsible corporate citizenship.

Sustainability

Many SAI trainers had some initial doubts about whether the workers’ committee at Ying Xie would be proactive and autonomous enough after the tenure of the program. However, time has shown that creating channels for communication and cooperation between workers and managers – rather than just addressing current problems – was the most valuable long-term contribution of the program. One of the lessons learned from the experience at Ying Xie is that the sustainability of future, similar programs requires maintaining a balance between workers and managers to create a sense of joint ownership. This balance, in turn, requires constant sensitivity and attention on the part of trainers. It can be difficult initially to draw out workers, but favoring workers can make managers sensitive or even defensive if they believe their perspective is being overlooked.

Little progress can occur if trainers do not find a way to help managers see the program’s benefits. The solution is to involve top management in training, helping workers feel more at ease with the process and encouraging middle managers (such as line supervisors) to take it seriously. Trainers also met periodically with managers to further discuss and clarify the intent of the program. Ultimately, the sustainability of initiatives promoting worker participation depends on a well-established follow-up plan. Electing a workers’ committee is much easier than ensuring that it functions effectively. A platform for freedom of association and rights to collective bargaining remains

only a theoretical concept if worker representatives do not have the skills and capacity to exercise their rights.

Replicability

As far as reproducing Ying Xie’s experience elsewhere, it is still too early to judge the full extent of the program’s reach, but it has certainly generated broad interest. Over the last two years, both SAI staff and factory management have been sharing lessons and experience. Timberland, the largest Ying Xie customer and facilitator of the SAI program, also found lessons learned were useful for other suppliers.

The program’s impact goes beyond Timberland’s supply chain. After observing the program at Ying Xie, the Prosperous Group, a sports bag manufacturer employing 10,000 workers in four different locations, invited the SAI team to one of its own factories. In hopes that investing in better workplace relations would result in similarly positive returns, the program at Prosperous is funded entirely by the firm itself.

The Prosperous Group pilot program was launched in April 2006 at a factory with 3,000 employees. Given that this number was too large for trainers to work with every worker, each of the fifty production groups selected three or four workers to attend the full training. Those chosen helped organize elections and briefed their peers on what they learned. Three elected worker representatives from Ying Xie are participating in this process in order to reinforce the training and inspire the participants through their own experiences.

“Timberland is proud to have been a part of the SAI worker committee program at Ying Xie. Our code of conduct assessors strive to guarantee human rights in our supply chain and a proper channel for communication between workers and management is an important component of this process. We believe the worker committee program improved relationships between the workers and management and gave workers a real sense of ownership in the factory. This experience has encouraged us to implement similar programs in other factories in our supply chain.” – Gordon Peterson, Vice President of Corporate Social Responsibility, The Timberland Company, July 2007



In October 2006, an independent election chose the workers’ committee at Prosperous, with the entire workforce of the factory voting. In the subsequent months, SAI continued to cooperate with the workers from Ying Xie to deliver five follow-up training and support sessions to 21 elected worker representatives. This group will soon be in a position to share with others at other workplaces. Prosperous is also conducting periodic additional training programs for all lower and mid-level managers and is developing policies and procedures to sustain ethical working conditions. As that factory improves its management system the workers’ committees continue to collaborate and ensure that lessons will be shared.

Looking Ahead: Toward Better Corporate Citizenship in the Workplace

In November 2005, participants from 12 multi-national companies that source in China met at a one-day seminar convened to discuss experiences with worker training programs in supplier factories. They agreed that such programs represent a necessary step toward helping factories meet ethical workplace codes, noting that “workers are the best auditors.” This observation echoed the results of a conference earlier that year, hosted by SAI and the ITGLWF, which included a workshop on worker representation for seven major Hong Kong and China labor NGOs, all of which supported the structure and goals of the SAI program.

Modern businesses must realize that their employees are key assets. As SAI expands upon this training model, it will continue working with various global brands and factories seeking to invest in better business models that include greater worker participation. This project demonstrates one means of making such an investment and realizing positive returns to management, customers, and workers. The key challenge ahead is to place such programs within the broader context of good corporate citizenship meant to improve business operations and further development worldwide. The case of Ying Xie clearly demonstrates that corporate social responsibility is about more than philanthropy or public relations campaigns. Instead, corporate social responsibility can be better described as corporate citizenship that sees both global brands and suppliers in developing countries as key stakeholders in creating economic and social value.

Corporate citizenship means looking beyond short-term profits, but it does not mean undermining the economic foundations of business. In fact, good corporate citizenship policies can lead business to prosperity, and a number of studies illustrate a direct link between a company’s social record and its financial performance.19 As the case of Ying Xie shows, responsible businesses have a greater ability to attract and retain quality employees, improve workers’ morale, transform worker-manager relationship from antagonistic to cooperative, enjoy better reputation among customers, and improve productivity through better procedures and reduced overtime to satisfy quotas. Even in countries such as China where the rule of law is weak and enforcement leaves much to be desired, local companies can voluntarily improve their conduct and treatment of workers, and reap the benefits of better labor relations and more profitable operations. Good corporate citizenship makes sense from a financial standpoint and it is a fruitful human capital investment strategy.19 See various CSR Wire reports on csrwire.com, Peter Roberts and

Grahame R. Dowling: “Corporate Reputation and Sustained Superior Financial Performance” Strategic Management Journal 23 (2002):1077-1093, and performance of Dow Jones Sustainability Indexes http://www.sustainability-index.com. See also Marjorie Kelly: “Holy Grail Found: Absolute, positive, definitive proof CSR pays off financially,” Business Ethics magazine, (vol. 18, no. 4, Winter 2004), summarizing recent meta-studies demonstrating a positive correlation between corporate social performance and financial performance.

“It was 8 years ago when I first learned the term ‘corporate social responsibility.’ My feeling right now is: improvement in working conditions can benefit a company. In the short term, we all know that there has been a labor shortage all over China. If a company can learn workers’ real needs, and continuously improve the working conditions, I think you cannot even drive workers away. In my company, each time we open a new production group, we can easily fill up the positions. In the long term, the survival of any factory in the labor intensive industry depends on two things: one is a stabilized workforce; the other is improved productivity. Without fair working conditions, it’s impossible to achieve either.” – Speech by Mr. Zhang, general manager of Ying Xie, at a seminar hosted by the Chinese Ministry of Commerce in Beijing, September 2006





Executive Summary

Corporate sustainability is the 21st-century goal for business; achieving it requires participation of all functions within a company. Good corporate citizenship involves not just responsibility for a company’s managing its internal workplace standards, but also for how those standards are reflected across the company’s entire value chain. This case study focuses on the experience of Tata Steel of India in implementing the SA8000 workplace standard as a systematic tool to improve policies and procedures for contracted workers and the vendor companies that supply them. Today, SA8000 concepts are incorporated in the company’s everyday decisions from supply chain management to workplace issues

Tata Steel is the flagship enterprise of a

98-company conglomerate. It is also one of the largest SA8000-certified manufacturing facilities worldwide. Consistent with its written code of conduct and in compliance with national law, the company also has a history of innovation in worker benefits: decades before the implementation of the SA8000 standard, it offered paid leave, an eight-hour work day, medical care, and the ability to unionize. The implementation of SA8000 allowed Tata Steel to move a step further in responsible management of its labor relations regarding a growing category of employees: contract workers.

While the company has been a frontrunner in securing proper workplace standards for its direct employees, it discovered through the process of SA8000 certification and audits that there were significant areas for improvement in treatment of contract workers. SA8000 implementation also highlighted Tata Steel’s relationship with vendors supplying contract work and illuminated the need for improved contract management, vendor education, and oversight.

Each subsequent SA8000 audit since 2004 – certification, recertification, and surveillances – has identified areas requiring change and the company has built on these changes to integrate and harmonize its policies and procedures for employees and contracted workers. This continued effort to voluntarily improve workplace standards makes Tata Steel – one of Asia’s largest industrial enterprises – especially important as an example of responsible business for other companies.

As the structure of work arrangements around the world changes and involves a growing use of contract labor, many businesses face complex responsibilities to indirect as well as direct employees. This report shows how a company can successfully adapt to these changes and make good workplace standards, for all stakeholders, a business strategy that pays.

The Case of Tata SteelIncluding Contract Workers as India’s Integral Business Stakeholders

Eileen Kohl KaufmanExecutive Director, Social Accountability International



Changes in the Structure of Work: Contract Employment

The landscape of the contemporary global labor market is in constant transformation as companies grow and shrink, borders blur, and supply chains stretch through many countries. Across the globe, business takes place in an environment of stiff competition, and enterprises big and small find that in order to function efficiently, they need to be able to quickly adapt the size and composition of their labor force. To face this challenge, many companies have modified employment structures and increased use of contract labor in order to gain greater flexibility.

The shift from traditional employment to short-term work contracts is worldwide and affects workers in many companies, especially in developing countries. But the percentages are also growing everywhere; the U.S. Bureau of Labor Statistics estimated a near doubling of this percentage between 2001 and 2005, to 8 percent of the work force. How does this trend align with the undisputed fact that loyal employees are a company’s greatest asset? How are workers affected by changes in the structure of work and the growing prevalence of contract employment? Is there a way to promote good business along with fair treatment of contract labor? The experience of Tata Steel illustrates that ensuring adequate workplace conditions, practices, and policies to protect contract workers is not a charitable gesture – it is good business.

In mature economies, direct employees have been a mainstay of the workforce, closely protected by national laws that regulate hiring, firing and benefits. These policies provide stability with an implicit promise that hard work will be rewarded with opportunities for advancement and continued job security. Yet the number of people who can expect this type of employment is declining as employers turn to contract workers who are hired to perform specific tasks for a finite period of time. Contract work provides flexibility for employers, who regard it as a way to expand or reduce their workforce as needed. In turn, workers who have contract status may value flexibility in hours and location.

