Multinationals have long profited off lax labor standards in developing countries in order to drive margins. However, while Companies have faced pressures from both consumers and investors to address the issue, even after tragedies like the Foxconn suicides or the collapse of the textile factory in Bangladesh, the tolerance for systemic child labor violations or the lack of a living wage suggests that the price being paid is not high enough.
As the mother of a young daughter, I have a strong appreciation for the risks that face this little girl on her road ahead. Meet Aastha and take a long look at her little face.
Aastha lives in a state of debt bondage, since a farmer has loaned her parents 20,000 rupees (about $315) in exchange for three years of their daughter’s labor.
A farmer's intermediary was sent to convince Aastha's parents to send her to work. They live in south-eastern India, in an impoverished rural village. The broker promised their little girl a well-paid job, comfortable accommodation, three nutritious meals a day and opportunities for training and schooling. He even paid the parents an advance as well as the promise of another lump sum bonus at the end of three years.
The mother lets her daughter go because she knows that she is happy when she is in school and as subsistence farmers, the reality is that the family need the money to eat. Aastha's mother feels confident that Aastha will have a better life than she does today. It's one of the reasons she chose her daughter's name. You see Aastha means faith or trust.
Unfortunately field research shows that in reality, Aastha will be working under appalling conditions that amount to modern day slavery and the worst forms of child labor (SOMO, ICN 2014). Alas, little Aastha is only 5 years old. She alone can do nothing.
At only five years of age, Aastha works at least nine hours a day and during harvest season, up to 12 hours a day. Sometimes she is forced to work 16 hours a day under the hot sun picking cotton. If she does not work hard she is scolded with swear words and struck on the legs, back and shoulders to work harder. Often she gets dizzy from the sun. After the fields, her eyes are red, her hands are sore, and sometimes she vomits or has convulsions (IB Times, 17/10/13).
Aastha is not only subject to financial exploitation and dangerous working conditions, but she is also at risk of developing lung disease from the choking cotton dust. It's due to the use of pesticides that she often has headaches, physical weakness, disorientation, convulsions and respiratory ailments.
The Cotton industry today makes up 4% of India's GDP and provides millions of jobs and export revenues.Aastha is only one of India's 400,000 child cotton workers (BBC, 2014).
The Scale of the Problem
Today 168 million children worldwide are in child labor. Frighteningly, this accounts to almost 13 per cent of the global child population (ILO, Unicef 2015). Children in hazardous work that directly endangers their health, safety and moral development make up more than half of all child laborers (85 million!).
What is Child Labor?
In 1999, the ILO led the Worst Forms Convention, signed by 151 countries, to prohibit the worst forms of child labor. The ILO defines child labor in three general categories:
Where does it exist?
Unfortunately, child labor is an issue in many of the poorest parts of the world, where children often work in the world's supply chains to satisfy global consumer demands.
Research providerMaplecroft evaluates the frequency and severity of reported child labor incidents in 197 countries. Their Child Labor Index 2014 shows that the prevalence of child labor is highest in sub-Saharan Africa and it's increasing. Largely, due to Africa being a significant location for foreign direct investment given its growth potential.
While Asia Pacific still has the largest number of children in child labor they also show the greatest progress on reducing child labor. However, the problem of child labor is not only restricted to developing economies. The UK's performance is reported to be only slightly higher than Pakistan, Sri Lanka and Vietnam.
In the world's least developed countries, nearly one in four children (ages 5 to 14) are engaged in labor that is considered detrimental to their health and development (UNICEF, 2015).
Why does Child Labor exist?
UNICEF, SEDEX and the ILO report that persistence of child labor stems from poverty and the
lack of decent work or a living wage for their parents. It is also derived from the lack of social protections and a failure to ensure that all children are attending school through to the legal minimum age for employment.
Why do Companies target Children?
Children are reportedly sought after because they are more "manageable." They are less likely to protest against low wages and long working hours or the isolated or unsafe working conditions.
The repeat Offenders by Reputation Risk Ranking
With 70% of the world's child labor statistics (ILO, 2015) attributed to work in agriculture it is no surprise that the food and beverage sector is the industry with the most allegations of child exploitation (RepRisk, 2015). Nestle Group, the Hershey Company, Cargill and Mars have repeatedly come under attack by their stakeholders for allegations of child labor in their supply chains, despite what appears to be significant efforts to address the issues (Companies CSR Reports).
Pressure from Asset owners and their Managers is growing as they themselves seek to comply with the UN Principles of Responsible Investment. This mandates excluding exposure to child labor from their investee companies.
One Louisiana pension fund raised legitimate questions about Hershey executives’ knowledge of how much of the company’s cocoa, grown in West Africa, may have been produced by child slaves.
The Louisiana Municipal Police Employees’ Retirement System, which held Hershey shares, sued them, seeking access to the company’s records about cocoa purchases from West African suppliers who did not comply with international child-labor restrictions. They contested that Hershey officials put the company's reputation at risk by relying on West African cocoa farmers that deliberately ignored child labor laws (Bloomberg, 16/03/2014).
Ranked second in reputation risk profile is the personal goods and electronics industry.
Today an estimated 20 million child workers are employed in factories. Both Apple and Samsung have been held to account for their supply chain operations in China.
Apple continues to be the world's most controversial company for its alleged breaches of the UN Global Compact and other international standards (RepRisk, 2015). 1.5 million + workers make products for Apple, and some of them are children. Apple knows it and they will declare it - but they are doing their best to tackle it. While most companies look for transparency 3 layers deep, Apple has to manage more than 12 layers. When they do find it, they make the supplier pay not only for the education of any child laborers it is found using, but also to keep paying them wages until they graduate, encouraging them to continue their education. Alas only 1 in 3 take them up on it.
