May 13, 2008
Disney and McDonald's Take Steps to Protect Global Labor
by Anne Moore Odell
In partnership with prominent stakeholders, the two companies strive to improve working conditions
in factories overseas while new data shows an uptick in companies monitoring suppliers' labor
In the worldwide conflict between demand for cheaply produced consumer goods and the desire to
protect the rights of workers who produce these goods, more investors, consumers, and other
stakeholders are demanding that companies commit to protecting workers who manufacture goods
wherever the workers live.
According to a new study by RiskMetrics Group, 20% of large cap companies have policies
in place regarding their suppliers' observance of labor standards. Depending on where you stand in
the labor divide, this number is either an encouraging start or a dismal showing, especially
considering that only 14% of the large cap companies surveyed actually monitor their suppliers'
compliance with labor standards.
"This was the third year we looked at the S&P 500 as a
cohort, and the percentage of S&P 500 firms with supplier labor policies jumped from 13% in 2005 to
16% in 2006 and 22% in 2007," said Peter DeSimone, head of labor and human rights research at
RiskMetrics Group. "The numbers point to an acceleration in the adoption of these types of codes
by multinational firms and the prospect that we'll see much wider implementation of these types of
standards in coming years."
In an effort to improve supply chain working conditions, two
of the world's most ubiquitous companies,
McDonald's Corporation and The Walt
Disney Company, along with a group of stakeholders that includes investors and labor activists,
started Project Kaleidoscope in 2002. The program encouraged sustained compliance with labor
standards by manufacturers. The recently released final report of Project Kaleidoscope
details a pilot program at ten supplier factories in China that make goods for Disney licensees and
Along with the two companies, the other groups involved with Project
Kaleidoscope include the As You Sow
Foundation; the Center for Reflection, Education and Action (CREA; the Connecticut State Treasurer's Office; Domini Social Investments; General Board of Pension and Health Benefits of the United Methodist
Church; the Interfaith Center on Corporate Responsibility (ICCR); and Missionary Oblates of Mary Immaculate.
Unlike attempts by outside organizations
to force factories into compliance with labor laws, Project K (as it was dubbed) worked to create
internal systems within factories to create compliance with labor codes over time, an approach
called Dynamic Social Compliance (DSC) because of the many dynamic inputs that influence compliance
at the factory level. The DSC approach included training for managers and workers, as well as
implementing compliance systems at factories.
"The project was an attempt to develop more
effective ways to sustain compliance with labor standards over time," said Adam Kanzer, managing
director and general counsel at Domini Social Investments. "It is designed to strengthen
compliance generally. It was not focused on any one particular labor standard. If properly
implemented, the DSC is designed to address the full range of labor standards found in corporate
codes of conduct."
While the final Project K report documents many details of the process
to create internal systems at the 10 factories and also includes specific notes from the factory
workers themselves, the long-term success of the project, both within the pilot factories and as a
model for other companies to emulate, is an open question.
"We are pleased this evaluation
is complete," a McDonald's representative told SocialFunds.com. "This was a collaborative effort
with trusted organizations to review working conditions and opportunities in our suppliers'
factories. We're committed to continuous progress. Our suppliers understand how seriously we take
the welfare of workers and the conditions in which they work. We will remain ever vigilant and
continue to identify areas for improvement and opportunities."
Conrad MacKerron is
director of the Corporate Social Responsibility Program at the As You Sow Foundation, an investors'
action group that has worked with Disney since the 1990's and was part of Project K. "We saw real
improvement in compliance at most of the factories, especially on reducing excessive working hours
and wage/benefit issues," said MacKerron. "We learned that developing internal compliance systems
at factories seems to work in many circumstances."
MacKerron elaborated, "it doesn't
happen overnight. It took a lot of time, resources and persistence. You are in a culture where it
is often a totally new concept to do this type of internal monitoring." Still, said MacKerron,
"there was also positive feedback from workers that they felt working conditions had improved since
the system-based approach started."
The Project K experiment stands out, in part, because
of McDonald's and Disney actively creating and paying for the development of internal labor
monitoring systems. As RiskMetrics' data shows, however, this is not the norm even in light of
increased stakeholder awareness of sweatshops, forced labor, and the dangerous working conditions
found in many factories.
DeSimone of RiskMetrics commented on the Project K report, "The
big takeaway from this report for me was that the participating factories saw value in actively
managing the compliance process and improving conditions. If the factory owners do not see an
economic advantage to tackling compliance issues, as we have all seen in the field, abuses persist,
even with periodic monitoring. As the business case builds for better treatment of workers, I think
you will see more corporations exploring these compliance models and better workplace conditions
overall. However, I caution, we're a far way off from wide adoption of these basic business
principles on the factory floors and the farms around the world."
One way investors can
see if a company's compliance program is serious about monitoring supply chain labor DeSimone
suggested is to see how a company reacts to a violation when it occurs. "Firms without serious
programs in place will find themselves unprepared to deal with these types of situations and, in
some ways, can expose shareholders to additional liabilities for possibly making false claims about
their conduct," said DeSimone. "In sum, for a company, adopting a code is only the first step
toward good practices in this area."
"We want to build on the good relationships we have
at Disney and McDonald's to encourage them to issue public reports on global supply chain
compliance on their whole supply chain as Gap and Nike have done," said MacKerron. "It's great
that we were part of the process of improving compliance at 10 factories, but it is equally
important for the companies to discuss and demonstrate relative levels of compliance across their
entire supply chain. Given how advanced both companies are in some areas of supply chain
monitoring, there needs to be a willingness to step up and improve transparency on a broader level'