Contract workers typically work for themselves or for an agency which hires them out on a as-needed basis to another company. Certain types of jobs, although on site, are commonly done by contractors, who work a few hours per day at several different employers – for example, office cleaning workers. Some specialized work is traditionally contracted, with construction being a prime example. The contract labor force has over time become diversified into many categories: independent contractors, freelancers, on-call workers, contract firm workers, fixed-term employee, private agency employees, temporary agency workers, or seasonal workers.

Sometimes it is difficult to define what distinguishes an employee from an independent contractor. For instance, contract workers of one company are often full time employees of its supplier as is the case for many call centers, garment manufacturers, or construction supervisors. The U.S. Fair Labor Standards Act definition relies on an ‘economic reality test:’ a contractor is not economically dependent upon the business, with five determining factors being used, the degree of control exerted by employer over worker, the worker’s opportunity for profit or loss, the worker’s investment in the business, the permanence of the working relationship and the degree of skill required to perform the work. These distinctions are not always clean-cut and the issue of misclassification of workers is a concern for companies employing contract labor.

Another way to think of contract workers is simply as suppliers. A supplier is generally defined as “a business entity [that] provides the company with goods and/or services integral to, and utilized in/for, the production of the company’s goods and/or services.”1 Therefore, contract workers are a special case of suppliers over whom the client enterprises have responsibility and control in their workplace, but without writing a direct paycheck. For instance, international brand manufacturers of products ranging from garments to toys to industrial components commonly contract the production of their goods to suppliers, often in a foreign country.

1 SA8000, 2008.



The global expansion in the use of contract workers raises human rights issues and workplace standards concerns. As compared to direct employees, contract workers often experience discrimination, receive less compensation, and have less job security. Companies

striving to survive in today’s competitive markets are too often tempted to seek cost-cutting measures by treating their contract workers in an inferior way. The challenge is to demonstrate to business leaders around the world that adhering to internationally accepted

International Regulations and Voluntary Workplace StandardsVarious international and domestic legal and voluntary frameworks seek to protect workers made vulnerable by evolving employment practices throughout the world. The chart below summarizes selected international standards that deal with various workplace issues. Although a number of countries have labor legislation specific to contracting (among them India, Ireland, and South Africa), as the chart shows, few international standards specifically address contract workers and their effectiveness often remains unclear.

Select International Workforce Regulations: An Overview

Standards & Laws Responsible Entity Purpose & Areas Addressed

Private Employment Agencies Convention of 1997 [C181] and Recommendation [R188]

International Labor Organization

Updates the 1949 Fee-Charging Employment Agencies Convention. Seeks to clarify the obligations of private employment agencies to their employees. Ratification, however, has been slow, with only 20 states signed on as of 2007.

The Home Work Convention of 1996 [C177] and Recommendation [R184]


Addresses the work done in the home with workers being particularly vulnerable and often invisible to regulators and regulations. Contains specific initiatives to address home workers in some supply chains.

Employment Relationship Recommendation of 2006 [R198]


Seeks to simplify convoluted relationships between employers and employees by encouraging states to formulate laws protecting workers in an employment relationship, to determine the existence of an employment relationship, and to have appropriate mechanisms defining the employment relationship within the labor market.

1999 European Commission Council Directive 99/70/EC

European Commission

Establishes a framework agreement on fixed-term work concluded by ETUC, UNICE and CEEP.* Establishes minimum requirements relating to fixed-term work in order to ensure equal treatment of workers and to prevent abuse arising from the use of successive employment contracts. Calls on member states to lay down penalties for infringements of these requirements. Stipulates special clauses to limit administrative burdens, which could ensue for SMEs from the application of these new standards.

Apart from the aforementioned international standards, a number of voluntary, multi-stakeholder, and single-industry initiatives that address supply chain issues directly deal with the supplier/contractor concerns. Among these are the Ethical Trading Initiative (ETI) Base Code, the Fair Labor Association (FLA) Work Place Code of Conduct, the Multi-Fiber Agreement (MFA) Forum Collaborative Framework, the Joint Initiative on Corporate Accountability and Workers Rights (JO-IN) Common Code, the Electronics Industry Code of Conduct (EICC), the Toy Industry Code of Conduct – International Council of Toy Industries (ICTI) CARE Process, and the Social Accountability International (SAI) SA8000 Standard.

*European Trade Union Confederation (ETUC), Union of Industrial and Employers’ Confederations of Europe (UNICE), the European Centre of Enterprises with Public Participation (CEEP).



workplace standards for direct and contract workers alike is worth the investment.

Conducting a Socially Responsible Business: The Case of Tata Steel

India’s Contract Labor [Regulation and Abolition] Act of 1970 is the key national regulation on workplace practices and applies to every establishment or contractor with over 20 employees. The law addresses a limited range of procedural issues, especially the manner of paying wages, but does not have substantive requirements on working conditions for contract workers. It also defines, as do U.S. regulations, the conditions under which contracted workers are entitled to the benefits offered permanent employees.

Like many other developing markets, the structure of India’s labor laws, which are generally protective of workers and worker tenure, are often weakly enforced. Within this context, Tata Steel, one of India’s largest businesses, decided to undertake voluntary action to manage and ensure proper workplace conditions for its suppliers and contractors. The company used the SA8000 standard and SA8000 certification as tools to accomplish that goal.

Tata Steel is the 101-year-old flagship company

of the Tata Group, which as a whole represents about

3 percent of India’s GNP. With the acquisition of Anglo-Dutch Corus, the company is not only the largest private sector steel company in India, but will also have the sixth-largest output in the world with 28 million tons produced annually. Revenues for Tata Steel alone in 2007 were around $5 billion. As the company’s significance in the Indian economy is growing, so can its influence in demonstrating business benefits of voluntary compliance with international workplace standards.

The Tata Group has long been known for its responsible business practices, a tradition traced back to the company’s early ideals articulated by its founder, J. N. Tata back in 1895, in a broad statement showing that ‘stakeholder’ is not a term or concept of recent vintage: “In a free enterprise, the community is not just another stakeholder in business but is in fact the very purpose of its existence. We do not claim to be more unselfish, more generous and more philanthropic than others. But we think we started on sound and straightforward business principles, considering the interests of the stakeholders, our own, and health and welfare of our employees – the sure foundation of our prosperity.”

Today, the Tata Code of Conduct, revised in the 1990s, is quite comprehensive and includes clauses guaranteeing equal, dignified treatment of employees and maintaining a work environment free from all forms of harassment.2

Like many companies, Tata Steel is dealing with changes in the global business environment and their effects on its business. It serves as an exemplary model of a company that has sought to manage changes in the structure of work and an evolving workplace environment.

The Tata Steel facility in Jamshedpur, India has a history of innovation in successfully managing 2 http://www.tatainteractive.com/pdf/TIS_TCOC.pdf .

“The company was founded with the philosophy that the prime purpose of all enterprises is to improve the quality of life of the society and it has done so in the last 100 years.” – Managing Director B. Muthuraman at Centenary Celebrations, January 2008

Tata Steel’s main gate



relations with workers and the community. In early 2005, it was the first integrated steel company in the world to receive SA8000 certification (by Det Norske Veritas, a Social Accountability Accreditation Services-accredited certification body). Since SA8000 certification, diverse departments of the company have modified and initiated policies and procedures, based on needs identified in the SA8000 audit and management processes, to bring supplier and contractor performance more in line with the Tata principles. The company, which has made vigorous efforts to ensure an ethical workplace, found the structured approach of SA8000 certification useful for identifying needed improvements and driving their implementation.

As a part of the certification process, Tata Steel created the 19-member SA8000 Management Review Committee, which oversees all aspects of SA8000 implementation. As specified in 2005, the committee is responsible for “continual improvements in working conditions, employee empowerment and positive supply chain interventions, in keeping with the company’s legacy of corporate citizenship.” The committee oversees SA8000 implementation and it is led by the two SA8000 representatives, the vice president for corporate services and the president of the Tata Steel Workers Union.

During committee meetings, members review supply chain performance and follow up on vendor requirements to meet SA8000 standards. Certification audits review the committee’s performance and its meeting agendas for effectiveness, and issues raised at audit have prompted procedural changes.

Contract Workers at Tata Steel

In 2008, there were 12,511 permanent steel works employees, 8,195 non-construction contracted workers, and 16,000 construction workers at Jamshedpur. Permanent employment is much lower than it was 20 years ago, highlighting the rising importance of contract labor.

Construction workers constitute the largest group of contract workers at Tata Steel; two large subcontracting companies employ most of these. An SA8000 audit found that these subcontractors were not fully compliant with government regulations and Tata Steel’s SA8000 policies. These findings prompted significant changes in Tata’s oversight of contract labor suppliers’ practices as well as its own.

In response to the audit, the company developed action plans to address noncompliance. Changes related to contract work management were subsequently made in a number of departments, including procurement, contractor management, training, and health and safety.

The number of contracted construction workers varies depending on projects. The current construction project at Tata Steel involves the expansion of the steel mill, where contract construction personnel and permanent employees work on the same premises. SA8000 audit reports identified non-compliance with respect to the requirements for these and other categories of suppliers, showing that both large and small contractors required added supervision, training, and monitoring to comply fully with national contract labor law and with SA8000. At the same time, few issues were found regarding permanent employees.

This discrepancy illustrates that even with its longstanding dedication to forging strong worker-management relationships, Tata Steel needed new or enhanced procedures to address the issues raised by an influx of contract workers. The company has already made progress and defined new procedures since it undertook certification and opportunities for improvement continue to be identified in the recertification and surveillance audits. The challenge is

“We are one of the largest certified manufacturing facilities worldwide. SA8000 concepts are incorporated in our everyday decisions from supply chain management to workplace issues. Tata Steel has led by example throughout its history and it is heartening to share with other corporations and industries to create a wider impact in labor standards.” - Partha Sengupta, Tata Steel vice president of corporate services and SA8000 management representative



to move beyond making only the easiest changes, and to comply fully with the SA8000 requirements in the spirit of the Tata Steel Business Excellence Model.

