Case Study:
Apple’s Supplier Code of Conduct and Foxconn’s Chinese Factories
In March 2012, the Fair Labor Association (FLA) released the results of an independent, month-long investigation, commissioned by Apple, on labor conditions at three enormous Chinese factories where the company’s iPhones, iPads, and other popular consumer electronics were manufactured. The FLA, a nongovernment organization committed to promoting fair labor practices globally, found a number of serious violations of Apple’s supplier code of conduct, as well of its own standards. Among the key findings of the audit were these:
• During peak production periods, all three factories, which were operated by the Taiwanese firm Foxconn, had exceeded the mandated limit of 60 hours of work per week, and many employees had been required to work more than seven days in a row.
• Fourteen percent of workers had not received fair pay for overtime. Workers were paid in 30-minute increments, so if an employee worked 55 minutes of overtime, for example, she would be paid for one half hour, not for the full period worked.
• Almost two-thirds of workers said that their pay did not meet their basic needs. Average wages at Foxconn’s plants, the report said, were about $426 to $455 a month, including overtime.
• Almost half said they had experienced an accident or injury at work or had personally witnessed one. Many workers said they were in pain by the end of their workday.
Particularly worrisome was the FLA’s discovery that Foxconn had instructed employees on how to respond to questions during earlier audits conducted by Apple, using what the FLA called a “cheat sheet” to avoid detection of code violations.
At the time of the report, Apple was riding a wave of business success, lifted by a series of innovative products and services. In 2012, Apple was the largest publicly traded company in the world by market capitalization, with revenues exceeding those of Google and Microsoft combined. The company directly employed more than 60,000 people and operated more than 350 stores in 10 countries, as well as its iTunes online music store. Fortune magazine had named Apple the most admired company in the world for four years in a row.
But there was a dark side to the company’s success. Since the 1990s, Apple had outsourced almost all of its manufacturing, mostly to China. The company’s biggest supplier was Foxconn, which by 2012 had become the largest manufacturer of consumer electronics in the world. Foxconn’s facility in Shenzhen, China—one of three audited by the FLA—operated like a good-sized city, with its own dormitories, cafeterias, hospital, swimming pool, and stores. In its complex of factories, 300,000 workers—many of them young women and men from rural areas—churned out electronics for Sony, Dell, IBM, and other major brands, as well as Apple.
In 2006, a British newspaper ran a story alleging mistreatment of workers at the Shenzhen facility. Apple investigated and found some violations of its supplier code of conduct, which it had introduced in 2005. The following year, the company published its first annual supplier responsibility progress report. By 2011, Apple had inspected nearly 400 suppliers and had terminated 11 for serious violations.
In 2010, a series of developments focused a fresh spotlight on harsh conditions in Foxconn’s factories. In a few short months, nine workers committed suicide by throwing themselves from the upper floors of company dormitories. (Foxconn responded by putting up nets to catch jumpers, raising wages, and opening a counseling center.) In 2011, two separate explosions at factories where iPads were being made (one was Foxconn’s facility in Chengdu), apparently caused by a buildup of combustible aluminum dust, injured 77 and killed four. At Wintek, another Chinese supplier, 137 workers were sickened after using a toxic chemical called n-hexane to clean iPhone screens.
In January 2012, the public radio show This American Life broadcast a feature by monologist Mike Daisey about his interviews with workers leaving their shifts at Foxconn’s Shenzhen facility, which related in dramatic fashion their disturbing stories. Although Daisey’s piece was later criticized for not being entirely factual, it prompted some listeners to launch a petition drive on www.change.org that quickly garnered more than a quarter million signatures calling on Apple to protect workers that made their iPhones.
Just one week later, Apple announced it had joined the Fair Labor Association, the first electronics company to do so. The FLA, founded in 1999, was a nonprofit alliance of companies, universities, and human rights activists committed to ending sweatshop conditions. At Apple’s request and with the company’s financial support, the FLA immediately undertook the most extensive audit ever conducted of conditions in China’s electronics supply chain. Auditors spent weeks inspecting Foxconn’s three big Chinese factories, and 35,000 workers filled out anonymous questionnaires—on iPads—about their experiences.
In response to the FLA’s findings, Apple issued a statement saying, “Our team has been working for years to educate workers, improve conditions and make Apple’s supply chain a model for the industry, which is why we asked the FLA to conduct these audits.” For its part, Foxconn agreed to reduce overtime from 80 to 36 hours per month by July 2013, while raising wages to prevent workers from losing income. It also agreed to pay workers retroactively for unpaid overtime and to improve health and safety protections. “That’s a major commitment,” said the head of the FLA. “If Apple and Foxconn can achieve that, they will have set a precedent for the electronics sector.”
Stages of Corporate Citizenship
Companies do not become good corporate citizens overnight. The process takes time. New attitudes have to be developed, new routines learned, new policies and action programs designed, and new relationships formed. Many obstacles must be overcome. What process do companies go through as they proceed down this path? What factors push and pull them along?