Despite the controversies, Gartner still ranked Apple’s supply chain last year as the best supply chain in the world for the third time in a row.
Ranked second most controversial Company in the sector by its stakeholders is Samsung Electronics, who responded to failures by its China based supplier Dongguan Shinyang Electronics by first firing them but later rehiring them and reducing orders by 30 percent. They had been found using illegal child labor until July 2014 (FT, 05/08/14).
In October last year, HEG Technology, a Samsung Electronics supplier filed a lawsuit against the founder of China Labor Watch and Shenzhen Zhuoyue Zhisheng Enterprise Management, a Chinese group working on its behalf. The lawsuit alleges damage to the company's reputation after China Labor Watch accused the company of child labor at HEG. The founder of China Labor Watch, however, stood by its allegations of labor violations presenting a list of workers whose birth dates showed they were under 16 at the time of employment as an evidence (The Australian, 02/10/2014).
Ranked third is the mining sector that comes under fire for its reputation risk profile that alleges children are used in their often-hazardous operations. The most recent example was published by NGO Human Rights Watch (HRW), in its "Precious Metal, Cheap Labor" report. They criticized Ghana's state-owned Precious Minerals Marketing and gold refiners that buy gold from Ghana for their alleged failure to install adequate due diligence measures that would systematically identify child labor in their supply chain. The report finds that thousands of children, some younger than 10 years old, work in Ghana’s artisanal and small-scale gold mines under hazardous conditions. This is in violation of both Ghanaian and international law prohibiting child labor.
Retail follows a close 4th in sectors for the volume, voracity and velocity of child labor allegations with retailers Walmart, Nike and Gap consistently under fire by stakeholders for child labor issues, sweatshop labor conditions and the lack of living wages for its workers. While millions of dollars have been invested to ensure that CSR policies are in place, supply chain audits are regular and investments in supplier education ongoing, the reality is that progress is often hampered by the lack of transparency in their globally complex multi-tiered supply chain networks and the lack of a zero tolerance regime. Marketing Academics debate that the reports of labor violations simply reinforce Walmart's brand positioning of the lowest prices in the minds of its consumers.
Why is Child Labor eradication important for Companies?
There are 3 economic reasons why child labor is an important issue for Companies and Investors.
However, the moral and ethical reasons for eradication of child labor are even clearer.
As one Asia Pacific Supply Chain Director states, “Would you want your child working in a factory, missing out on an education and losing their childhood? Children are part of that vulnerable group of workers who are open to exploitation and simply put requires us who have the “power of the pencil” (through factory orders) to protect those that cannot protect themselves. Ignorance is no excuse".
What practical steps can Companies take?
Based on primary interviews with Asia based Supply Chain Directors, Companies would be best served by deploying this simple 6 step action plan to play their part in eradicating child labor from the supply chain:
As guidance a best practice example of Factory Compliance Guidelines typically includes the following :
One global retailer took a proactive approach to managing this issue in Asia Pacific. Recognising that the cost of raw materials was a key factor for their factories in the use of child labor, they proactively negotiated long-term wholesale agreements with the raw material providers. They then went back to the finished goods factories with the negotiated margins and long-term supplier agreements. The raw material rates they were able to negotiate with their volumes were far better than their finished goods suppliers would have ever been able to negotiate and long-term supply agreements enabled the factories to more confidently manage their headcounts and margins based on secured volumes. Coupled with a zero tolerance position and strong enforcement of its child labor policies through its Supplier Code of Conduct and Compliance Guidelines, this is helping to change the issue of child labor in their supply chain.
As Supply Chain Managers will tell you, point in time supplier audits are not enough. A Company may have no issue today but due to a finished goods manufacturer taking on a new raw materials supplier or vice versa, may have one tomorrow. A lifecycle risk management approach is critical.
The Road to Zero
June 12, 2015 marked the 13th "World Day against Child Labor" where stakeholders across the world from Government, Business and their Communities stopped to focus attention on the global extent of child labor and the action and efforts needed to eliminate it. Since it was founded in 2002, reports of child labor have decreased by 30%. But it’s not enough. The numbers show us that we still have a long way to go towards eliminating child labour by 2016.
Eliminating child labor and improving conditions within our supply chains must be a collaborative process with all stakeholders taking on responsibility.
Companies need to ramp up their commitments to eradicating child labor from their supply chains by holding their Suppliers accountable and granting orders only to suppliers who are compliant. Governments need to enforce the law. NGO’s must continue to be the watchdog, reporting Company’s breaches of child labor to communities. Media need to responsibly report it. Employees need to be the whistleblower and vote with their employment choices and Consumers and Investors need to vote with their cash.
Now imagine for one minute that you are Aastha's mother or father and that she is your daughter. What decision would you make differently today?
We all have a role to play in the eradication of child labor for supply is only ever equivalent to demand.
Sources: #Primary Interviews with Supply Chain Directors #Bloomberg #Factiva#HumanRightsWatch #ICN #ILO #LexisNexis #Maplecroft #PRI #RepRisk #Sedex #SOMA #The Australian #UN #UNICEF
#reputationrisk #retail #mining #personal goods #agriculture #food and beverage #childwelfare #CSR #riskmanagement #audit #childlabor #supplychain
I appreciate that you are reading my post. Here, and at LinkedIn, I write about board related issues - corporate strategy, human capital, reputation risk, technology, corporate governance and risk management trends.
For more on these topics, check out my other recent LinkedIn Influencer posts:
About RL EXPERT Leesa Soulodre:
We just sent you an email. Please click the link in the email to confirm your subscription!
OKSubscriptions powered by Strikingly