The SA8000 management committee guides these efforts and ensures that all parts of the company use SA8000 as a tool for sustainability. Tata Steel’s Senior Manager for Business Excellence, Priyadarshini Sharma, sees it as a pervasive program: “SA8000 complements the structured process improvement approach in Tata Steel. It has strengthened due diligence throughout the supply chain with deployment of tools such as the audit protocol especially developed by procurement in the course of implementation.”

As described in the following section, pairing SA8000 with follow-up on audit findings spurred changes in Tata Steel’s contract worker practices regarding training, pay practices, food provision, health and safety, procurement, and contract management. Two departments were particularly instrumental in bringing about those changes: the Procurement Division, responsible for contracting and creating a model for contracts governance, and the Contractor Cell staff, which oversees Tata’s construction and other contracts for SA8000 compliance.

Procurement Division

In light of SA8000 findings, the procurement staff took key steps that included meetings with new vendors to familiarize them with the company’s workplace standards, development of a framework for auditing vendors, and training staff on using that framework.

Apart from the two companies that supply the bulk of the company’s contract workers (i.e. construction workers), two hundred vendor companies supply Tata Steel with about 8,000 non-construction contract workers. The top 93 vendors account for 70 percent of these employees. The largest job categories are electrical and mechanical maintenance, cleaning, transport, IT, and building repair and renovation.

Familiarization meetings for vendors are an integral part of the procurement process for these workers. During these meetings with prospective contractors, Tata management explains the role of SA8000 as a system for investing in human resources

Tata Steel: A History of Socially Responsible BusinessTata Steel’s commitment to corporate social responsibility, sustainability, and community responsibility is a long-standing and essential element of the Tata Group’s identity. The company instituted policies such as an eight-hour work day (1912), leave with pay (1920), and pension scheme (1983) decades ahead of local industrial practices and national legislation. Labor relations have been managed with success and the unionized facility has never had a strike. The mill’s environmental performance is at a high level as well.

Services provided by Tata Steel to the community are extensive, given that Jamshedpur was India’s first planned industrial city and the Tata plant located there was the first such integrated facility in the country. In 1979, Tata Steel Rural Development Society (TSRDS) was established to assist in irrigation, agriculture, safe drinking water, basic healthcare service, forest protection, youth and women’s development programs and so on. Currently, Jamshedpur Utilities and Services Company Limited, affiliated with Tata Steel, is responsible for the sustainable development and management of the city, its infrastructure, and municipal services. Tata also remains committed to improving its workers’ quality of life beyond the workplace by providing recreation areas, sport facilities, learning opportunities, and entertainment.

The company’s corporate sustainability protocol* further addresses key stakeholder concerns through the formulation of policies that provide organizational direction on the issues such as guidelines for alcohol and drug use, control of HIV/AIDS, human resources, corporate social responsibility, environmental as well as occupational health and safety hazards, and social accountability.

Tata Steel has received numerous awards related to corporate responsibility. Between April 2006 and March 2007 these were: Best Governed Company Award (Asian Centre for Corporate Governance), Asia’s Most Admired Knowledge Enterprises Award (fourth time), and the Confederation of Indian Industry CII-ITC Sustainability Award. In November 2008, it became the first integrated steel company in the world, outside of Japan, to be awarded the Deming Application Prize for excellence in total quality management.

* www.unglobalcompact.org/data/ungc_cops_resources/0E897886-6C51-4676-9814-AB8E6ED5A6F7/COP.doc.



and managing business risk. In doing so, Tata presents the value proposition of SA8000 compliance to its subcontractors, demonstrating the tangible business value of maintaining good workplace practices for contract workers.

A number of changes have also occurred in systems for supplier qualification and oversight. Vendor qualification applications as well as vendor training and audits have been enhanced to encompass SA8000 requirements.

Audits provide Tata Steel with needed information to monitor compliance and the company shares audit findings among vendors. The Procurement Department’s goal with suppliers is to have them benefit by receiving information they lacked, allowing them to correct their shortcomings due to a previous lack of knowledge and thus avoid fines or disqualification.

The department sees this process as a transfer of learning to the vendors on the benefits of better workplace standards for the contract employees they manage. For instance, Tata’s vendors were initially resistant to health checks for workers, seeing them as an extra burden. Their attitude changed when they saw that the exams helped ensure that workers are assigned to a job that they can perform successfully and safely. Cited frequently is the utility of a vision and color blindness test for potential drivers.

Contractor Cell

The largest number of changes to improve SA8000 compliance among Tata’s contract workers has taken place in the department that oversees construction contractors, the Contractor Cell. Several processes and workplace areas were changed as a result of issues identified during the implementation and subsequent audits.

Canteen. Audits consistently raised concerns that

food services were not fairly and adequately provided to contracted workers. The latest SA8000 surveillance audit (2008) reports successful implementation of improvements in this area, including construction of several contractor canteens, mobile food provision at sites too far from the canteens, and improved food quality. Specific upgrades of sanitary and drinking water facilities and canteen hygiene also occurred in response to these issues being flagged at certification and surveillance audits. Workers interviewed in the

Tata Steel’s SA8000 Vendor Compliance TimelineThe Procurement Division documented the SA8000-assisted compliance process that started in 2004. The following outlines the corrective and preventive actions taken in response to the incidents of non-compliance or opportunities for improvement identified by certification audit teams over the years.

In 2004-2005: Conducted awareness training for vendors• Obtained written commitment from vendors for • SA8000 adherence

In 2005:

Made vendor commitment to SA8000 clauses • mandatoryBlocked vendors that did not make a commitment • from further business Modified the Registration and Vendor Assessment • Form for Service Providers to Tata Steel to include SA8000 clauses*Implemented process for auditing vendors, using • an audit protocol developed with assistance of certification auditorsCompleted first 10 SA8000 supplier audits •

In 2006-2007: Engaged external professional body for auditing • vendors per the audit protocolCompleted 30 external audits • Designed a penalty framework based on the key • findings of the external audits

In 2007-2008Implemented penalty framework • Established comprehensive supplier audit plan • with timelines Completed 53 external audits [totaling 93] by • April 2008Completed 75 additional external audits in 2008 • Instituted regular meetings in small groups of • vendors to improve their focus on SA8000

* The added section is called “Check list for system review for SA8000 – suppliers/contractor/sub-contractors” and requires: target dates for actions for sections not in compliance, wages in compliance with the state minimum wage act, and minimum worker’s age of 18. It also includes most of the management systems requirements of SA8000.



course of this study reported their satisfaction with food services and the canteen’s condition.

Pay days. Systems for ensuring the payment of monthly wages to contract workers have been streamlined and systematized. Tata Steel staff verify payments by the vendors to their contract workers on payment day each month. A staff member verifies that payment reports are filled out, cross checks the employees’ attendance ticket to ensure that the amount agrees with the days and overtime worked, spot checks pay envelope contents for correct amounts, and randomly asks workers about their understanding of wage calculation and deductions.3 This supervision of payments is required by the 1970 contract labor law, but its implementation at Tata Steel has been significantly upgraded and tightened since the initial SA8000 certification audit identified the need to do so.

Grievance mechanisms. The SA8000 audit revealed grievance mechanisms for contract workers as inadequate and poorly defined. In order to improve this situation, Tata steel provided more information about the accessibility for contract workers to the company’s Ethics Counselor. In September 2006, it instituted an open door policy at the Contractor Cell for complaints about pay, and required contractors to document and report on complaints received. As discussed below, special provisions were made for one common grievance about calculation of final settlement payments upon termination of employment. Also, contract workers now formally receive information about grievance procedures, based on an audit finding that half of them were unaware of the systems in place, such as the Ethics Counselor.

Final settlement payments. A 2005 SA8000 surveillance audit discovered the need for added controls in final settlement dues. Now, in cases of dispute, final settlement dues – pay owed by the past employer – are paid in the presence of a Contractor Cell staff member who co-signs the receipt as having witnessed that the payment was made and that the amount was correct. This payment also includes the 3 There are statutory deductions for the Provident Fund and Employee State Insurance.

annual bonus of 8.33 percent and any amounts owed for overtime, unused leave time, attendance, or the Provident Fund.

Gate passes. Gate passes have been corrected for accuracy to indicate when personnel are allowed on site. Admission requires both a general pass and a separate pass indicating that each worker’s safety training is current.

Overtime. Audits revealed the need to implement new procedures to ensure conformity with SA8000 standards prohibiting excessive overtime after discovering that one canteen contract employee was working seven days a week and a construction contractor was missing documentation on his overtime.

“Reaching-Out.” This is the key ongoing workplace improvement program at Tata Steel that consists of auditing on-site contractor practices and offices. The three-part audit incorporates “reach-out,” safety observation, and establishment audits. All three are now regularly taking place. If the “reach-out” inspection identifies missing documents or discovers inadequate processes, the Contractor Cell representative issues a letter citing non-conformances. These frequently concern document retention, personal protective equipment (PPE) and other requirements. As mandated by SA8000, corrective actions need to be defined within 15 days. Barring grounds admission to the violating contractor company is Tata Steel’s most cited sanction.

In February 2008, for example, there were eight two-hour “reach-out” inspection visits. Each visit is a three-part audit addressing discrete areas:

“Tata Steel’s Certification of SA8000 as the first integrated steel company in the world not only reinforced the implementation of statutory provisions with respect to contract laborers, but also embarked on a number of activities such as imparting skill enhancement training with a view to raise their employability or inculcating a sense of confidence by providing an effective grievance mechanism. This may set an example for other companies to emulate in the fast changing global industrial scenario.”– Contractor Cell



“Reaching-out” verifies that workers have •employment and employer-sponsored insurance cards, that monthly wages are paid properly and in the correct location, and that the contractor maintains proper records.

