CODES OF CONDUCT

The term "Codes of Conduct" is used generically to refer to various types of corporate policies and standards of working conditions. A recent development, corporate codes of conduct and other business guidelines are becoming more common, as consumers as well as religious, labor and human rights groups are increasingly calling upon companies to take responsibility for the conditions under which the goods they sell are being manufactured. Many U.S. companies that import apparel have adopted codes of conduct that prohibit the use of child labor and promote other labor standards.

Nowadays, as a professional in the industry, you should be no longer focusing on costing, sourcing vendor bases or concentrating on quality but also looking for Codes of Conduct - you will not be able to live without it.

1. The proliferation of Codes of Conduct

> Corporate Codes of Conduct
> Implementation of Codes of Conduct
> Monitoring of Codes of Conduct
> Conclusion and Recommendation

Corporate Codes of Conduct

Corporate codes of conduct are policy statements that define ethical standards for companies. Corporations voluntarily develop such codes to inform consumers about the principles that they follow in the production of the goods and services they manufacture or sell. Corporate codes of conduct usually address many workplace issues - including child labor, human rights, equity, labor standards and health and safety.

United States corporations have adopted corporate codes of conduct for a variety of reasons, ranging from a sense of social responsibility to pressure from competitors, labor unions, the media, consumer groups, shareholders and worker-rights advocates. The U.S. Government has also encouraged U.S. corporations to adopt model business principles for their overseas operations.

Companies that import products from countries whose labor conditions have received negative publicity regarding abusive working conditions may develop codes of conduct in order to prevent further criticism. Some companies adopt codes as a direct response to public pressure. Corporations may adopt codes of conduct in order to demonstrate that they are good corporate citizens, or to earn the label of a "socially responsible" company.  By incorporating the concept of social responsibility into their normal business dealings, companies may develop corporate philosophies that combine "altruism and enlightened self-interest.

There is no information on the exact extent to which U.S. corporations have adopted codes of conduct governing their foreign operations. Press reports and other publicly available information suggest that a significant number of U.S. corporations and business organizations have done so. Most available information on codes of conduct is on large corporations.

For example, U.S. companies in such diverse industries stationery products (Hallmark), footwear (Nike), personal care products (Gillette), photographic equipment and supplies (Polaroid) and computers (Honeywell) are known to have corporate codes of conduct.

In addition, several business organizations have designed codes of conduct to be used by medium- and small-sized companies whose corporate structures may not be sufficiently large to develop their own code of conduct.

Codes of Conducts for Apparel Industry

The U.S. is the world's largest importer of garments. The U.S. apparel industry is made up of a complex chain of actors whose functions often overlap. The industry includes the following entities:

a. Apparel manufacturers are primarily engaged in the design, cutting, and sewing of garments from fabric. Some manufacturers are contractors or sub-contractors, which generally manufacture apparel from materials owned by other firms. Larger manufacturers often contract production to many such contractors and subcontractors in the U.S. and abroad. Some manufacturers are vertically integrated, producing the textiles from which they make garments, or even operating retail outlets.

b. Apparel merchandisers generally design and market clothing, but contract the actual production to manufacturers.

c. Buying agents locate, qualify and inspect foreign suppliers/producers of garments, negotiate with suppliers/producers, and often monitor production for quality control and compliance with other standards. U.S. companies that do not have a large presence abroad may use them.

d. Retailers are primarily engaged in the distribution, merchandising, and sale of garments to consumers. Apparel retailers include department stores, mass merchandisers, specialty stores, national chains, discount and off-price stores, outlets, mail-order companies and electronic forms of retailing such as interactive TV and on-line shopping services.

Scope of Codes of Conduct

• Special document (typically referred to as "codes of conduct") outlining their values and guidelines in a variety of areas. These documents are a means for companies to clearly and publicly state the way in which they intend to do business to their suppliers, customers, consumers and shareholders.

• Letters stating their policies circulated to all suppliers, contractors and/or buying agents.

• Compliance certificates, which typically require suppliers, buying agents, or contractors to certify in writing that they abide by the company's stated standard.

• Clauses in formal documents such as purchase orders or letters of credit, which make compliance with the policy a contractual obligation for suppliers.

Although many of the corporate codes of conduct address the same set of labor standards, these codes vary from company to company with regard to the specific labor standards included. Some or all of the following elements are commonly found in various codes:

1. Provisions of legal requirements.

2. Provisions on wages, based on local laws regarding minimum wage or prevailing wage levels in the local industry.

3. Workplace environment and health and safety requirements.

4. Prohibitions on child labor, forced labor.

5. Prohibitions on discrimination based on race, religion, gender, age, marital status, political affiliation, or ethnic origin.

6. Provisions regarding limits on working hours, including forced overtime, in accordance with local laws.

7. Support for freedom of association and the right to organize and bargain collectively.

Companies that determine to adopt the provision of Codes of Conduct shall comply with all applicable laws of their respective country of manufacture and shall apply a higher standard in cases of differences or conflicts; and shall require its contractors, suppliers, sub-contractors and licensees to comply with the same applicable laws and principles.