Philip H. Mirvis and Bradley K. Googins of the Center for Global Citizenship at Boston College developed a five-stage model of global corporate citizenship, based on their work with hundreds of practitioners in a wide range of companies. In their view, firms typically pass through a sequence of five stages as they develop as corporate citizens. Each stage is characterized by a distinctive pattern of concepts, strategic intent, leadership, structure, issues management, stakeholder relationships, and transparency.
Elementary Stage.
At this stage, citizenship is undeveloped. Managers are uninterested and uninvolved in social issues. Although companies at this stage obey the law, they do not move beyond compliance. Companies tend to be defensive; they react only when threatened. Communication with stakeholders is one-way: from the company to the stakeholder.
Engaged Stage.
At this second stage, companies typically become aware of changing public expectations and see the need to maintain their license to operate. Engaged companies may adopt formal policies, such as governing labor standards or human rights. They begin to interact with and listen to stakeholders, although engagement occurs mainly through established departments. Top managers become involved. Often, a company at this stage will step up its philanthropic giving or commit to specific environmental objectives. When Home Depot announced that it would sell only environmentally certified wood products, this was an example of a company at the engaged stage of corporate citizenship.
Innovative Stage.
At this third stage, organizations may become aware that they lack the capacity to carry out new commitments, prompting a wave of structural innovation. Departments begin to coordinate, new programs are launched, and many companies begin reporting their efforts to stakeholders. (Social auditing and reporting are further discussed later in this chapter.) External groups become more influential. Companies begin to understand more fully the business reasons for engaging in citizenship. The actions taken by Accenture, described earlier in this chapter, illustrate a company at this stage.
Integrated Stage.
As they move into the fourth stage, companies see the need to build more coherent initiatives. Mirvis and Googins cite the example of Asea Brown Boveri (ABB), a Switzerland-based multinational producer of power plants and automation systems, which carefully coordinates its many sustainability programs from the CEO level down to line officers in more than 50 countries where the company has a presence. Integrated companies may adopt triple bottom line measures (explained later in this chapter), turn to external audits, and enter into ongoing partnerships with stakeholders.
Transforming Stage.
This is the fifth and highest stage in the model. Companies at this stage have visionary leaders and are motivated by a higher sense of corporate purpose. They partner extensively with other organizations and individuals across business, industry, and national borders to address broad social problems and reach underserved markets
Ajinomoto, a Japanese-based manufacturer of food spices and amino acids, is committed to enhancing the taste of food while supporting healthy living. Led by president and CEO Masatoshi Ito, the company celebrated its 100-year anniversary by creating the “Ajinomoto Way,” a set of shared values that included creating new value, having a pioneer spirit, making a social contribution, and valuing people. The firm revealed elements of the transforming stage of corporate citizenship by reaching out with food and other aid to disaster victims, providing plant tours to demonstrate its commitment to a healthy and safe work environment, conducting nutrition education programs for school children, and committing to sustainable business operations wherever it operated.
The model’s authors emphasize that individual companies can be at more than one stage at once, if their development progresses faster in some areas than in others. For example, a company might audit its activities and disclose the findings to the public in social reports (transparency, stage 5), but still be interacting with stakeholders in a pattern of mutual influence (stakeholder relationships, stage 3). This is normal, the authors point out, because each organization evolves in a way that reflects the particular challenges it faces. Nevertheless, because the dimensions of global corporate citizenship are linked, they tend to become more closely aligned over time.
As corporate citizenship commitments have become more widespread in the global business community, they have attracted critics as well as admirers. Citizenship initiatives have been challenged on the grounds either that they represent superficial attempts to enhance reputation, without real substance, or that they are inherently limited by the corporation’s profit-maximizing imperative, or both.
Some allege that companies may be involved in corporate citizenship to distract the public from ethical questions posed by their core operations. The Ronald McDonald House charity, operated by McDonald’s, provides homes-away-from-home for the families of seriously ill children being treated in hospitals. Many view the initiative as a wonderful social gesture by the company and its franchisees. Others, though, have criticized it as a diversion from other aspects of McDonald’s operations that may be less praiseworthy—such as the company’s contributions to the nation’s obesity epidemic, its treatment of animals slaughtered for food, or the low wages of its employees. Yet, McDonald’s defends its actions and offers a long list of socially minded programs.
Whether firms embrace corporate citizenship for altruistic reasons or simply to deflect negative publicity remains a lively debate.
While there remains regional differences in the corporate citizenship challenges facing businesses due to differences in attitudes, beliefs, and culture, according to a report from a recent conference on corporate citizenship, in recent years this phenomenon has developed into a global initiative. This notion of a globally integrated CSR approach was discussed at various conferences throughout Europe and North America. And most experts conclude that as issues of sustainability, human rights, and concern for the bottom of the pyramid continue to dominate the corporate citizenship conversation, global initiatives, not selective regional solutions, are needed. Examples of global corporate citizenship approaches are shown by diverse businesses, from those in the brewing industry (the Worldwide Brewing Alliance) to an automobile manufacturer (Toyota).
Q. In its response to problems in its contractor factories, do you think Apple moved through the stages of corporate citizenship, or not? Why do you think so?
Your answer must be typed, double-spaced, Times New Roman font (size 12), one-inch margins on all sides, APA format and also include references.