The Safety Observation checks to see if the •employer is providing personal protective equipment and that the equipment meets specs.

The Establishment Audit checks to see if the •documents and records required at the site office are in fact available.

Improved Health, Training, and Safety of Contract Workers

In the course of implementing the SA8000 standard, Tata Steel realized that extending proper employee services and on-the-job protection to its contract workers is not only an essential element of living up to the company’s own ethical standards, but also an integral part of improving its business operations. Well-trained and healthy workers provided with safe working conditions can perform with higher productivity, which translates into a real benefit to business. What is more, even though they are not permanent employees, contract workers who are treated according to the same standards develop respect and loyalty for the company to which they are contracted. Consequently, they are more likely to be more effective workers than ill-treated temporary

workers who do not see any reason to truly apply themselves to the entrusted tasks.

Health. Tata Steel was a pioneer in healthcare provisions for employees and their families, with many policies long predating national law. In 2006, a system to ensure contract worker health checks was introduced, and in response to the 2007 SA8000 certification audit, additional policies were introduced to better provide contract workers with health checks. All categories of workers now receive occupational health checks, contract workers undergo vision screening, hearing tests, and blood typing, and screening is to be offered to their families as well. As noted before, the company tests for color blindness and, if indicated by the health check, a color-blind person can then be assigned a job where their condition will not be a handicap. To date, 35,000 contract workers have been checked. Starting in 2007, two-day sessions promoting the health of working women have also taken place, educating 600 contract workers as of mid-2008. Some of the contractors’ firms pay some session costs; others are entirely covered by Tata Steel.

Training. Probably the most extensive and

important changes in the management of contract workers are in the training category. The training program informs employees about their rights at work in response to audit findings that indicated knowledge gaps. Sessions cover legal rights, worker safety, health awareness, and others. For many of the contract construction workers, working for Tata Steel is their first formal employment. This lack of formal work experience puts a premium on the need for and usefulness of the training programs. SA8000 requirements led to the addition of several kinds of contract worker training at Tata Steel.

Safety training. Improving workplace safety in particular requires the participation of all worker categories. In order for a workplace to be safe, all workers need to wear their protective equipment, but they also need to recognize and alert others to dangerous or unsafe situations. SA8000 auditors found that contracted workers lacked knowledge of the safety problem reporting system, so training

Contracted construction workers’ training and awareness program for women



has been expanded to include this topic. Tata further promotes worker awareness of safety and rights at work at monthly meetings in the Jamshedpur town stadium, at induction trainings, and via materials handed out to workers describing their benefits and rights.

Specialized training. Contract workers who drive trucks within the Tata Steel compound as well as those who drive for the company outside of its premises received special safe driving sessions. Other specialized and advanced safety training courses take place after work at the company’s training center. They are meant for supervisory personnel of construction contractors. One course, for example, covers safety in rigging; 1,200 people are expected to attend in 2008. The center also provides community training programs such as a six-month residential program that prepares youth from tribal areas outside Jamshedpur for competitive school exams.

Safety training partnership with Rotary International. In February 2003, Tata Steel, its contractors, and Rotary International established a safety training partnership, to which SA8000 training

was added in 2005. The Rotary Club Labour Training Centre, located on the company’s grounds, delivers the training paid for by contractors. Tata anticipates expanding this program in cooperation with Rotary to other sites in India and perhaps internationally. Upon completion of a three day-safety course, workers are issued a training card, valid for one year, which must be shown for admission to the company premises. An annual half-day refresher course is required to renew gate passes, which includes topics such as social accountability requirements and safe behavior. The center plans to add services such as provision of eyeglasses, if needed, and to add technical training for contractor workers in driving, welding, and electrical skills.

Going Forward: Lessons Learned from Tata Steel’s Experience

Although construction workers on site make up the majority of the participants in Tata’s programs for improving workplace conditions for contract workers, the company’s experience also applies to vendors and longer-term contract workers. After 2010, the current construction site of a new steel mill will be complete and most construction work will cease. The policies and procedures that Tata instituted for choosing and managing any future contract work will remain in place and can be used at other sites as well as with new vendors.

Contract construction workers’ canteen

The Rotary Club Labour Training Centre, a joint venture of Rotary International and Tata Steel



The importance of contract work for Tata Steel and other large companies has been growing over the years. In fact, during the current construction period, the company has comparable numbers of contract personnel and steel production workers. Contract workers have become one of the company’s key internal stakeholders and must be treated as such in order to ensure effective business operation. Fulfilling an employer’s responsibility for all its workers, including contracted ones, is a major issue for every business in today’s global economy. Even Tata Steel, a company that strives to always be aware of and responsive to its stakeholders, discovered that meeting specific SA8000 clauses and responding to non-conformances identified in audits can be a useful lesson on how to improve its existing programs and procedures.

The final lesson concerns the need for continuous improvement. At Tata Steel, contract workers could be involved in additional activities and benefits available to direct employees, such as community initiatives or recognition programs that help workers stay engaged and motivated. This means that extending various aspects of good workplace standards to contract workers – and, in turn, tapping the benefits to business brought by this inclusion – requires continued attention and cooperation among the company’s departments and between the company and its vendors. The SA8000 Management Review Committee in particular seeks to build an ethical supply chain based on binding regulation, company values, and SA8000 standards. By using the building blocks of specific programs and solutions developed in the process of attaining SA8000 compliance, Tata Steel can continue to improve its internal stakeholder relations and be an example of good corporate citizenship to others.

Conclusion

Contracting constitutes a growing category of employees and has been gaining economic significance around the world with the expansion of global value chains, and the inadequacies in treatment of contract workers require specific attention in developing countries, such as India, where they are in the greatest demand – and remain the most vulnerable.

The SA8000 certification system has been a useful tool for identifying needed improvements in management systems and service delivery in fulfilling Tata Steel’s responsibilities to its contract workers. At the same time, the company’s management recognized that improving working conditions for contract workers is a two-way street: it is not just another addition to the cost of labor, but rather an investment in workers’ productivity, and also higher job satisfaction. All those interviewed at the company during the course of this study report that the certification structure and the SA8000 management systems have added value to their work. Better workplace standards prescribed by SA8000 are well worth adopting voluntarily not just as a matter of ethical business conduct, but above all as an integral element of good business strategy.

Tata Steel has long been India’s frontrunner in good corporate citizenship, making the concerns of workers and the community an integral part of its business operations. Given its history, size, and reputation, Tata Steel has significant potential to demonstrate the beneficial influence of adopting SA8000 in India and beyond. Improvements to its vendor management system, as well as contract workers’ safety, health, and training prompted by implementation of SA8000, offer examples and guidance for other companies seeking effective approaches to meeting workplace standards. In addition, Tata’s suppliers of contract work – thanks to the company’s greater involvement in overseeing their operations – have understood that that worker training and health are valuable investments, and may share their experiences with other contracting companies.





Executive Summary

Proper workplace standards are widely enshrined in labor laws worldwide. However, the reality in many developing countries is that a large gap remains between the laws and their implementation. Operating in the environments of weak rule of law and great competitive pressures, businesses often perceive such laws as costly and time-consuming, and question whether their investment in improved workplace conditions will reap a return, especially if their competitors do not comply. As long as compliance with mandatory standards translates into a competitive disadvantage, individual businesses will be slow to take action.

Stricter laws, under these conditions, are not the solution. The challenge is to move the standards from paper to workplace. This will happen if businesses see palpable benefits from workplace improvements. If they do, they will implement them voluntarily. SAI SA8000 system is a tool created precisely for this – to facilitate and encourage the implementation of international labor standards.

This study reviews the implementation of SA8000 by Topkapi Iplik, a large Turkish yarn manufacturer. It focuses on how and why the company voluntarily sought compliance with the SA8000 standard and why adherence to this standard turned out to be a sound business strategy.

Topkapi Iplik’s management decided to pursue better labor conditions through the SA8000 certification for long-term benefits, not short-term

gain. While management initially felt that the changes required to meet standards would have an adverse effect on operating costs, these fears disappeared when audits found no such effects and instead revealed tangible benefits.

The success of SA8000 implementation changed the company’s outlook on workplace standards, moving it toward more mature industrial relations and better corporate citizenship. Topkapi Iplik now regards these standards as integral to its business and to presenting a brand identity that appeals to consumers who prefer to purchase products from companies that demonstrate a commitment to worker rights, health, and safety. The factory was the first SA8000-certified facility in Turkey and the management has assisted other companies in exploring the potential for certification.

Topkapi Iplik already has preferred access to some European and U.S. garment manufacturers and brands because it is certified with SA8000. If and when Turkey becomes part of the European Union, the company will have preferred access to an even greater market for consumers seeking organic cotton yarn and certified workplace standards. The major question relates to the overall competitiveness of Turkish manufactures in a very cost-sensitive industry and global environment. This study shows that compliance with SA8000 is a sound business practice for ensuring access to upscale western markets and that workplace standards can bring measurable business success and societal improvement to factories in less industrialized countries.

The Experience of Topkapi IplikBetter Workplaces in Turkey through SA8000

John Tepper MarlinPrincipal at CSRNYC

and Adjunct Professor of Business Ethics at New York University‘s Stern School of Business



Background: Turkey’s Economy andLabor Conditions

The Challenge of Promoting Workplace Standards

Ataturk’s secular state has had the continued support of Turkish citizens in part because they have seen the economic benefits it has brought. Turkey has witnessed economic growth averaging close to 7 percent per year into 2007, yet global competitive forces and the global recession in late 2008 have put strains on the country’s economy and may complicate or delay the adoption of better workplace standards. In order to boost international competitiveness, Prime Minister Recep Tayyip Erdoğan has set the country on the path of aggressive privatization of public assets. Many see privatization as detrimental to workers’ job security, though this security is already threatened by the fact that labor costs of surrounding countries are as low as one-fifth of Turkish wages.