Implementation of Codes of Conduct

The challenges of implementing a policy for a company in the apparel industry differ greatly and depend on how the scope of business is organized. In general, the closer the relationship between the importer and the company producing the items, the greater the ability to influence labor conditions. Conversely, the longer the chain of production, the more levels of contractors, subcontractors and buying agents used, the more complex and challenging is the implementation. Many companies reflected that they expect subcontractors to comply with their policies, but often did not specify how these policies could be achieved.

There are several tangible ways by which companies post their codes of conduct:

• Establish and articulate clear, written codes of conduct standards.
• Formally convey the codes of conduct to suppliers, buying agents as well as licensees.
• Provide training to employees to ensure individuals at all level of the purchasing process are aware of its provisions and let the employees help monitoring.
• Enhance training sessions to foreign suppliers, contractors or subcontractors, to make them aware of the importance of codes of conduct.
• By posting the codes in contractor¡¦s facility where accessible to all workers.
• By contractual statement, have suppliers, contractors or subcontractors receive the codes and understand its meaning and implementation expectations.

Establishment of communication channel

Most of the companies reflected that they have distributed their copies of codes to all suppliers, contractors or sub-contractors, however they did not know whether workers were aware of the existence of their codes, the establishment of a communication channel is essential, following are common communication skills widely used by various companies.

• Go through the codes with facility managers to ensure these individuals understand the expectation.
• Meet with key suppliers to emphasize company¡¦s expectations.
• Conduct training sessions and educational seminars.
• Ensure that suppliers, contractors or buying agents inform their employees the standards of the codes and through the posting of the standards in a prominent place (in the local languages spoken) and undertake the efforts to educate employees about the standards on a regular basis.
• The generation of codes of conduct in different languages.
• Develop a questionnaire to verify and quantify compliance with the standards.

Implementation of some of the standards may be problematic in certain countries where the rights embodied in the standards are not fully recognized or enforced either through law or practice. Despite these difficulties, the principal of the implementation of codes of conduct is to promote and encourage positive change, to eliminate sweatshop practice.

Monitoring of Codes of conduct

Monitoring is critical to the success of a code of conduct; some companies utilize a variety of means to monitor their codes of conduct. There are a variety of ways to monitor codes of conduct.

Active monitoring - conduct site visits and inspections by company staff or by agents or external parties, to verity that suppliers are actually implementing the provisions of the codes.

Contractual monitoring - rely on the guarantees made by suppliers through contractual agreements or certification.

A combination of active and contractual monitoring - relying on contractual monitoring and backed up with site visits and inspections.

1. Active monitoring

• In-house audits by company staff - use local or regional company employees to conduct periodical announced and unannounced visits, this kind of audit is commonly used among large vertical set up companies because they believe that monitoring internally is the most efficient way since problems are reported directly to management and can be solved effectively and efficiently. The audits are commonly done by internal quality assurance, merchandisers or senior management who are trained to monitor the codes of conduct, some companies even form a specialized department to deal with all codes of conduct issues.

• External monitoring conducted by buying agent - rely on buying agents to monitor compliance with their corporate code.
• Outside audits conducted by independent firms hired by the company - outside monitoring of another company¡¦s corporate codes of conduct is a relatively new endeavor, nowadays, accounting and auditing firms have expanded their functions to include monitoring of compliance with corporate codes of conduct such as examining payroll records. For companies who does not have the resources to implement an internal monitoring program, such company can delegate the monitoring to accredited independent external auditors.

• Audits conducted by consumer, labor or human rights organization - some companies use their local human rights group to conduct or assist in monitoring their codes of conduct.

2. Contractual monitoring

Many companies require their supplier, buying agents or contractors to abide by their codes through contractual agreement or in form of certification; these contractual obligations provide a legal avenue, a number of companies indicated their corporate codes of conduct or policy in their purchase orders. Other companies require written acknowledgement by their contractors or buying agents that they have read and fully understood their codes of conduct.

Monitoring for the implementation of codes of conduct is a very challenging undertaking since the apparel industry is made up of a complex chain of domestic and foreign actors, a company shall periodically review its monitoring plan and ensure the plan is an up to date scheme.

Conclusions and Recommendations

There is a growing awareness among many of the largest U.S. apparel importers about the conditions under which apparel sold in the U.S. market is produced. This is a major change from just a few years ago, when importer were more inclined to avoid any responsibility on this matter. Codes of conduct are increasingly common in the U.S apparel industry. Codes of conduct can be a positive factor in improving labor working conditions, most of the large U.S. apparel importers have adopted codes of conduct.

1. All actors in the apparel industry, including manufacturers, retailers, buying agents and merchandisers, adopt code of conduct as an important element for sourcing strategy.
2. All parties in the apparel business are adopting more standardized codes of conduct.
3. U.S. apparel importers take serious measurement to evaluate subcontractors and home workers.
4. U.S. apparel importers particularly retailers are taking a more active role in monitoring and implementation of their codes of conduct.
5. All parties, particularly workers, should be adequately informed about codes of conduct so that the codes can fully serve their purpose.

The implementation of codes of conduct is a complex matter, and a relatively recent endeavor. Implementation seems best - and most credible - when U.S. companies get directly involved in the monitoring. There is little incentive for foreign companies to comply with a U.S. importer's code of conduct if there is no verification of actual behavior.

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