The government also complicates matters by taxing employment heavily, which leads to a large informal sector. According to the Turkey Statistics Institute, out of the 21.4 million people employed within Turkey, 46 percent are unregistered informal workers. Both Turkish exporters and the government are eager for membership in the European Union. Belonging to the EU presents a great potential to expand trade, but requires that member countries promote good working conditions. The key challenge for Turkish companies is to demonstrate a commitment to workplace standards consistent with EU expectations while controlling labor costs and maintaining enterprise profitability.

Apparel: Backbone of the Turkish Economy

At the center of Turkey’s economic growth is the textiles and apparel industry, which accounts for $24 billion of 2007 exports, 20 percent of all exports,1 and an estimated 36 percent2 of Turkey’s industrial employment.

The industry is challenged by the country’s high rate of inflation, especially as it affects combined labor 1 www.rbwf.org/2008/rio/Yorukoglu.ppt.2 http://www.turkishembassy.org/index.php?option=com_content&task=view&id=228&Itemid=278.

costs and taxes. The Joint Initiative on Corporate Accountability and Workers Rights (JO-IN)3, a group of international non-governmental organizations examining workplace conditions in Turkey, calculated that apparel workers cost employers directly 594 YTL (New Turkish Lira) per month in 2005; yet after payroll taxes, workers received just 350 YTL.4 Employers say they pay another 100 YTL a month for lunch and travel allowances. Labor costs are rising rapidly – the Turkish minimum wage rose more than 50 percent from 2001 to 2005. However, inflation was 8.5 percent in 2007 and Turkey’s trade unions argue that the minimum wage is still far below what they believe to be an appropriate living wage.

Turkey’s apparel sector is vulnerable to growing labor costs because of intense cost competition from countries at an earlier stage of development. Export growth slowed to 7.5 percent in 2008 from 12.3 percent the year before, indicating a large impact on the economy since apparel is such a large percentage of total GDP. The high level of foreign direct investment – expected to reach about $25 billion for the year – means that the Turkish lira may strengthen further and make exports more expensive to buyers. Meanwhile, the volatility of the lira5 increases the risks of trade with Turkish suppliers.

Turkey is challenged to grow its textile exports without suppressing wages or compromising on labor conditions. Recognizing that EU-based customers may be willing to pay a premium for products that are certified to have been manufactured under superior workplace conditions, SA8000 may provide Turkey’s apparel industry a needed competitive edge.

Current Labor Conditions

Labor conditions in the Turkish apparel industry vary greatly among facilities. Small and medium-sized factories face heightened job insecurity in a competitive international market. Workers must often cope with the twin hardships of unsteady employment and extended working hours. Although Turkish labor 3 www.jo-in.org.4 1 YTL = .61 USD (Accessed on January 29, 2009 at xe.com).5 http://www.tititudorancea.com/z/euro_to_try_exchange_rates_new_turkish_lira.htm.



legislation defines the legal work day at 7.5 hours and the work week at 45, hours ebb and flow considerably during periods of heavy production and light demand. Businesses often take advantage of government stipulations regarding flexible work weeks, and protections only apply to registered workers. While unregistered operations and the employment of unregistered workers are illegal, enforcement and inspections are virtually non-existent because the Labor Ministry is understaffed.

Another pressing issue regarding labor conditions in Turkey are the limitations placed on the ability of workers to unionize and collectively bargain. According to a 2004 JO-IN report, out of 9 million workers with labor contracts, only 1.3 million were in collective contracts. While Turkish law permits workers to unionize, they must be currently employed and registered to be able to participate or establish a union.6 Registration occurs at a government office and takes time. Additionally, a labor union can only negotiate a collective bargaining agreement if it represents at least 10 percent of the workers employed by the industry sector and has registered more than 50 percent of the workers employed by a facility. These conditions restrict collective bargaining to an extremely small number of associations.

The Muslim Dimension of a Just Workplace

In addition to secular laws, Islamic Law, Shari’a, governs business in Turkey and other Muslim countries.7 Modern interpretations of the Quran argue that a business operated in accord with Islamic belief pays special attention to certain warnings by the Prophet Muhammad against exploitation, and attempts to establish a just society within the business. For example, the Quran says: “O ye who believe! Do not squander one another’s wealth in vanities, but let there be amongst you traffic and trade by mutual good will.” (Quran, 4:29)8

A representative from the Pakistan Ministry of Commerce at Social Accountability International

6 Trade Unions Code no. 2821.7 Called Sharia in Arabic and Shariat in Farsi, Hindi, Turkish,

and Uzbek.8 Accessed from http://makkah.wordpress.com/positive-quotes/.

(SAI)’s 10th Anniversary Conference, for instance, argued that SA8000 could be viewed as implementing Islamic law and beliefs. For an observant Muslim business executive, certification with SA8000 has the added value of serving as a secular verification of the faith-based justice of a company’s workplace.

By some interpretations, Shari’a may conflict with secular values of corporate citizenship and International Labour Organization conventions.9 But exemplary companies such as Topkapi Iplik demonstrate how Shari’a may provide motivation to seek SA8000 certification. Topkapi is not the only Turkish facility to report positive outcomes from SA8000 certification. Two other firms were early leaders in introducing SA8000 certification into Turkey, Alarko-Carrier, a worldwide manufacturer and distributor of heating and cooling technologies, and Yeşim, the country’s largest apparel exporter.

Alarko-Carrier and Yeşim:Two Other SA8000 Pioneers in Turkey

The Case of Alarko-Carrier

Since its establishment in 1954 Alarko Sanayi ve Ticaret A.Ş. has been operating in the fields of heating, cooling, air conditioning, water purification, and pressurization. In 1998, the company established an equal partnership with Carrier, a world leader in its field, and the company’s name was changed to Alarko Carrier Industry and Trade Co. Inc. The company originally implemented SA8000 and initiated the certification process because it wanted to harmonize the company’s labor policies with industry best practices and to formalize its corporate social responsibility culture in an integrated management system. The initial assessment was carried out in December 2004 and the certificate was awarded in April 2005. The company reports that the initial effort of implementing SA8000 was not great because it was able to build on existing management systems under three other international standards – ISO 9001, ISO 9 This may be seen in the recent religious-secular crisis in Istanbul universities, where secularists wish to continue to forbid headscarves as a sign of liberation from religious influence, whereas observant Muslim women believe they are excluded from attendance by this prohibition.



14001, and OSHAS 18001. (This also shows the importance of the management system element of the SA8000 standard.)

At the same time, implementing this new standard brought significant benefits. The plant director for Alarko, Murat Copur, lists the following gains from implementing SA8000:

With certification, the company now understands •the full range of issues regarding its quality, environmental, health and safety, and social responsibilities.

By involving employees, subcontractors, and •technical services professionals, SA8000 made Alarko a company they want to work for.

The certification process resulted in improved •customer service.

The Case of Yeşim Tekstil

Yeşim is Turkey’s largest textile/apparel employer. Founded in 1983, it employs about 5,000 people in a 240,000 square-meter facility. It is a fully integrated textile facility, performing all production processes from knitting, dying, printing, and finishing to lab-testing finished products. The company has a daily capacity of 250,000 pieces of in-home textiles and clothing. Yeşim’s customers include Gap Inc., Nike, Inc., Tchibo GmbH, Esprit International, Hugo Boss, Lands End, Zara International, Burberry, and Eddie Bauer.

The plant was certified with SA8000 in 2005 by Intertek Testing Services. In 2006, JO-IN engaged European and U.S. brands and six of their Turkish suppliers in a trial project to test ways to improve working conditions through codes of conduct. The

project assessed compliance to the JO-IN Common Code at the factories of these six suppliers. Like the other suppliers, Yeşim was assessed by the JO-IN team in early 2007 and was found almost entirely in compliance with the JO-IN Code – markedly better than the other garment factories participating in the project. Yeşim was the only participant certified with SA8000.

Yeşim recognized the fundamental right of freedom of association: it had a trade union. It was also paying a living wage, was not double-booking orders, had the strong support of the chief executive officer for improving workplace conditions, and had no reported worker rights violations. Still, implementing SA8000 added benefits for both workers and management.

The company had initial concerns about potential costs related to certification, such as possible delays in business operations and slower delivery if certification prevented extensive overtime; loss of flexibility to meet customer needs without becoming non-compliant; costs related to the monitoring system to control overtime; or problems associated with the need to shift extra work to subcontractors and costs related to monitoring their practices. These initial concerns evaporated as Yeşim achieved expected benefits; and ultimately, there were no delays or problems related to curbing overtime.

Benefits of SA8000 to workers. Yeşim’s employees reported numerous improvements as a result of the company’s certification. Long-term workers, for instance, emphasized the value of decreased overtime (or no overtime), greater attention to health and safety, augmented training, enhanced communication, and access to management about concerns. Workers noted that their opinions are now sought more than before and the management much more frequently asks workers for suggestions on how to improve the production process.

Benefits for management. The company’s management has found it highly advantageous to have a third-party-driven social compliance plan and a systematic approach to responsible and sustainable business practices relating to subcontractors. SA8000

“‘Never forget that the employees working for you are people and treating them properly is your responsibility.’ This advice, given to Sükrü Sankaya, one of our founders, by his father when he entered the business world, is the foundation of our ‘people first’ principle.” - Yeşim Tekstil, Turkey, 2006 report



certification also provides a credible reference for customers concerned with workplace issues, proper recognition of Yeşim’s achievement, and new orders. Therefore, SA8000 became an integral part of the company’s management system and a helpful business tool.

Advantages of introducing SA8000. The company cites SA8000 implementation for increased awareness of workplace issues at the managerial and worker level. Vocational training facilitation and effective compliance with environmental health and safety standards are also significant achievements. Certification improved the company’s grievance and management systems through better coordination with trade union representatives in periodic meetings as well as monitoring, internal audits, and a corrective action request system. The company cites three measurable achievements: a 37 percent decrease in lost time from accidents and sickness, from 652 to 414 days (a gain of 238 work days), and nearly 100 percent compliance with overtime limit requirements (in 2006, only 4 out of 2,500 employees exceeded the yearly limit of 270 hours; in 2007, only one employee exceeded the annual limit).

Topkapi Iplik Case: The Benefits of SA8000

Topkapi Iplik is a large yarn factory located on the European side of Istanbul, in Hadımköy. The factory, founded in 1972, is the sole operating site of Topkapı İplik (Topkapi Yarn).10 Topkapi’s factory occupies 85,000 square meters on its 250,000-square-meter site. The company employs 506 people and has been on a path of modernization and growth. Estimated 2007 sales in dollars were $37.1 million, with the great majority of sales being for export. Yeşim and the German firm Otto Versand are Topkapi’s chief buyers. The company’s commitment to a high-quality 10 Full name: Topkapi Iplik Sanayi ve Ticaret A.Ş.

workplace dates back to its founding in 1972 by Rahmi Akinci, a man deeply committed to Islamic principles. He wanted his personal values and aspirations reflected in the workplace – and he recruited a business partner who shared his values. Today, the company remains a strong family operation, with the partner’s son married to the founder’s daughter.

Why Topkapi Decided to Seek SA8000 Certification

Because Topkapi Iplik sells to international buyers, it sought validation according to international standards. The company has become a national pioneer in certification, previously earning certification to the Oeko-Tex 100 environmental standard,11 the International Organization for Standardization (ISO) ISO 9001 Quality Assurance standard, the ISO 14001 Environment Management standard, and the Occupational Health and Safety Advisory Services (OHSAS) OHSAS 18001 occupational health and safety standard. It was natural for such a company to be interested in meeting a global standard for workplace quality, and SA8000 fit the bill. The company plans soon to seek the Forest Stewardship Council (FSC) certificate for sourcing its yarn, especially organic fiber and fiber from the kapok tree.

A major buyer of Topkapi’s products, Otto Versand, initially suggested in 2002 that the company consider adopting SA8000 as a tool for implementing international labor standards. The idea fit with the values of the owner and managers. Since the recommendation came from Otto, Topkapi used Otto’s subsidiary, Systain, to become familiar with SA8000 and to develop measures of performance. Otto Versand is widely recognized as a corporate social responsibility (CSR) leader in Germany, especially in the area of environmentally friendly product design and manufacturing, and in consumer education. (The company was a founding SAI Advisory Board member and a signatory member of the SAI corporate program.)

Topkapi’s decision to pursue SA8000 came later in 2002, after it earned certification for the ISO 9001 11 This is an international testing and certification system for textiles limiting the use and ecological impact of certain chemicals; used by 65 textile manufactures in 80 countries.

“Our performance [prior to SA8000 certification] was badly affected by overtime. This was especially stressful from female workers’ point of view. We used to face problems in our private lives because of staying at work longer than planned.” – Apparel cutting room worker, 12 years at the company



management system, which is similar in structure to SA8000’s ninth element. The company began its pursuit of SA8000 certification with a forward-looking perspective, believing that “in the future, this standard will be an obligation for suppliers, because consumer consciousness is increasing, and brands and store chains targeting the middle and high-income groups would increasingly demand the SA8000 standard.”12 This may be especially true given the profile of Topkapi customers, because a substantial proportion of Topkapi sales consists of organic fibers going to retailers whose customers demand not only high-quality products, but also assurances on the high quality of workplace standards. Turkey is one of the largest suppliers of organic cotton and Topkapi is a leader in spinning organic cotton yarn.

Certification was the next logical step that allowed the company to institutionalize a commitment to treat workers justly and to further Topkapi’s business interest in being acceptable to European buyers. By earning certification, Topkapi strategically moved its products out of the “commodity” category, where there is no customer loyalty and cost is the only consideration, into the “premium” category where customers pay attention to the brand and are willing to pay more for higher production and labor standards. Consequently, Topkapi viewed the SA8000 certification as providing better access to the EU markets either directly, if and when Turkey is admitted to the EU, or indirectly by selling yarn or basic fabric to Eastern European companies. EU consumers and retailers are helping to create demand for organic and sweatshop-free yarn. In particular, the Business Social Compliance Initiative of more than 200 European retailers is insisting that manufacturers supplying to brands they sell move toward meeting SA8000 standards.

Topkapi’s Road to Certification:Challenges and Opportunities

Given that Topkapi had already previously introduced other international standards that included management systems, it was easy for the company to embark on the SA8000 initiative. In preparation for the certification audit, Topkapi worked with

12 Topkapi Profiler.

Systain Consulting GmbH to develop the required management systems. The company selected as its certification body the Los Angeles-based Cal Safety Compliance Corporation (CSCC, now a division of Specialized Technology Services), which is accredited by Social Accountability Accreditation Services.

Certification with SA8000 requires compliance with all elements of the standard, some of which are already legal requirements. For example, Turkish law governs direct compensation of workers, and by being in compliance with the law, Topkapi was also therefore in compliance with the standard. Other elements were not a matter of law, making compliance in some cases more difficult. Here are two examples:

Overtime• . Topkapi, along with many other factories in less industrialized countries, found it challenging to convince workers that restricting overtime hours was in their interest. Some workers want to work as many hours as possible despite the fact that they may be more prone to accidents and be less productive. It required considerable education to show employees that overtime creates problems for both management and workers.

Cost.• The additional expense of some SA8000 requirements was initially a financial burden for the company, but it has been subsequently linked to enhanced productivity. Both productivity and product value were improved by newer, modern equipment that required more skilled workers and better educated managers than before. These changes, in turn, created a recruiting and training challenge. However, the outcome was a decreased need for workers per unit of output and was therefore a boost in labor productivity.

In complying with SA8000, the company discovered the need for many other changes, such as amending election procedures for a workers’ representative, who had to be elected not only by union members, but also by non-members, training workers in the new approach to elections, and consulting a worker committee whose members are encouraged to provide suggestions and ask questions. Some smaller changes were required concerning



safety and health. For instance, some fire-extinguisher points did not work and had to be activated, and the extinguishers were put on a monthly quality checklist.

Topkapi was certified with SA8000 in 2003 by Intertek. It was the first facility in Turkey and the first yarn–spinning facility in Europe to earn SA8000 certification. It passed a recertification audit in 2007.

Cost of SA8000 Certification

Certification to the SA8000 standard entails two categories of costs. The first category is out-of-pocket costs to compensate auditors and consultants and the cost of capital and investments necessary for compliance. The second category is for training costs, wage enhancements, and other outlays for the company’s human and physical capital. In the case of Topkapi Iplik, audit costs totaled an estimated 30,072 YTL (or $18,369).13 Indirect costs are estimated at 56,101 YTL (or $34,272).14

Investing in the certification process brought long-term returns, according to Topkapi Iplik management. SA8000 has provided substantial benefits that significantly offset some certification costs. Direct benefits include a commission that takes the form of a reduction in insurance premiums that Topkapi owes to its insurer, Commercial Union Insurance Company (CUIC). CUIC increased the discount it offered on its insurance premiums from 27.5 percent to 30 percent

13 Costs paid to CSCC, Topkapi’s certification body. 14 Costs paid before and after certification for trainings, physical improvements,

purchasing of personal protective equipment, etc.

after SA8000 certification. This increase is a substantial benefit to Topkapi because it applies not only to the company’s casualty insurance but also to insurance written by Topkapi for goods in transit.

Topkapi’s production and sales figures show that

although sales to Western Europe have been declining, Topkapi Iplik’s overall sales are increasing. The shift occurs because Eastern Europe has already joined the European Union and has better access than Turkish manufacturers to European markets. So Topkapi sells yarn and unfinished fabrics to Eastern European manufacturers who then sell finished garments to buyers in Western Europe.

Another factor increasing overall sales is greater customer loyalty, thanks to certifications like SA8000. Being certified increases the likelihood that socially conscious buyers will stay with the brands they trust, because their manufacturers can show certification back to the source of their inputs. For example, Topkapi’s certification as a yarn supplier is a benefit for Yeşim, a textile producer and a substantial Topkapi customer. Yeşim is also SA8000-certified and this gives Topkapi an edge in bidding for orders from Yeşim or any other company wishing to maintain the integrity of its supply chain. Topkapi customers also include EU retailers that carry special consumer label environmental and social goods, such as Coop Switzerland and Marks & Spencer.

Lastly, one more aspect of SA8000’s contribution to Topkapi’s evolving business model is the movement of the company into the fair trade market. It has long been interested in organic yarn and unfinished fabric markets. The opening of another mill dedicated to that kind of production greatly enhances the quality of the organic fabric that Topkapi can sell.

Topkapi Iplik: Detailed Analysis of SA80000 Benefits

The discussion of benefits is organized according to the nine elements of SA8000. These elements are not equally weighted at Topkapi Iplik; SA8000 caused greater changes in some areas than in others, as reflected in the following analysis.

Chart 1. Lower Insurance Costs Due to Greater Premium Discounts

2626.5

2727.5

2828.5

2929.5

3030.5

2002 2003 2004 2005 2006 2007

% A

genc

y R

ebat

e

Chart - Benefit: Increased Agency Insurance Commissions (Equivalent to Reduced Premiums)

Source: Topkapi Iplik Records



1. No Child Labor

SA8000 follows UN practice in defining a child as someone under the age of 14. Defined as such, child labor has not been a problem at Topkapi. However, there is an issue in Turkey with compensation of workers in another age-defined category, that of apprentices. Under Turkish law, apprentices – i.e., workers in training – are not considered employees, and employers do not have to pay the same rates and taxes required for their regular employees. An apprentice typically spends four days working in a factory and one day at school. Apprentice salaries must be at least one-third of minimum wage and their social security taxes are paid by the government. However, there is no upper age limit to join the apprenticeship program. Some factories seek to cut costs by hiring apprentices who are 40 years old.

The SA8000 Guidance Document highlights the need for certification auditors to watch for abuses in the apprentice program. If there were a fraudulent apprenticeship at Topkapi, it would likely be discovered during an audit.

2. No Forced Labor

Topkapi Iplik did not employ forced labor prior to certification, so no changes were needed in hiring procedures to comply with SA8000. Forced labor is rare in the textile sector because it has a high capital-to-worker ratio. In a factory of this kind the important thing is to keep the machinery functioning properly. Skills are sought and can be paid for adequately. Therefore the factory managers do not need migrant workers or contract workers (other than security staff) to work at lower wages. The key benefit for Topkapi derived from certification in this area was third-party verification of the company’s ethical employment practice.

3. Health and Safety

Topkapi Iplik made many improvements in this category, some recent as a result of prodding by

SA8000 standards and some pre-dating certification. Most occurred during the preparation for certification with SA8000 as well as other standards used in the company. Topkapi Ipik’s health and safety initiatives, described below, produced tangible benefits for workers and at the same time reduced long-run costs.

Greater use of Personnel Protection Equipment (PPE). Protective equipment such as dust masks and earplugs were always available, but were optional. Prior to certification, it was considered the worker’s choice to use PPE. Now, the company has taken more responsibility for its employees and those who resist using PPE must attend training on the importance of using PPE and the correct way to use it. This new emphasis on safety helps Topkapi retain a healthier and more productive workforce.

At SA8000 surveillance audits, auditors noted five employees not using earplugs and more not using masks. Management issued warnings and advised employees that they could be dismissed for not using PPE. One worker commented, “Training for workers includes older workers’ explaining about their loss of hearing.” Another added, “Our company pays more attention to our health than we do.”

Free workplace doctor. Similarly, benefits to both the employees and the company can be derived from better

healthcare for workers. One day per week, employees can see the company doctor free of charge. This was true before implementation of SA8000. Now, in addition, a worker will be transported any day of the week to the medical center (1 km away) if needed. Thanks to that improvement, workers can be taken to the doctor if they become ill on days when the doctor is not at the factory, and medicine is free for workers and their families.

Better-quality meals for employees. Topkapi provides meals in accordance with Turkish health regulations. The company already offered lunch before SA8000, but workers said the food and facilities were lacking. Now, the company provides four-course meals (soup,

Textile worker at Topkapi Iplik



salad, entrée, and dessert), prepared by a skilled chef. Workers also report that the company is now more responsive to meal needs. One worker said: “The night shift wanted breakfast and got it. Workers asked for a second [purification] treatment for water and got it. They asked for better social facilities and got them.”

Better shuttle buses. Before SA8000 certification, the management already employed a bus contractor to bring employees to the factory. Since adoption of SA8000, contractors have used new and better-quality shuttle buses, greatly improving employees’ comfort on the way to work.

Better-trained security guards. The company stopped hiring and training its own guards and now uses an outside firm that provides additional training about human rights, especially gender rights. One worker commented, “I feel safer with the new security personnel.”

More emergency lighting. Prior to SA8000, emergency lighting was non-existent in some locations and haphazard in others. After SA8000, all areas had emergency lighting. A recent audit found that emergency lighting for a secondary access door in the knitting section was missing, and it was subsequently added. The company now regularly checks to ensure such lighting is available in all locations, and the company’s management system expanded to include attention to emergency lighting in its periodic control table. This expansion is one reason insurance costs for Topkapi were reduced following SA8000 certification.

Adequate fire hoses and warning signs. Fire hoses have always been available on the factory floor, but in the past some were missing. They are now available at each of the factory’s 100 hose connection points, and are regularly inspected. Also, pre-SA8000, some warning signs on factory machines regarding safe use were missing. All machines now bear appropriate warning signs.

One major benefit of improved health and safety measures has been a lower accident rate. Since SA8000 implementation, Topkapi Iplik’s accidents declined consistently, showing none in 2005 and

about one-fifth of the pre-certification level in 2007. The company also closed down two old mills between March 2006 and December 2007 and has been upgrading equipment plant-wide. This helps further reduce the accident rate, since newer equipment comes with more safeguards for workers. These improvements in workplace safety benefit both workers and owners by reducing lost days and insurance costs.

4. Freedom of Association and the Right toCollective Bargaining

Ensuring freedom of association and the right to collective bargaining promotes a more cooperative workplace, which benefits both workers and management. Topkapi’s workers unionized in 1980. Its union is affiliated with Teksif, the largest textile workers union in Turkey, and with the International Textile, Leather and Garment Workers’ Federation (ITGLWF). Union members constitute two-thirds of Topkapi Iplik’s workforce. The SA8000 worker representative needs to be chosen in coordination with a trade union if it is present; the process described below was agreed for this site.

Prior to certification, the worker representative was elected only by union members. As required by SA8000, management reported that in 2007 all workers were eligible to vote. First, union members elected a representative. Then non-union workers put up their own candidate.

Those who do not join share the same rights under the union contract, including voting for a worker representative. A worker comments, verifying the

Chart 2. Lower Accident Rates

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situation: “At Topkapi Iplik, the company is 60 to 70 percent unionized, compared with 40 to 80 percent in other places. Union members pay dues of 18 to 22 Turkish lira per month [dues are key to trade union independence and member service provision]. New recruits are unlikely to join the union at first, but from the beginning they have the right under SA8000 to vote for the worker representative, who is elected first from a slate of union members and then faces a non-member candidate in new election[s] at which the non-members vote.”

Turkish law requires that workers who want to join the union must register with a local government office. This law is burdensome, as explained by a worker: “In 2002, it cost me 100 lira, a week’s pay, to register. I had to pay a notary’s fee, 7 lira. Then I had bus fares to pay to collect health reports (malaria) and a criminal record check. I had to take time off and pay to register, as well as taking time off to join the union.” Now, under SA8000 standards, management helps workers to register and hires a notary to facilitate registration of workers as union members. A worker said, “They brought a notary to the factory when enough people were interested, and workers paid nothing.” This complies with the intent of the SA8000 and ensures that all workers – union and non-union – benefit from collective bargaining and freedom of association. Topkapi union members paid only 20 lira to register in 2006.

5. Discrimination

At Topkapi Iplik, management strongly supports the SA8000 non-discrimination principles, which address not only personal characteristics, but also trade union affiliation. From the founding of the firm, employees have had rights and opportunities regardless of gender, language, color, and other personal characteristics. According to management, the firm’s founder observed Shari’a principles requiring a just workplace and forbidding discrimination.

6. Discipline and Grievances

Because all workers have a right to vote for the worker representative, the elected person represents all employees, not just union members. This change has been positive, says Topkapi management, as the representative can now handle grievances from any worker. In an interview, the elected representative observed, “The former chief workers’ representative retired in 2005. During the election, Topkapi had an observer from Teksif. I was encouraged by co-workers to run; 340 union members voted and I won. I then ran in the SA8000 election against a non-union candidate and I again won.” He says he meets with Teksif once or twice a month, and handles one or two worker complaints per month, sometimes meeting a worker at Topkapi and at other times at the Teksif office.”

Workers say that a major improvement with SA8000 is that workers are “trained rather than fired.” When in personal trouble, they are often assisted by their co-workers. A story reported by both management and a worker concerned a worker who had a child that had to be taken to the hospital. The worker expected he would have to quit to care for the ill child. Instead, he was able to take time off because co-workers covered for him. He had no interruption in pay and was able to return to his job when the child recovered. This is evidence that absenteeism at Topkapi is not arbitrarily punished.

Employees generally share their concerns with department managers, who inform top management and try to resolve problems. Should there be a grievance, in 2002, it could only be taken to two places: the

Chart 3. More Workers Voting for Representatives

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education director and the union representative. By 2007, a grievance could be lodged not only with the education director and the union, but also with the worker representative, via suggestion boxes in the canteen and the dressing room. Mahmut Akinci, co-owner of the company, also makes time himself in the factory to listen to workers’ concerns.

The worker representative, who has been at Topkapi for 18 years, says there is “more dialogue” now between management and labor than there had been before certification. Now, managers “try to win workers, not lose them.” If workers make mistakes, they are sent out for training. One employee said, “If there is a complaint about a worker, they check it out before taking any action. That is different.” Giving more consideration to the employees has improved the workplace atmosphere at Topkapi and enhanced worker-retention rates.

7. Working Hours

Less overtime. The Turkish Government has not properly enforced the law limiting overtime.15 At Topkapi, before SA8000, people routinely worked 50 to 60 hours per week, i.e., 5 to 15 hours overtime (the work week at Topkapi consists of 45 hours). This translated into 20 to 60 hours per month, an average overtime of 10 to 15 hours per month per worker. Sometimes, workers were asked to put in so many hours they did not have any opportunity to take their annual leave.

After SA8000 certification, employees worked overtime only with consent as required by SA8000 standards. In the past, management could require overtime at wil l . Now, the employee/labor representative must review and approve any situation that requires overtime. Consequently, the number of overtime hours has declined consistently. Average hours of overtime per worker per month declined from 12.5 hours to about 3 hours per worker per month.

15 Turkish law stipulates that for workers whose contract week is 45 hours, total overtime work must not be more than 270 hours per year. For workers whose contract workweek is less than 45 hours, overtime hours are paid at 1.25 the normal hourly wage for up to 45 hours of work. (JO-IN Briefing Paper 3, Overtime and Excessive Overtime)

Accurate overtime records. According to management, the company’s 2007 recertification audit found problems with overtime records at a new mill that opened in 2006 with new workers and managers. An employee’s time record did not match company records and it appeared that the new mill workers and management had not been fully trained. The management addressed the problem by training the mill’s management and workers in SA8000 requirements and record-keeping.

One reason for Topkapi Iplik’s reduction in overtimes is that it added a new daily shift, going from three to four shifts per day. This move provided more time off for shift workers and resulted in less need for overtime. Although some workers quit because they wanted to work more hours, more said the change was good for their home life and for maintaining attention on the job. One worker reports, “Annual leave is now well regulated, with the entire shift taking leave at the same time of the year.” A small number of workers who want to earn more now go to other firms to moonlight.

Improved quality of supervision. The training and quality of supervisory staff has greatly improved at Topkapi Iplik. Before SA8000, the company had two engineers, professionals with college-level training. The remaining supervisors were less educated, creating problems with their supervisory practices. Now, the company has 15 engineers, all of whom are properly educated. Management reports higher personnel costs but says these staff members promote a more efficient and worker-friendly administration.

Chart 4. Average Overtime Declining

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Workers agree: “Definitely there are more engineers – for example, the quality control supervisor, maintenance supervisor, training supervisor, production supervisor. At Mill 3, there is a really good shift supervisor, always accessible. One can take an issue to the production chief or higher up.” Employees say that workplace communication and productivity have improved because the supervisory staff is more highly educated.

Decline in absenteeism. Before certification, monthly data from 2003 show that factory absenteeism averaged about 90 worker-days per month. With SA8000, the number fell at the end of 2003 to 60 worker-days per month and in 2004 to 54 worker-days per month. In 2005 and 2006, however, absenteeism crept up again, possibly as a result of more workers choosing to stay home when ill. In this situation, higher absenteeism can be interpreted positively. Workers with communicable diseases who are free of pressure to come to work are less likely to transmit their illness to their fellow co-workers, leading to even more absences. Employees who are healthy are also more likely to be productive than those with health issues, and greater availability of medical care at work has certainly made a difference.

Another factor contributing to the decline in worker-days lost per month was the increase in worker schedule flexibility. With the move to four shifts instead of three, employees gained more flexibility with their schedule to take care of personal matters without having to take time off from work. Since December 2005, worker absenteeism has become increasingly unpredictable. This change could mean that having four shifts has given workers so much flexibility that they are now able to take extra time off for major events such as weddings in the summer months or Ramadan and Bayram in the fall and winter.

Easier leave. According to management, leave can now be taken more easily. Regular-shift employees work 5.5 days per week, so they have at least one full

day free from work each week. By moving from three to four shifts, the shift workers now have two full days off after every six days.

8. Compensation

Wages and benefits better explained. Improvements in wages and additional social rights have been implemented for all employees by the Teksif contract. SA8000 certification had no impact on these developments, but it has proven useful in explaining to workers their rights. Management reports that Teksif has asked Topkapi Iplik for documentation on SA8000 training on workers’ rights to provide to other Turkish companies.

Greater non-cash compensation. Since the introduction of SA8000, compensation of Topkapi workers has improved. The increases have largely been in non-cash benefits. Such remuneration is in addition to the minimum wage, required benefits, and union-negotiated increases. Examples include upgrades in medical care and increases in bonus food parcels to 10 kilos, four times a year.

A worker said such benefits cannot be taken for granted in Turkey. For example: “In some places, they do not pay social security until workers are

there one to two years.” In the garment sector, many companies never pay such benefits. On compensation, workers had differing views. The worker representative said SA8000 did not improve cash compensation and argued that an extra 100 YTL per month would avert the need for some workers to take second jobs. Other workers were satisfied with compensation: “I own my house, have two kids, [and my] wife doesn’t work. I don’t work overtime - I don’t need any more money,” one worker said.

Minimum wage enforced. Turkey has a national minimum wage and Topkapi pays workers in accordance with the law. The union contract dictates additions to this wage as workers earn seniority. The SA8000 basic needs wage, which includes benefits, is above the entry levels of the union contract.

Women are an important part of Topkapi Iplik’s workforce



The minimum wage is enforced, but the 2007 recertification auditor found that 153 employees received an average of 2.2 percent less than the basic needs wage. Management said that the problem was a five-month delay in securing agreement from the union about the labor contract and that no wage increases were paid during this time. Workers indicated they understood that employees are hired at minimum wage, then receive an increase at the end of a three-month probationary period, followed by a 5 percent raise every six months up to the basic needs level.

9. Management Systems

SA8000 takes a management systems approach to identifying and addressing any lack of compliance with the standards. This approach emphasizes the need for training in awareness and implementation of SA8000 at both supervisory and worker levels. Both management and workers confirmed that every corrective action discovered by the auditor triggers a review of the related management system, and it is brought to the attention of the management system committee for system-wide correction. The aim is to prevent the recurrence of problems and ensure that procedures are in place to address new problems systematically. The SA8000 management system standard also addresses the need for supplier and subcontractor information, communication with stakeholders, and complaint response.

Before introduction of the SA8000 standard, suppliers were monitored only for product quality and price, but SA8000 requires that certified companies ensure supplier compliance with basic standards. About 4 percent of Topkapi’s suppliers – i.e., five companies that are overseas – are not monitored. Instead, Topkapi sends self-assessment forms. For all of the other suppliers, the company checks on compliance with labor standards. This process prompted the company to warn and then terminate one supplier over a worker-safety issue.

Contractors are also suppliers. At the time of the initial SA8000 audit, Topkapi hired and trained its own security guards. When the company shifted to an outside security contractor, it did not train or monitor personnel being supplied for compliance with SA8000

standards. This has changed. The contractor started training in August 2007, and Topkapi will add its own training to that provided by the security company.

Key Findings: Benefits for Topkapi and Other Certified Companies

SA8000 certification provides a competitive advantage. The Topkapi case study explored the business environment in Turkey and the rationale for a company to invest in SA8000. The data show that Turkey faces considerable challenges to improving its position as a competitive exporter to Western markets, notably intense cost pressures from lower-wage neighbors and high payroll taxes. At the same time, the country is at a significant disadvantage because it has not yet been admitted to the European Union. Despite these conditions, Turkish companies have special opportunities to supply products with organic, fair trade, and SA8000 certifications. Of particular importance to Topkapi is that manufacturers are seeking suppliers who can provide yarn and unfinished fabrics to meet the growing consumer demand for products made from certified materials.

The adoption of SA8000, in combination with other certifications, ensures a unique market niche. As a leader in the production of certified organic and Fair Trade yarns and unfinished fabrics, Topkapi Iplik strives to create and maintain a market niche with special access to upscale European consumers. Adopting SA8000 has put the company closer to achieving that strategic goal. SA8000 is part of a larger package of certifications that Topkapi acquired and is now able to use in forming business partnerships with textile companies whose clients demand the use of certified materials and the implementation of certified workplace practices.

Despite a highly competitive market, sales have grown and Topkapi’s certifications have provided some market and pricing power in what would otherwise be a commodity market. Topkapi is not simply selling cotton yarn: it is selling certified cotton yarn – certified environmentally and socially. Topkapi management believes that the market value of the certifications will continue to grow over time.



While providing tangible benefits from a business standpoint, the certifications align with the company’s philosophy. Topkapi owners saw SA8000 as part of a greater ongoing effort to design a workplace that is fair, nondiscriminatory, and considerate to its employees. The pursuit of certification in a Muslim-owned factory shows that SA8000 is perceived as consistent with Islamic principle of a just workplace. Certifications are being sought in other countries with lower wages, such as Egypt. Because this approach is both good for business and desirable for employers in Muslim countries, the SA8000 standard has the potential for broad appeal and usefulness in the region.

Topkapi management reported improvements in other workplaces certified by SA8000 along with tangible benefits to the company’s bottom line. Accident rates fell. Overtime dropped sharply. Absenteeism fell initially, but increased again as employees found that an extra shift made it easier to take time off. Improved productivity accompanied these changes. The Topkapi case study is unique in that the company also reported improved insurance rates, which by themselves appear to pay for the out-of-pocket costs of certification to SA8000.

The benefits of the various certifications are interrelated, complex, and may require worker education. Changing the status quo in a workplace may not always be easy, especially if workers do not fully understand the benefits of their factory becoming certified. For instance, some workers in the Topkapi factory – as well as in other studied facilities – tend to want to work as many hours as possible because longer hours bring additional income. They need to be educated about the possibility of earning the same amount or more with fewer hours of work, and the dangers at work and to workers’ personal lives from excessive working hours. At Topkapi, only a minority of workers still want to work as many hours as possible.

Conclusion

The SA8000 standard was created more than 10 years ago and has proven beneficial to companies around the world that invest in compliance. Measurable outcomes include lowered employee turnover, decreased accident rates, and a decline in product defects. In addition, a number of case studies reveal that workers’ feelings about the workplace have improved. The cost of being certified to the SA8000 standard is recognized as a good investment in product differentiation and worker satisfaction.

Most of these benefits have been realized in Topkapi Iplik and other Turkish companies mentioned in this study. SA8000 and other certifications have enabled Topkapi to occupy a market niche as a socially responsible supplier. This provides access to consumers (especially in Europe) who seek products that are organic, produced under fair trade conditions and are SA8000-certified. Topkapi reports growing sales, and management believes the benefits of compliance with good workplace standards will grow over time. The success of early SA8000 certifications in Turkey suggests that the standards are aligned with Islamic principles of a just workplace and have great potential to be adopted in other countries with large Muslim populations.

Most broadly, this case study validates the power of voluntary standards to support the rule of law. In Turkey, as in many other developing countries, labor laws such as those regarding overtime are rarely enforced and it takes a company-by-company approach to show both managers and workers the benefits of compliance with and above what is specified by the law. Every success story with documented benefits for the bottom line creates more demand for the implementation of international labor standards, while at the same time furthering the goal of better workplaces around the world.

Center for International Private Enterprise1155 15th Street NW, Suite 700

Washington, DC 20005ph: (202) 721-9200 • fax: (202) 721-9250

www.cipe.org • e-mail: [email protected]

Social Accountability International15 West 44th Street, 6th FloorNew York, NY 10036ph: (212) 684-1414 • fax: (212) 684-1515www.sa-intl.org • e-mail: [email protected]

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